Oil still in negative territory with Opec+ cuts not making a dent

London — US oil futures continued to trade in negative territory on Tuesday, after closing down nearly $40 on Monday in their first ever sub-zero dive, as concerns grew the US will run out of storage for a glut caused by the coronavirus lockdown.

Global benchmark Brent crude also fell sharply in response to the collapse of demand following reduced economic activity.

US West Texas Intermediate (WTI) crude for May delivery traded at minus $7 a barrel by 9.55am GMT, up $30.63 from Monday’s close when the contract settled at a discount of $37.63 a barrel.

The slump in the US contract was exaggerated by the looming expiry late on Tuesday of the front-month contract for delivery of oil in May when the lack of storage is set to be particularly acute.

Global benchmark Brent crude for June delivery was down $5.25, or 21% at $20.32 per barrel.

The more-active June contract for WTI also plunged $4.79, or 23.5%, to $15.64 a barrel. June trading volumes were roughly 80 times those of the expiring May contract.

This month, Oil cartel Opec and its allies, including Russia (Opec+), agreedto cut output by 9.7-million barrels per day (bpd). But that cut will not take place before May, and is not considered enough to restore market balance.

“The recently agreed supply cuts do little to solve the near-term oversupply problem in the global market,” JBC Energy said in a note.

Describing the drop in US oil futures as short term and stemming from a “financial squeeze”, US President Donald Trump said on Monday that  his administration would consider halting Saudi crude oil imports.

“Negative prices are a temporary glitch reflecting stressed flows in the futures markets and stressed storage conditions somewhere in the US Midwest,” Swiss bank Julius Bär’s head of economics Norbert Ruecker.

The main US storage hub in Cushing, Oklahoma, the delivery point for the US WTI contract, is expected to be full within weeks.

Restrictions on movement to try to contain Covid-19 have reduced oil demand by an estimated 30%, resulting in a huge surplus of crude in need of storage.

US crude inventories were expected to rise by about 16.1-million barrels in the week to April 17 after posting the biggest one-week build in history, five analysts polled by Reuters found.

The American Petroleum Institute (API) is set to release its data at 830pm GMT on Tuesday.

Reuters