By Sharon Cho and Alex Longley
Brent for June delivery slumped as much as 17%, before paring losses to trade higher. West Texas Intermediate crude also gained in New York, after an unprecedented plunge into negative territory earlier in the week. President Trump said in a Tweet he ordered the U.S. Navy to shoot down and destroy any Iranian gunboats that harass U.S. warships, supporting the price recovery.
Still, doubts about its longevity remain. With global demand crushed by coronavirus lockdowns, concerns that the unwanted oil is going to overwhelm storage capacity have triggered a selling frenzy. Oil ministers from the OPEC+ coalition held an unscheduled conference call on Tuesday to discuss the rout, though a closing statement signaled they didn’t settle on any new policy measures.
The alliance agreed to slash production by about 10 million barrels a day earlier this month, but the cuts won’t kick in until May. Even then, they won’t be enough to balance out the demand destruction from the virus in the short term, which could be as high as 30 million barrels a day.
Markets are also having to grapple with a wave of volatility spurred by exchange-traded funds. Two such funds sold about 20% of the June WTI open interest on Tuesday, according to Bloomberg calculations.
There are signs that the stunningly low prices are here to stay as supply dwarfs consumption. Royal Vopak NV, the world’s biggest independent storage company, said almost all of its space is sold, while Clarksons Platou said floating storage is filling at an “unprecedented pace.” Traditional oil bull Pierre Andurand warned crude could tumble below zero again and described the market as dangerous to trade in.
The Dated Brent benchmark, a global reference for almost two-thirds of the world’s physical flows, plunged to $13.24 a barrel on Tuesday, the lowest since 1999, according to price reporting service S&P Global Platts. That means key European and African crude streams including Urals and Bonny Light will now sell under $10, as they trade at a discount to the Dated Brent benchmark.
“The dive below zero was more than just a technical quirk and could repeat itself if storage constraints intensify,” said Stephen Brennock, an analyst at broker PVM Oil Associates in London.
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