Oil moved lower on Tuesday amid intensifying fears about dwindling storage capacity worldwide, but prices bounced from the lowest levels of the day in mid-morning trading.
West Texas Intermediate futures for June slipped 3.7% to trade at $12.31 per barrel, while international benchmark Brent crude traded 91 cents, or 4.5%, higher at $20.90. Earlier in the session WTI had been down more than 20%, touching a session low of $10.07.
On Monday, WTI fell 24.56%, or $4.16, to settle at $12.78 per barrel. Brent crude fell 6.76% to settle at $19.99. Each contract is coming off its eighth week of losses in nine weeks.
The coronavirus pandemic has erased as much as a third of global demand for oil, according to some estimates, which has sent prices tumbling to record lows.
"The June contract is falling due to the reality of demand levels being well below current production levels and limited storage options," Reid Morrison, PwC oil and gas advisory leader, told CNBC. "Choppiness in the markets will be significant as economies deal with lockdowns and returning to normal," he added.
Prices were also pressured on Monday after the United States Oil Fund, which trades under the ticker 'USO' and is popular with retail investors, said it would sell all of its contracts for June delivery beginning Monday, in favor of longer-term contracts.
"The move [by the USO] is a recognition of the bleak prospects for the US oil sector in May and June," said Cailin Birch, global economist at The Economist Intelligence Unit.
As demand drops more and more producers have announced production cuts. But some believe it won't be fast enough to combat the unprecedented fall-off in demand from the pandemic.
Earlier in April, OPEC and its oil-producing allies agreed to a record production cut that will take 9.7 million barrels per day off the market beginning Friday, while Exxon and Chevron are among the U.S.-based companies that have scaled back operations.
But sill, Birch noted that even as crude prices have dropped U.S. oil production held at a record level in the first quarter of 2020, "filling up almost all available storage capacity."
WTI and Brent are both on pace for their fourth straight month of losses for the first time since 2017.
Last Monday WTI plunged into negative territory for the first time in history as holders of the contract for May delivery — which was set to expire the next day — scrambled to sell their contract. But with oil demand not expected to recover anytime soon, and with nowhere to store oil, there was no buyer on the other side. In the end, the contract holders had to pay to have it taken off their hands.
And traders are saying the same fate could befall the June contract as it approaches expiration on May 19.
Bjornar Tonhaugen, head of oil markets at Rystad Energy, said negative prices are "absolutely" possible and it's not a question of "if" oil will continue to decline, but "how quickly."
"The only way to turn around things is either a major boost in demand, which seems unlikely on the short-term, or further production cuts. ...As things are now, many producers are days away from seeing their production forcefully amputated, with shut-ins being their only option so that oil won't spill above tank tops," he said.
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April 28, 2020 at 08:14PM
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Oil pares losses after falling more than 21% in early trading - CNBC
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