Oil prices have continued to decline despite huge production cut of 9.7 million barrels per day by the Organisation of Petroleum Exporting Countries (OPEC) and its allies, the OPEC+, which begins on May 1, 2020.
Global benchmark Brent crude in early trading yesterday fell below $20 per barrel at $19.12 per barrel but later rallied to $21.35 a barrel, which was about 17 per cent drop when compared to $25.41 per barrel on Monday.
The US benchmark West Texas Intermediate had on Monday fallen below zero dollars for the first time in history. The falling prices of oil, according to analysts, underscores the stark drop in global economic activities caused by the coronavirus pandemic.
Despite the plummeting price, more oil cargoes are finding their way to the market. Analysts said nearly 40 million Saudi Arabian barrels are on their way to U.S. shores, adding to the tens of millions already in storage. That delivery “is probably going to be the final dagger in the heart of the U.S. shale oil industry,” they added.
President Trump said the administration would move swiftly to shore up the US oil industry. “We will never let the great U.S. Oil & Gas Industry down,” he said in a Twitter post. “I have instructed the Secretary of Energy and Secretary of the Treasury to formulate a plan which will make funds available so that these very important companies and jobs will be secured long into the future!”
According to analysts, profit taking and efforts to beat May contracts for WTI billed to expire Tuesday (yesterday) contributed to forcing holders on the contracts to unload their oil at a loss.
June WTI contracts, which accounts for future oil deliveries, were faring a bit better, selling at around $16. That remains far below the break-even mark for companies and most oil producing countries, they added.
“A futures contract for U.S. crude prices dropped more than 100 per cent and turned negative for the first time in history on Monday, showing just how much demand has collapsed due to the coronavirus pandemic.
But traders cautioned that this collapse into negative territory was not reflective of the true reality in the beaten-up oil market. The price of the nearest oil futures contract, which expires Tuesday, detached from later month futures contracts, which continued to trade above $20 per barrel.
“West Texas Intermediate crude for May delivery fell more than 100 per cent to settle at negative $37.63 per barrel, meaning producers would pay traders to take the oil off their hands. This negative price has never happened before for an oil futures contract.
The June WTI contract, which expires on May 19, fell about 18 per cnet to settle at $20.43 per barrel. This contract, which was more actively traded, is a better reflection of the reality in the oil market. The July contract was roughly 11 per cnet lower at $26.18 per barrel.”