Oil closed the week at the lowest since 2002 as an historic OPEC+ production cut failed to counter a wave of gloomy demand forecasts and concerns that traders are quickly running out of room to store crude.
Futures in New York ended the week down 18 percent after Sunday last week’s agreement by OPEC+ to cut output by almost 10 million barrels a day.
The agreement was not enough to overcome signs that energy demand was cratering as people sheltered from the COVID-19 pandemic.
China reported that its economy suffered a historic slump in the first quarter of this year, OPEC predicted that demand for its oil would fall to a three-decade low, and US and European inventories swelled.
West Texas Intermediate (WTI) for May delivery on Friday fell 8 percent to US$18.27 a barrel, down 18 percent for the week.
Brent for June delivery on Friday rose 0.9 percent to US$28.08 a barrel, down 11 percent for the week.
Meanwhile, prices in the physical oil market have disconnected from futures, with landlocked crudes, such as Bakken and Western Canadian Select, worth about US$11 to US$12 a barrel.
In the US, a key exchange-traded fund plans to move some of its giant futures position to a later month. The move comes as near-term prices for US crude are trading at huge discounts to later-dated contracts on concern that the storage hub of Cushing, Oklahoma, would fill to capacity.
That has seen prices disconnect from Brent futures in London.
“There is a squeeze going on at Cushing,” Sandy Fielden, director of research for Morningstar Inc, said by telephone. “People who have futures contracts, if they can’t close them now, they have to deliver.”
WTI futures for May, which expires next week, are at an almost US$7 a barrel discount to June futures, close to the biggest spread between the front and second month contracts in 11 years.
Dated Brent was assessed at US$18.86 on Thursday, according to S&P Global Platts, far below futures prices, and real cargoes are trading at even steeper discounts.
“You are delivering oil into the worst delivery situation in recent memory,” Price Futures Group Inc senior market analyst Phil Flynn said by phone.
Oil investors searching for a bottom of the price rout in WTI crude have rushed into exchange-traded funds. Net-long positions surpassed 400,000 lots on Friday, the highest since at least 2016.
Investors have poured more than US$1 billion into the US 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 held 20 percent 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.
The collapse in oil prices is prompting a rapid decrease in production. Drilling rigs targeting crude in the US fell by 66 to 438, the lowest since October 2016, Baker Hughes Inc said on Friday.
With the output-cut deal by OPEC and its partners failing to revive prices, Saudi Arabia and Russia have said they would “continue to closely monitor the oil market and are prepared to take further measures.”
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