Oil prices have cratered more than 25%, falling below $14 U.S. a barrel in New York as worries mount over a glut of supply and strained storage capacity.
The most immediate West Texas Intermediate contract fell as much as 26% to under $14 U.S. a barrel in pre-market trading. A big part of the drop was due to the fact that the May futures contract expires on Tuesday, and reflects a fast-growing glut of oil, and rapidly expanding stockpiles in Cushing, Oklahoma, the American pricing hub.
As WTI futures have tumbled, it has opened up a discount of almost $9.00 U.S. a barrel to the June contract, to which most trading has now transferred. Buyers in Texas are offering as little as $2.00 U.S. 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.
Crude stockpiles at Cushing — the key U.S. storage hub — have jumped 48% to almost 55 million barrels since the end of February, Energy Information Administration data shows. The hub had working storage capacity of 76 million as of September 30, according to the EIA.
The 9.7 million barrels a day of production cuts recently agreed to by the Organization of the Petroleum Exporting Countries and its allies are paling in comparison against this backdrop. China reported its first economic contraction in decades last Friday, an indication of what’s to come in other major economies that have yet to emerge from coronavirus-driven lockdowns.
The price collapse is reverberating across the oil industry. Crude explorers shut down 13 per cent of the U.S. drilling fleet last week as the swelling worldwide glut of crude spurred drastic cost-cutting and project cancellations among drillers.
Yet despite the weakness in prices, retail investors are plowing money into the oil space. The U.S. Oil Fund ETF saw record inflows of $552 million U.S. last Friday, taking total inflows last week to $1.6 billion U.S. The fund said last week it would move some of its WTI holdings into the July contract, citing regulatory and market conditions.