Traders flee U.S. oil as contract price plunges to negative $40 a barrel
Buyers aren’t willing to take delivery of oil; there is no place to put it
When a futures contract expires, traders must decide whether to take delivery or roll their positions into an upcoming contract. Usually this process is relatively uncomplicated, but the May contract’s decline reflects worries that too much supply could hit the markets, with shipments out of OPEC nations like Saudi Arabia booked in March set to cause a glut.
Available storage space is dropping fast at the Cushing, Oklahoma, hub, where physical delivery of U.S. oil barrels bought in the futures market takes place. Four weeks ago, the storage hub was half full — now it is 69% full, according to U.S. Energy Department data.
“It’s clear that Cushing is going to fill, and it will stay full for the next several months,” said Andy Lipow of Lipow Oil Associates. “Because producers have been lagging in their production cuts, we’re seeing an overwhelming amount of crude oil looking for a place to go around the world.”
Crude stockpiles at Cushing rose 9% in the week to April 17, totaling around 61 million barrels, market analysts said, citing a Monday report from Genscape.
The world’s major oil producers agreed to cut production by 9.7 million bpd in an attempt to get world supply under control as demand slumps, but those cuts do not begin until May. Saudi Arabia is ramping up deliveries of oil, including big shipments to the United States.
Worldwide oil consumption is roughly 100 million barrels a day, and supply generally stays in line with that. But consumption is down about 30% globally, and the cuts so far are far less.
U.S. exchange-traded funds are also playing a role in the action, analysts said. The U.S. Oil Fund LP the largest crude oil ETF, said on Thursday that it would start moving some of its assets into later-dated contracts earlier in the life of the monthly contract.