After staging a significant rally toward the back half of last week, U.S. oil prices sank over 25% on Monday amid renewed worries that worldwide storage capacity will quickly be exhausted as the coronavirus pandemic continues to roil demand.
West Texas Intermediate for June delivery plummeted 28%, or $4.75, to trade at $12.19 per barrel, while international bellwether Brent crude dropped 10.3% lower to trade at $19.20 per barrel. The two major oil contracts are now pushing an eighth week of losses out of the past nine.
The Invesco DB Oil Fund (DBO) is also feeling the drop in oil, with the ETF falling almost 3.5% as of 1230pm EST.
According to Goldman Sachs, global oil storage could be saturated within the next three weeks, which could result in another incredible drop like the one seen last Monday.
Bjornar Tonhaugen, head of oil markets, Rystad Energy also sees storage reaching a critical level in a matter of weeks. “Actions are needed now as the problem stopped being theoretical and far away. The storage clock is ticking for producers and we are approaching the final countdown if no further action is taken,” he explained.
Last Monday oil plunged in an unprecedented day of trading, as the price for the May contracts destroyed all market value, breaking every low for oil prices since 1946. The exchange where WTI futures trade permitted the futures contract to trade below zero, with markets trading as low as an unbelievable -$40 a barrel. The extreme move displayed the incredible deluge that exists in the U.S. oil market as a result of industrial and economic activity stymied as governments around the globe continue to enforce quarantines and stay-at-home regulations due to the rapid spread of the coronavirus.
The crude crash came after a historic output deal by OPEC and allied members that occurred over a week ago to stem supply, proving too futile, however, given a one-third collapse in global demand.
“The market knows that the storage problem remains and we are on a calculated path to reach tank tops in weeks,” said Bjornar Tonhaugen, head of oil markets at Rystad Energy. “Actions are needed now as the problem stopped being theoretical and far away. The storage clock is ticking for producers and we are approaching the final countdown if no further action is taken.”
Meanwhile, a number of energy companies are also suffering from the glut in oil, as Noble Energy, Halliburton, Marathon Oil, and Occidental have all relinquished more than 66 percent of their market cap in just a few months. Even majors such as Exxon have lost as much as 40 percent of their value.
Buddy Clark, Co-Chair of the energy practice at Houston law firm Haynes and Boone, noted, “It’s hard to believe that 100 bankruptcies is the optimistic view. That just shows you where we are,” adding “I don’t think I’ve seen anything like it in my lifetime. It’s unprecedented.”
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