Oil prices fell more than 12% in Tuesday early morning trading, extending Monday’s nearly 25% decline on ongoing fears that storage around the world is rapidly filling.
West Texas Intermediate, the U.S. benchmark, slipped 12.75%, or $1.63, to trade at $11.15 per barrel, while international benchmark Brent crude traded 3.9% lower at $19.21 per barrel. On Monday, WTI fell 24.56%, or $4.16, to settle at $12.78 per barrel. International benchmark Brent crude fell 6.76% to settle at $19.99. Each contract is coming off its eighth week of losses in nine weeks.
The coronavirus pandemic has erased as much as a third of global demand for oil, according to some estimates, which has sent prices tumbling to record lows.
“The June contract is falling due to the reality of demand levels being well below current production levels and limited storage options,” Reid Morrison, PwC oil and gas advisory leader, told CNBC. “Choppiness in the markets will be significant as economies deal with lockdowns and returning to normal,” he added.
Prices were also pressured on Monday after the United States Oil Fund, which trades under the ticker ‘USO’ and is popular with retail investors, said it would sell all of its contracts for June delivery beginning Monday, in favor of longer-term contracts.
“The move [by the USO] is a recognition of the bleak prospects for the US oil sector in May and June,” said Cailin Birch, global economist at The Economist Intelligence Unit.
As demand drops more and more producers have announced production cuts. But some believe it won’t be fast enough to combat the unprecedented fall-off in demand from the pandemic.
Earlier in April, OPEC and its oil-producing allies agreed to a record production cut that will take 9.7 million barrels per day off the market beginning Friday, while Exxon and Chevron are among the U.S.-based companies that have scaled back operations.
But sill, Birch noted that even as crude prices have dropped U.S. oil production held at a record level in the first quarter of 2020, “filling up almost all available storage capacity.”
WTI and Brent are both on pace for their fourth straight month of losses for the first time since 2017.