WTI prices dropped 25% on Monday, extending weeks of steep losses.
for the first time in history as holders of the contract for May delivery — which was set to expire the next day — scrambled to sell their contract. But with oil demand not expected to recover anytime soon, and with nowhere to store oil, there was no buyer on the other side. In the end, the contract holders had to pay to have it taken off their hands.
And traders are saying the same fate could befall the June contract as it approaches expiration on May 19. "Will we hit -$100/bbl next month?" Mizuho analyst Paul Sankey wrote in a note to clients last week, to which he answered, "quite possibly." "The physical reality of oil is that it is difficult to handle, volatile, potentially polluting, and actually useless without a refinery."
Earlier in April, OPEC and its oil-producing allies agreed to a historic production cut that would take 9.7 million barrels per day of production offline beginning this Friday. A number of U.S. producers, including Exxon and Chevron, have also said they will scale back, but investors fear that the cuts simply won't be fast enough. In addition to being costly, shutting in wells can also take time.
"We would need to see a normalisation of oil inventory from abnormally high levels, since oil refiners will choose to drawdown inventory in the first instance, before resuming a normal pace of buying," he added.for exclusive insights and analysis, and live business day programming from around the world.
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