Oil prices tumbled on Monday, with the US crude futures contract plunging more than 40 percent to its lowest level since 1986, reported Arab News.
The reason for this plunge was due to investors worried about lack of storage and German and Japanese data indicated a bleak global economy.
Brent was down $1.56, or 5.6 percent, to $26.52 a barrel by 11:16 a.m. EDT (1516 GMT), while the front-month May WTI contract fell $8.16, or 44.7 percent, to $10.11 a barrel.
Prices have been pressured for weeks since with the coronavirus outbreak hammering demand even as Saudi Arabia and Russia failed to reach an agreement to cut supply. The two sides, with US urging, agreed more than a week ago to cut supply by 9.7 million bpd, but that will not quickly reduce the global glut.
Brent oil prices have collapsed around 60 percent since the start of the year, while US crude futures have fallen more than 80 percent, to levels well below break-even costs necessary for many shale drillers. This has led to drilling halts and drastic spending cuts.
US crude futures hit a low of $10.01 a barrel, the lowest since 1986. Analysts said the sell-off was exaggerated by the contract’s imminent expiry.
The spread between the front-month contract and the second month was more than $12, the widest in history, as the June contract, which is more actively traded, fell $2.31, or 9.2 percent, to $22.72 a barrel.
Many investors appeared to have been misled by what appeared to be a very low oil price and to have failed to take into consideration the expiry of oil future contracts, which takes place each month, Commerzbank analyst Carsten Fritsch said.
When a futures contract expires, traders must decide whether to take delivery or roll positions into an upcoming contract. Usually this process is relatively uncomplicated, but the May contract’s decline reflects worries about an inordinate level of supply.
The volume of oil held in US storage, especially at the Cushing delivery point for the US West Texas Intermediate (WTI) contract in Oklahoma, is rising as refiners throttle back activity in the face of weak demand.
Crude stockpiles at Cushing rose 9 percent in the week to April 17, totaling around 61 million barrels, market analysts said, citing a Monday report from Genscape. Oil in floating tanker storage is also estimated at a record 160 million barrels.