Workers extracting oil from oil wells in the Permian Basin in Midland, Texas on May 1, 2018.
Benjamin Lowy | Getty Images
U.S. crude prices plunged in the morning of Asian trading hours on Monday as traders continued to fret over a slump in demand due to the coronavirus pandemic, with one analyst describing the situation stateside as “quite dire.”
Prices on the May contract for West Texas Intermediate crude futures dropped 15.54% to $15.43 per barrel. Meanwhile, international benchmark Brent crude futures edged 0.68% lower to $27.89 per barrel.
ANZ’s Daniel Hynes told CNBC’s “Squawk Box” on Monday that one of the reasons behind the “crater” in U.S. crude prices was the impending expiration of the May futures contract, set to happen on Tuesday, according to Refinitiv. The June WTI contract fell 5.47% to $23.66 per barrel.
Hynes, who is a senior commodity strategist at ANZ, struck a sombre note on the situation in the U.S.
There is real pressure on storage in the relatively landlocked market as a consequence of the “collapse in demand,” he told CNBC.
“Without any sort of hope I suppose, at least over the next month … about easing up. I think prices are gonna remain under pressure,” Hynes said.
The coronavirus pandemic has dealt a severe blow to economic activity around the globe and sapped demand for energy. While OPEC and its oil producing allies finalized a historic agreement earlier this month to cut production by 9.7 million barrels per day, the International Energy Agency has warned that the cuts may not be enough to offset a severe plunge in oil demand.
With demand at near-paralysis, oil and fuel tanks around the world are close to brimming – stark evidence of the global glut and a function of the ‘contango’ structure of the futures market where contracts for later delivery trade at a premium to the front-month.
That’s led to a dash by traders to lease floating or onshore storage in a bid to sell the fuel for a profit when prices rebound.
Global oil storage is “rapidly filling – exceeding 70% and approaching operating max,” Steve Puckett, executive chairman of TRI-ZEN International, an energy consultancy, told CNBC earlier this month.
— CNBC’s Sri Jegarajah contributed to this report.
