Oil meltdown spreads as world runs out of storage space

Oil meltdown spreads as world runs out of storage space

Oil meltdown spreads as world runs out of storage space

Oil due for delivery in May was hardest hit since that futures contract will expire on Tuesday, reports NBC News.

USA oil futures were down below $0 a barrel on Monday, reaching the worst level since NYMEX opened oil futures trading in 1983. It was the first time that the price on a futures contract for oil has gone negative, analysts say.

The 34-year low is partly down to the same falling oil demand that's caused issues for weeks, but this time, it's also down to futures contracts.

This is astonishing event, one that tells you a lot about the havoc and dysfunction in the oil markets but one that, unfortunately, isn't terribly informative about what's happening to the economy.

The slump in oil prices was triggered by a global collapse in demand as the world rides out a coronavirus pandemic. "However, the price may recover tomorrow, and if that occurs we would need to monitor the fluctuation over a longer period of time to get a more accurate picture".

"This has never happened before, not even close", said Tim Bray, senior portfolio manager at GuideStone Capital Management in Dallas.

"Traders have sent prices up and down on speculation, hopes, tweets and wishful thinking", said Louise Dickson, an oil markets analyst at Rystad Energy, a research and consulting firm.

While some companies may be paying others to take away their crude oil, that does not appear to be widespread. Buyers in Texas are offering as little as $2 a barrel for some oil streams, raising the possibility that American producers may soon have to pay customers to take crude off their hands, particularly as landlocked producers struggle to find homes for their oil.

But for now, at the current rate at which America's oil stockpiles were building up, Rabobank estimated that storage tanks at Cushing, Oklahoma, the delivery and pricing point for WTI, would max out by early June.

After more than a month of pumping out oil at elevated production levels, the world's largest producers agreed on April 12 to historic cuts that will reduce output by 20 million barrels per day beginning May 1. Royal Vopak NV, the world's biggest independent storage company, said nearly all of its space is sold. Sadly, no. Australian fuel is largely sourced from Japanese, South Korean and Singaporean refineries, which distill crude oil mostly supplied from the Middle East. "And that's what we're seeing".

"Nobody wants to take delivery of oil next month because there's nowhere to store it, so the price dropped below zero", explained Rachel Winter, associate investment director at Killik & Co.

The storage constraints at Cushing, Okhalama, has led to the dumping and unwinding of May contracts with market participants moving to June contracts.

The most ambitious bid to rescue the global oil industry ever seen has been swept aside by a brutal wave of demand destruction.

The price collapse is reverberating across the oil industry.

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