On Tuesday, after sinking into negative territory for the first time ever, U.S. oil prices climbed back into positive ground although Brent continued its downward trend midst falling demand during the coronavirus pandemic.
As of 0356 GMT, U.S. West Texas Intermediate (WTI) crude for May delivery CLc1 was up $39.00 in thin trade at $1.37 a barrel after settling down at a discount of $37.63 a barrel in the previous session. The May contract is set to expire today, on Tuesday.
The June contract CLc2 rose by 96 cents, equivalent to 4.7%, to $21.39 a barrel.
Global benchmark Brent crude for June delivery LCo1 was down 20 cents, or 0.8%, at $25.37 per barrel.
“Demand destruction from COVID-19 will see a slower than expected reopening of the U.S. economy,” said Edward Moya, senior market analyst at broker OANDA, predicting a weak period for oil prices. “The WTI crude June contract was able to hold the $20 a barrel level and is seeing a modest gain following the painful rollover of the May contract.”
With travel restrictions in place midst cities across the globe going into lockdowns, the demand for oil has dipped, as a result oil prices have fallen sharply. The global demand for oil has fallen by nearly 30%. With the oil market already facing a glut, the growing crude stockpiles has resulted in the search for storage space for oil, which is becoming increasingly difficult to find.
The main oil storage space in the U.S.is in Cushing, Oklahoma – the delivery point for the U.S. West Texas Intermediate (WTI) contract. This is expected to be full within a matter of weeks.
Falling the collapse of oil prices, U.S. President Donald Trump said on Monday, his administration was weighing options which include the halting of imports of Saudi crude oil as a means to protect the U.S. drilling industry.
“Today it’s pretty clear that a major issue in the market is a glut in the United States and lack of storage capacity,” said Michael McCarthy, chief market strategist, CMC Markets in Sydney.
The Organization of the Petroleum Exporting Countries (OPEC) along with Russia have agreed to cut production by 9.7 million barrels per day (bpd), but this output cut will kick in only in May. Furthermore, the size of the production cut is not viewed as big enough to restore a sense of balance in the market.
Inventories and supplies are expected to tighten in the second half of the year, while “severe storage distress likely to drive wild price realizations,” in the next 4-6 weeks, wrote Citi Research in a note.
The development comes at a time when U.S. crude inventories are expected to rise by around 16.1 million barrels in the week to April 17.
Later today, the American Petroleum Institute is set to release its data at 4:30 p.m. (2030 GMT).
The weekly report by the U.S. Energy Information Administration is due at 10:30 a.m. on Wednesday.