Oil Collapses to 20-Year Lows as Stocks Pile up; What’s Next?
Oil prices are collapsing on Monday to its lowest levels since 1999 below $12.00 per barrel of WTI crude due to rising inventory and declining demand on the back of Coronavirus COVID-19 economic impact.
The WTI crude is now trading well below the $15.00 psychological level and at levels not seen since March 1999. The crude Brent, on the other hand, is also declining, but at a more moderate pace, with the UKOIL falling around 6% on the session to test levels below $27.00.
Dude, Where I Put my Oil?
US crude oil is depressed on Monday as it looks like the United States storage facilities are running out of space quickly. The reason is the coronavirus pandemic, which is cutting demand at a fast rate due to social distancing, stay at home, and quarantine measures in the American union and the rest of the globe.
The May contract of WTI will expire tomorrow Tuesday, and it is pushing prices down quickly as companies, investors, and any person who would want to buy US oil would have hard times trying to find available storage to keep their oil.
As Rystad's head of oil markets Bjornar Tonhaugen said in a recent note:
As production continues relatively unscathed, storages are filling up by the day. The world is using less and less oil, and producers now feel how this translates in prices.
Despite the truth that storage facilities haven't reached capacity, the market fears that it will happen soon.
June's contract of WTI is also declining, with the unit being at $23.58%, around 7% lower on the day.
Chief commodities analyst at SEB Bjarne Schieldrop told CNBC that the problem is the short-term oil. He believes that in the second half the year, the issue of storage capacity should "vanish rapidly" because oil demand is expected to rebound strongly, while inventories will draw down sharply.
Bjarne Schieldrop said:
This is why the Brent crude average oil price for 2021 is holding up so well at $40 a barrel.
The WTI problem looks like a compromise with tomorrow's May contract expiration and the lack of storage available. In that framework, Brent crude is also falling, but not that much. As noted earlier, the barrel of UK oil is trading at $26.70, just around 5.6% down in the session.
An Ugly Month For Oil
Besides the coronavirus impact in global oil demand, petroleum had to face another risky event in the last weeks, the price war between Russia and Saudi Arabia, that already put oil prices down in March.
Just in April, US Oil is trading over 42% down from opening prices around $20 per barrel to current rates. April would be its fourth negative month in a row after it hit the $65.62 per barrel at the beginning of the year.
March was especially hard for the US crude oil, with a 55.59% monthly decline due to not only the coronavirus impact in global demand, but also the price war.
Year to day, USOIL is trading around 80% negative, and it looks like it is the beginning of a short term bloodshed. Later on the week, oil companies will release their quarterly earnings reports, numbers that are expected to be as ugly as the oil collapse that we are watching in real-time.
What's Next For The Crude WTI?
According to Slobodan Drvenica, Information & Analysis Manager at Windsor Brokers, the next target at $10 for WTI is coming into focus, and it would be fatal for the industry, including oil refiners.
We predicted that oil price will be in a free-fall after a break of the critical $20 support zone and now witnessing the action. Some brief upticks can be expected meantime, more as positioning than any serious recovery attempts, however, oil is expected to face strong headwinds from the $10 zone, where some basing attempts could be anticipated.
As for now, the oil chart looks negative with December 1998 minimums at $10.65 as the next significant resistance. Below, the psychological level of $10.00 per barrel, and then April 1986 lows at $9.75 comes into focus.
That being said, remember that the collapse is expected to be short-lived, and a rebound can happen with any news on reopening the United States and other countries.
Mauricio is a newer member of the team and a very welcome addition. He is a financial journalist and trader with over ten years of experience in stocks, Forex, commodities, and cryptocurrencies. This experience means he has an excellent understanding of the markets and current events.