Oil prices up 10% with rising Asia demand

Andrew Cummings
May 24, 2020

There are mitigating circumstances to these insane numbers. Both contracts traded within a range of around $2 a barrel. US marker WTI's June contract was halted three times early in NY to manage the volatility, CME Group Inc. said.

The price of West Texas Intermediate oil lost all of its value Monday, plummeting to less than $1 per barrel in midday trading before May futures contracts dipped into negative numbers.

U.S. benchmark West Texas Intermediate for May delivery was changing hands at $0.56 a barrel after closing at -$37.63 in NY.

"Today it's pretty clear that a major issue in the market is a glut in the United States and lack of storage capacity", said Michael McCarthy, chief market strategist, CMC Markets in Sydney.

Oil prices yesterday collapsed to more than two-decade lows, with traders concerned that storage facilities are filling up as the COVID-19 pandemic strangles demand.

Brent crude, the global benchmark, was changing hands at $25.61 a barrel for June delivery, up 0.15 per cent.

"Despite the OPEC+ alliance agreeing to an unprecedented cut in output, the physical market is awash with oil", it said, referring to the OPEC and non-OPEC partners. "There's no place to put it - we're running out of space to store oil".

Available storage space is dropping fast at the Cushing, Oklahoma, hub, where physical delivery of US oil barrels bought in the futures market takes place.

Traders scrambled to unload positions ahead of the contract's expiration, contributing to the historic drop, experts noted.

The Gulf is a major gateway for oil to reach worldwide markets, and spikes in US-Iran tensions typically drive prices higher. USA nationwide inventories are estimated to have increased another 14 million barrels last week, according to a Bloomberg survey.

Under a deal agreed between the Organization of the Petroleum Exporting Counties and other producers including Russian Federation and Azerbaijan, a grouping known as OPEC+, output cuts of 9.7 million barrels bpd should take effect from May.

The crisis was worsened by a price war between Saudi Arabia and Russian Federation. But consumption is down about 30% globally, and the cuts so far are far less. The U.S. Oil Fund LP the largest crude oil ETF, said on Thursday that it would start moving some of its assets into later-dated contracts earlier in the life of the monthly contract.

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