U.S. oil falls more than 10% to lows not seen since 1999

(Singapore) REUTERS: Crude oil futures fell yesterday, with the U.S. futures touching levels not seen since 1999, extending weakness on the back of sliding demand and concerns that the U.S. storage facilities will soon fill to the brim amid the coronavirus pandemic.

The oil market has been under pressure due to a spate of reports on weak fuel consumption and grim forecasts from the Organisation of the Petroleum Exporting Countries (OPEC) and International Energy Agency.

The volume of oil held in the U.S. storage, especially at Cushing, Oklahoma, the delivery point for the U.S. West Texas Intermediate (WTI) contract, is rising as refiners throttle back activity due to the slumping demand.

The front-month May WTI contract CLc1 was down US $ 2.62 or 14 percent, to US $ 15.65 a barrel by 0142GMT. At one point, the contract had fallen as much as 21 percent to hit a low of US $ 14.47 a barrel, the lowest since March 1999.

That contract is expiring today and the June contract CLc2, which is becoming more actively traded, fell US $ 1.28 or 5.1 percent, to US $ 23.75 a barrel. Brent LCOc1 was also weaker, down 21 cents or 0.8 percent, to US $ 27.87 a barrel.

The plunge in crude oil prices reflects a glut at the main U.S. storage facilities at Cushing and a big drop in demand, said Michael McCarthy, Chief Market Strategist at CMC Markets in Sydney.

“It hasn’t reached capacity but the fear is that it will,” he said, adding that once the maximum capacity is reached, the producers will have to cut output.

Production cuts from the OPEC and its allies such as Russia will also kick from May. The group has agreed to reduce output by 9.7 million bpd to stem a growing supply glut after stay-at-home orders and business furloughs to curb the COVID-19 pandemic that has killed more than 164,000 people worldwide sap the fuel demand.

The oil industry has been swiftly reducing production in the face of an estimated 30 percent decline in the fuel demand worldwide. Saudi Arabian officials have forecast that total global supply cuts from oil producers could amount to nearly 20 million bpd but that includes voluntary cuts from nations like the United States and Canada, which cannot simply turn on or off production in the same way as most OPEC nations.

Numerous majors have announced supply reductions, including Chevron Corp, BP PLC and Total SA. But economic growth is sagging and physical crude markets and an estimated record 160 million barrels of oil stored onboard ships suggest the prices will keep falling.