US WTI crude falls to lowest level in 21 years amid demand, storage concerns

SINGAPORE (ICIS)–Crude prices have fallen Monday amid growing concerns over the collapse in demand and limits to available storage capacity.

The largest decline was for front-month May US WTI crude futures which fell by more than 19% on Monday to its lowest price in 21 years.

Prices in $/bbl	Month	Low	High	Open	Price at 07:44 GMT	Change
Brent	Jun	26.91	28.25	28.05	27.39	-0.69
WTI	May	14.47	17.85	17.73	14.81	-3.46

The price decline for the May WTI contract, which is set to expire on 21 April, was far larger than for contracts further forward. Nevertheless, at 07:44 GMT, June WTI was also down $1.41/bbl at $23.62/bbl .

The fall in WTI was also far greater than that for Brent, the North Sea benchmark. This is understood to be linked to the landlocked nature of much of the US production and concerns that the key storage hub at Cushing, Oklahoma, the physical delivery point for WTI crude futures, could fill to capacity.

Weekly US inventory data released last week by the Energy Information Administration (EIA) revealed that domestic crude stocks had risen by 19.2m barrels to 503.6m barrels.

Meanwhile stocks at the Cushing, Oklahoma oil hub rose 5.8m barrels to 55m barrels. Cushing has a total storage capacity of just over 91m barrels. However, EIA reported in September last year that working capacity was around 76m barrels.

Crude prices have continued to decline amid concerns that the OPEC+ agreement to cut 9.7m bbl/day of crude production is insufficient to counter the massive decline in demand.

Last week the International Energy Agency (IEA) said that April oil demand will fall 29m bbl/day to levels last seen in 1995.

In the second quarter of 2020, the IEA expects global oil demand fall 23.1m bbl/day compared with a year ago.

In addition, last week it emerged that China’s first-quarter 2020 GDP figure was 6.8% lower year on year, the first recorded quarterly contraction of GDP growth since at least 1992, when quarterly records began.

Meanwhile, there are growing concerns over limited available crude storage capacity. According to the IEA crude stocks could rise 12m bbl/day in the second quarter while stocks of oil products could rise 17.4m bbl/day.

The IEA estimates that global land crude storage capacity is around 6.7bn barrels and had a utilization rate of around 63% at the end of January.

The IEA estimates there is around 1.2bn barrels of operational spare capacity, but it estimates the storage limit could be reached by mid-year.

Meanwhile, demand for floating storage is continuing to rise – driven in part by the deep-contango forward market structure, which in theory can make the storage of oil for sale at a future date economic.

There are estimates that the amount of crude held in floating storage has risen sharply in recent months.

The IEA has estimated that there could be capacity to store around 220m-330m barrels of crude at sea using VLCC (very large crude carrier) and Suez-max vessels.

Focus article by James Dennis

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