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Oil Extends Slump Below $18 as Gloomy Demand Outlook Persists


By Saket Sundria and Alex Longley

(Bloomberg) Oil fell below $18 a barrel in New York as a wave of gloomy demand forecasts and a cratering physical market outweighed an unprecedented deal to cut output.China’s economy suffered a historic slump in the first quarter as the coronavirus outbreak threatened global markets for its goods. Meanwhile OPEC predicted demand for its oil will fall to a three-decade low, with refiners from Asia to Europe reducing or canceling purchases. In the U.S., a key exchange-traded fund plans to move some of its giant futures position to a later month.Near-term prices for U.S. crude are trading at huge discounts to later-dated contracts on concern stockpiles at the storage hub of Cushing, Oklahoma, will fill to capacity. That has seen prices disconnect from Brent futures in London.

Oil set for another weekly loss as vanishing demand outweighs OPEC+ cuts

Dated Brent was assessed at $18.86 on Thursday, according to S&P Global Platts, far below futures prices, and real cargoes are trading at even steeper discounts.

With the recent output-cuts deal by OPEC and its partners failing to revive prices, Saudi Arabia and Russia have said they’ll “continue to closely monitor the oil market and are prepared to take further measures jointly with OPEC+ and other producers if these are deemed necessary.” Saudi Aramco said Friday that it will reduce supply to 8.5 million barrels a day from May 1.

“We’re seeing record cuts, but still not enough to bring the market even close to balance,” said Warren Patterson, head of commodities strategy at ING Bank NV. “Even OPEC’s own numbers showed that. It’s a continuation of the story.”

Prices:
  • West Texas Intermediate dropped as much as 12% to the lowest price since November 2001, and was down 9.8% at $17.92 a barrel as of 8:51 a.m. in New York. The nearest May contract expires Tuesday.
  • Brent rose 0.6% to $27.99, paring earlier gains of as much as 4%.

As prices have fallen, investors have poured more than $1 billion into the U.S. Oil Fund ETF so far this week. At Thursday’s close, the fund held more than a quarter of all the June WTI contracts. As of Friday, the fund will now hold 20% of its contracts in the second WTI futures month.

“The amount of buying in Oil ETF has been staggering,” hedge-fund manager Pierre Andurand wrote in a tweet.

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