An oil well is seen near Denver, Colorado. Picture: REUTERS
An oil well is seen near Denver, Colorado. Picture: REUTERS

Singapore — Crude oil futures fell on Monday, with US futures touching levels not seen since 1999, extending weakness on the back of sliding demand and concerns that US storage facilities will soon fill to the brim amid the coronavirus pandemic.

The oil market has been under pressure due to a spate of reports on weak fuel consumption and grim forecasts from Opec and the International Energy Agency.

The volume of oil held in US storage, especially at Cushing, Oklahoma, the delivery point for the US West Texas Intermediate (WTI) contract, is rising as refiners throttle back activity due to slumping demand.

The front-month May WTI contract was down $2.62, or 14%, to $15.65 a barrel by 3.42am. At one point, the contract had fallen as much as 21% to hit a low of $14.47 a barrel, the lowest since March 1999.

That contract is expiring on Tuesday, and the June contract, which is becoming more actively traded, fell $1.28, or 5.1%, to $23.75 a barrel. Brent was also weaker, down 21c, or 0.8%, to $27.87 a barrel.

The plunge in crude oil prices reflects a glut at the main US storage facilities at Cushing and a big drop in demand, said Michael McCarthy, chief market strategist at CMC Markets in Sydney.

“It hasn’t reach capacity but the fear is that it will,” he said, adding that once the maximum capacity is reached, producers will have to cut output.

Production cuts from Opec and its allies such as Russia will also kick in from May. The group has agreed to reduce output by 9.7-million bpd to stem a growing supply glut after stay-at-home orders and business furloughs to curb the Covid-19 pandemic that has killed more than 164,000 people worldwide sap fuel demand.

The oil industry has been swiftly reducing production in the face of an estimated 30% decline in fuel demand worldwide. Saudi Arabian officials have forecast that total global supply cuts from oil producers could amount to nearly 20-million bpd, but that includes voluntary cuts from nations such as the US and Canada, which cannot simply turn on or off production in the same way as most Opec nations.

Numerous majors have announced supply reductions, including Chevron, BP and Total. But economic growth is sagging, and physical crude markets and an estimated record 160-million barrels of oil stored on-board ships suggest prices will keep falling.

“There’s still some concern that the 10-million barrels per day cut won’t be enough to offset demand destruction so the outlook for oil prices remain subdued,” McCarthy said.

North American exploration and production companies have cut their budgets about 36% on a year-over-year basis, according to a Sunday note from James West, analyst at Evercore ISI, while international companies have cut budgets 23%.

With David Gaffen

Reuters

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