Oil fell to trade near US$16 a barrel as swelling global crude stockpiles made it more difficult for leading producers to balance the market by curbing output.
Futures in New York slid as much as 10%, snapping a four-day gain. While US drilling is sliding and Saudi Arabia has started reducing output ahead of the start date for OPEC+ supply cuts, investors are focusing again on the massive glut of crude that’s taking tanks close to capacity around the world, raising fears of a re-run of the crash that sent May West Texas Intermediate prices below zero for the first time ever last week.
There were tentative signs at the weekend that the coronavirus outbreak might be loosening its grip, with the death tolls slowing by the most in more than a month in Spain, Italy and France, while reported fatalities reported in the UK and New York were the lowest since the end of March.
The swelling glut is set to test storage capacity limits in as little as three weeks, according to Goldman Sachs Group Inc., with traders, refiners and infrastructure providers seeking novel ways to hoard crude, including on tiny barges around Europe’s petroleum-trading hub and in pipelines. The hub of Cushing, Oklahoma, the delivery point for American crude futures, is filling fast and putting added pressure on the US benchmark.
“Concerns surrounding rising global inventories, especially in the US with the coronavirus pandemic weighing on gasoline consumption, are pressuring oil prices,” Kim Kwangrae, commodities analyst at Samsung Futures Inc., said by phone from Seoul.
“While OPEC has started to curb output, demand is still not being supported and that’s going to be a down factor for prices.”
WTI for June delivery fell US$1.20 or 7.1%, to US$15.74 a barrel on the New York Mercantile Exchange as of 10.55am Singapore time. The contract rose 2.7% on Friday, trimming the weekly decline to 32%. Brent for June settlement lost 9 cents to US$21.35 after falling 24% last week.
US drillers idled 60 rigs last week, shrinking the active nationwide fleet to 378, according to data from Baker Hughes Co. on Friday. On a percentage basis, the decline was the worst since February 2006. It was the sixth straight weekly drop, halting almost half of American exploration.
Saudi Aramco last week began curtailing daily output from about 12 million barrels to 8.5 million barrels a day, according to a Saudi industry official familiar with the matter. OPEC+ has agreed to reduce production by about 9.7 million barrels a day in an effort to stem oil-price losses.