Glut, low prices may force Nigeria, others to shut oil production

Crude oil prices

Business News Economy & Politics Oil prices drop to 21-year low as demand and storage crises persist By Chike Olisah

The drop in demand during COVID-19 shutdowns have forced oil producers to "pay buyers to take the glut of crude which they can not store, as rising stockpiles of crude threaten to overwhelm oil storage facilities", The Guardian reported. The May contract expires on Tuesday. Such an eye-popping slide is the result of a quirk in the oil market, but it underscores the industry's disarray as the coronavirus pandemic decimates the world economy.

The futures for May delivery of West Texas Intermediate rose almost $39 but were still just $1.76 a barrel. "In other words, sellers are paying the buyers", Sachdeva said.

Brent, the most important variety of crude, was trading close to $25 a barrel when the U.S. market saw that anomalous situation.

The May contract is a "horror show" and "heading into the worst delivery situation in history", Phil Flynn, senior market analyst at Price Group Futures, told FOX Business.

It is forcing refineries from Asia to Europe and the U.S.to use far less crude.

When traders sell oil they guarantee delivery at a future time. The thinly traded May contract rallied to $9 a barrel after settling in the previous session at minus $37.63.

The storage constraints at Cushing, Okhalama, has led to the dumping and unwinding of May contracts with market participants moving to June contracts.

A $39 rise leaves the price for May delivery at $1.38 per barrel and investors unnerved about further dislocation.

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"It also implies that some folks are trying to get out of the May contract to the best of their ability without a lot of time left", said Yawger.

The collapse of later contracts underscored the severity of the crisis rocking oil in the age of coronavirus. Even the historic production cut agreement made between OPEC and its affiliated allies couldn't create enough momentum to relieve the surplus, as countries producing oil go on pumping oil ahead of the implementation, due to take effect May 1.

However, at the same time, economies in West Asia are taking a battering.

Covid-19 has caused global demand to shrivel up, leaving USA producers with excess supplies but with dwindling space to store physical crude.

"We expect the ongoing global supply-demand imbalance to test operational capacity limits (80-85 per cent) of overall storage and logistics infrastructure around the world over the next 2-3 months, unless Opec+ curtails production beyond their agreed quotas", Kotak said.

"We shouldn't be totally alarmed as gas prices remain fairly stable, and gas storage is less complicated...if there's a surplus you can flare it off".

"I didn't think we would ever see this", Ben Luckock, co-head of oil trading at Trafigura, said in a Bloomberg TV interview.

The global price of oil has been in decline since early January, however, values fell off a cliff in early March to US$28 per barrel before stabilising around US$30-31 - and then plummeting again on March 18 to US$20.83 a barrel.

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