An employee works on at the Centenario deep-water oil platform in the Gulf of Mexico off the coast of Veracruz, Mexico. Picture: REUTERS
An employee works on at the Centenario deep-water oil platform in the Gulf of Mexico off the coast of Veracruz, Mexico. Picture: REUTERS

Singapore — Oil prices slid nearly $1 a barrel on Monday as concern over a persistent glut and economic gloom caused by the coronavirus pandemic combined to cancel out support from supply cuts at some of the world’s top producers.

Brent crude futures were down 73c, or 2.4%, at $30.24 a barrel by 3.14am while US West Texas Intermediate crude futures fell 81c, or 3.3%, to $23.93 a barrel.

Both benchmarks have notched gains over the past two weeks as countries have eased business and social lockdowns imposed to cope with the coronavirus and fuel demand has rebounded modestly. Oil production worldwide is also declining.

But possible signs of a second wave of coronavirus infections in northeast China and South Korea worried investors even as more countries started to pivot towards easing pandemic restrictions in moves that could support oil demand.

“They’ve removed some of the lockdowns but does that mean the worse is over for now?” said Tony Nunan, a senior risk manager at Mitsubishi Corp in Tokyo.

Global oil demand has plummeted about 30% as the coronavirus pandemic curtailed movement worldwide, building up inventories globally.

“Oil companies are dealing with a plethora of challenges due to the sudden decline in demand,” GlobalData oil and gas analyst Haseeb Ahmed said in a note.

“North America is battling a severe shortage of storage capacity … it may be only a matter of time, before the country [the US] runs out of storage space.”

Fears that the US is running out of storage space triggered WTI prices crashing into negative territory last month, prompting some US producers to slash output.

In a sign of that impact, the number of operating oil and gas rigs in the world’s largest oil producer fell to 374 in the week to May 8, a record low according to data released on Friday from energy services firm Baker Hughes going back to 1940.

“People are surprised by how quickly the US is shutting in production and that’s exactly what we need to support prices,” said Nunan.

“There’s another 10 days before the June contract expires … if the WTI contract can avoid a crash going into expiry, hopefully we’ve seen the bottom.”

Reuters

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