Brent oil dropped below $20 a barrel and U.S. oil plummeted 25 per cent on Monday, driven by skittish investors fleeing the U.S. benchmark due to lack of storage available to cope with a market collapse caused by coronavirus.
Even as policymakers around the world are taking cautious measures to reduce movement restrictions to revive economies, demand for fuel is still low.
According to Kpler data, fuel demand is dropping 30 percent globally and storage is becoming precious, with about 85 percent of the world's onshore storage filled to the brim as of last week.
West Texas Intermediate for delivery in June dropped to $12.78 per barrel by 24.56 percent, or $4.16, after earlier trading as low as $11.88. After nine weeks every contract will come off its eighth week of losses.
WTI for July delivery sunk to $18.18 by over 14 percent, while the August contract plummeted to $21.50 by almost 10 percent, indicating that analysts would not see a significant turnaround in the coming months.
Global oil storage is steadily inching closer to hitting its capacity, and even worse, the issue is worsening as more local governments worldwide are implementing COVID-19 lockout guidelines, weighing on crude demand. Global oil storage will be complete within the next three weeks, according to Goldman Sachs, and another dramatic crash will follow.
Rystad Energy also sees storage hitting a critical point in a matter of weeks, as Bjornar Tonhaugen, head of oil markets. More efforts are required now that the issue has ceased to be "theoretical and remote," Rystad said. The storage clock is ticking for companies and if no further action is taken the markets will hit the final countdown, he pointed out.
The fall for oil comes as a deal by the Petroleum Exporting Countries Organization and other producing countries have been unable to quench raging fears about too much crude and a dwindling number of places to put it. As a result, higher oil contract rates in later months have also facilitated more storage of crude and increased demand pressures.
OPEC and its partners, including Russia, forming a coalition known as OPEC+, are expected to begin cutting 9.7 million barrels a day, about 13 percent of global supply, from May 1 to June, but analysts see this as doing little to fix a global glimmer of historical proportions.
Meanwhile, total US inventories climbed by around 15 million barrels to 518.6 million barrels for the week capping April 17, based on data provided by the U.S. Energy Information Association.
