Benchmark Brent and US oil futures for June delivery plunged to around two-decade lows on Tuesday, a day after US May futures sank into negative territory for the first time in history as demand tumbled due to the coronavirus crisis.
Brent for June delivery LCOc1, known as the front-month contract after the May futures contract expired, fell to as low as $18.10, its lowest since November 2001. At 1200 GMT, it was down 18% at $20.98.
The June contract for US West Texas Intermediate (WTI) crude CLc2 dropped 21% to $16.14, after hitting its lowest since 1999.
WTI for May CLc1, in which trading turnover is much lower, hit negative $3.99, after Monday’s dive below $0 for the first time, settling at negative $37.63 a barrel.
The slump in the US contract was exaggerated by the looming expiry later on Tuesday of the front-month contract for May. With the market oversupplied and storage facilities already brimming, holders of the contract for May delivery were in the unprecedented position of having to pay those taking the crude.
The main US storage hub in Cushing, Oklahoma, the delivery point for WTI is expected to be full within weeks.
Negative prices mean traders must pay to find buyers to take physical possession of the oil – a job made near-impossible with the world's storage capacity at bursting point.
Oil markets have been ravaged this year after the pandemic was compounded by a price war between Saudi Arabia and Russia.
While the two massive oil producing nations have drawn a line under the dispute and agreed with other countries to slash output by almost 10 million barrels a day, amounting to almost 10% of global supplies, that is not enough to offset the lack of demand.
“The recently agreed supply cuts do little to solve the near-term oversupply problem in the global market,” JBC Energy said in a note.
Kremlin spokesman Dmitry Peskov said on Tuesday said leading global oil producers could hold talks again to discuss their output deal further if needed.
“There exist all the mechanisms to check up on our positions with our partners on this deal (between OPEC+ producers),” Peskov told a daily conference call with reporters, adding that “necessary and due contacts” could be organized if needed.
He also linked the collapse of oil futures to “speculative” trading, adding that the Russian government had all the reserves it needed to offset the low price of oil, its main export.
US President Donald Trump, who described the drop in the US front-month crude price as a short-term issue caused by a “financial squeeze”, said his administration would consider halting imports of oil from Saudi Arabia, the world’s biggest exporter who spearheaded OPEC efforts to curb output.
“Negative prices are a temporary glitch reflecting stressed flows in the futures markets and stressed storage conditions somewhere in the US Midwest,” Swiss bank Julius Baer’s economics head Norbert Ruecker said.
US crude inventories were expected to rise by about 16.1 million barrels in the week to April 17 after posting the biggest one-week build in history.
Equity markets were meanwhile deep in the red on Tuesday, having enjoyed a healthy couple of weeks thanks to massive stimulus measures and signs of an easing in the rate of new infections globally.
The losses came despite signs that the virus, which has infected almost 2.5 million people and killed 170,000, is easing as global lockdowns begin to take effect, allowing some countries to slowly return to normality.
Reuters and AFP contributed to this story.