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U.S. oil futures plunged by nearly 25 percent on Monday on fears the global storage for crude will soon get full as the COVID-19 pandemic continues to cut demand. An analyst said the price may hit negative 100 U.S. dollars a barrel next month.
The U.S. benchmark West Texas Intermediate (WTI) for June delivery lost 24.6 percent to settle at 12.78 U.S. dollars a barrel on the New York Mercantile Exchange, the second lowest for the June contract following its trading at 11.57 U.S. dollars last Tuesday.
International benchmark Brent crude fell by 6.8 percent at 19.99 U.S. dollars a barrel on ICE Futures Europe after its 23.7 percent weekly drop.
"Crude oil inventories are rising at an amazing rate from the end of March to the OPEC+ (OPEC and its allies, including Russia) production cut effective in May. This is the direct cause of panic in the U.S. crude oil futures market," Li Li, China head of analytics with ICIS, a global commodity intelligence provider, told CGTN.
U.S. stockpiles rose by 15 million barrels to 518.6 million barrels for the week ending April 17, according to the U.S. Energy Information Administration. Cushing, where the WTI contract is priced, saw weekly inventories at five million barrels. It is also the largest storage facility in the U.S.apart from the Strategic Petroleum Reserve.
Last Monday, the May futures contract for WTI crashed by 300 percent from 17.85 U.S. dollars a barrel to minus 37.63 U.S. dollars a barrel, for the first time in history and the worst level since 1983. Traders are worrying the same fate could befall the June contract which expired on May 19.
Experts: Negative oil futures don't reflect real price, clash over financial crisis
"Will we hit negative 100 U.S. dollars a barrel next month? Quite possibly," said Paul Sankey, a veteran oil analyst at Mizuho Bank who correctly warned of negative crude prices in March.
"That is the situation we are in, of producers having nowhere to go with the inexorable production that takes weeks and months to reduce to zero," Sankey continued.
However, Gao Xinwei, a professor from China University of Petroleum has a different view.
"The negative 100 U.S. dollar a barrel will definitely not appear if the OPEC+ can further cut production or an increasing number of U.S. oil companies file for bankruptcy protection," Gao told CGTN.
Earlier in April, OPEC+ agreed to a record production cut that would slash output by 9.7 million a barrel a day beginning this Friday, about 13 percent of global production, but both Li and Gao thought the cuts simply won't be fast enough to address the global glut.
On Sunday, Houston-based contract drilling company Diamond Offshore Drilling filed for bankruptcy protection in Texas, and analysts predict that more bankruptcies could be coming.
WTI for July delivery dropped by more than 14 percent to 18.18 U.S. dollars a barrel, while the August contract slipped by over nine percent to 21.50 U.S. dollars a barrel, suggesting that the Wall Street doesn't see a meaningful recovery in the next few months.
