Oil prices slump amid storage fears

NEW YORK－US oil nosedived below $11 a barrel on Tuesday after a major exchange-traded fund started selling its short-term contracts of the commodity, and storage concerns mounted as the coronavirus strangles demand.

West Texas Intermediate, the US benchmark, for June delivery dropped 14.8 percent to $10.88 a barrel in Asian morning trade－a day after plunging 25 percent.

International benchmark Brent crude slipped 4.4 percent to trade at $19.10 a barrel.

Prices have plunged in recent weeks as demand for the commodity collapses owing to lockdowns and travel restrictions imposed worldwide to fight the virus.

Last week, US oil fell below zero for the first time as investors scrambled to offload it before the expiry of the May trading contract, but could not readily find buyers.

The latest fall was driven by the United States Oil Fund－a massive, oil-backed exchange-traded vehicle－saying it would sell all its holdings in the WTI contract for June delivery.

By investing in longer-dated contacts, the fund's move put pressure on the June contract, analysts said.

The move highlighted continued concerns that storage is filling up and that when futures contracts do expire, buyers may find there is little space to put the oil they have purchased.

"The startling June sell-off is in part due to the reality of storage facilities filling up rapidly," said Stephen Innes, global market strategist from AxiCorp.

The Oil Fund's move "is causing a massive price distortion between June and July", he added. WTI for July delivery was changing hands at more than $18 a barrel on Tuesday.

The storage concerns have overshadowed signs that some countries are starting to slash production in line with a major agreement hammered out this month.

OPEC+ cuts output

The Organization of the Petroleum Exporting Countries, or OPEC, and its allies led by Russia, a group known as OPEC+, agreed to reduce output by 9.7 million barrels per day for May and June.

The agreement by OPEC members and other oil majors to cut around 10 percent of global supply is likely too small to offset the roughly 20 percent decline in demand resulting from COVID-19-related economic restrictions, said analysts of United Bank of Switzerland, or UBS.

"Since oil flows slowly on tankers from producer nations to consumer nations, OPEC+ cuts will likely only fully feed through into the markets from June onward," they added.

Prices have won back ground since falling into negative territory last week, but remain at their lowest levels for years.

Oil at Cushing, Oklahoma, a key US oil hub, ballooned to 59.7 million barrels last week, up 8.7 percent from the prior week, according to the US Energy Information Administration. The storage facility tops out at about 76 million barrels.

Global oil demand is expected to fall by a record 9.3 million barrels per day year-on-year in 2020, the International Energy Agency, or IEA, warned in its closely-watched monthly report.

The IEA said that demand in April is estimated to be 29 million barrels per day lower than a year ago, down to a level not seen since 1995, due to virus lockdown.

"We expect US and global crude prices to remain under pressure in the coming weeks," UBS analysts said in a note, adding the historic production cuts announced by major oil producers are not sufficient to mitigate the pandemic shock.

US oil prices posted a record weekly loss of 32.3 percent based on the June contract. It is the biggest weekly percentage loss on record based on most-active contracts, according to Dow Jones Market Data. June Brent declined 23.6 percent for the week ending on Friday.

Agencies - Xinhua