Historic rout in WTI futures amid fire sale ahead of expiry

US crude oil futures crashed at the start of the week with the price of West Texas Intermediate falling below zero for the first time ever.

A day before they were due to expire, after the close of trading in the US on Tuesday, and faced with increasingly scarce storage capacity, a firesale ensued as traders opted to dump their holdings rather than having to take physical delivery.

As of 2059 GMT, May WTI was trading 310.45% lower at -$38.45.

"Trading desks globally gave up on the May contract a few days back and volume has collapsed. CME Group data indicates volume at 122k for May contract vs 780k for Jun," said Neil Wilson, chief market analyst at Markets.com.

"No one wants oil now. But it's also fair to assume that with demand not able to recover and the US unable to agree on output curbs we will also see the June contract come in sharply to the mid-teens also."

On 12 April, the Organisation of Petroleum Exporting Countries and other of the world's major oil producers agreed to a 14.7m barrel a day reduction in their combined output.

But the curbs agreed to by OPEC+ were not due to start until May and in any case, at its trough the projected drop in global oil demand was expected to nearly double the agreed ouput cuts in size.

Compounding matters, according to the Energy Information Administration, as of 10 April US shale oil output was running at 12.3m b/d and just a shade below its record level, given the time lags between lower oil prices and output reductions by shale oil producers.

Weekly oil rig count figures from consultancy Baker Hughes however did show that capital outlays had been falling on the back of lower prices.

But for now, at the current rate at which America's oil stockpiles were building up, Rabobank estimated that storage tanks at Cushing, Oklahoma, the delivery and pricing point for WTI, would max out by early June.

Meanwhile, the cost of rolling over futures contracts was also near its highest in decades, analysts at Capital Economics pointed out.

Nevertheless, Capital Economics also said that assuming that economic activity began to recover in the back half of 2020, then both Brent and WTI prices should head back towards $45 a barrel.

The Railroad Commission of Texas, the industry watchdog in that state, was set to decide whether to limit output from the region on 21 April.

It had also been speculated recently that the US administration might soon move to incentivise producers to keep oil in the ground, possibly through purchases for the country's strategic petroleum reserves.

On that note, Ian Shepherdson at Pantheon Macroeconomics said: "We expect the global oil glut to persist for some time after the economy begins to recover. Demand won't return to the pre-virus global trend of about 101M bpd this year, and perhaps not even next year either.

"Production is falling in response, but inventories have soared and prices have not yet bottomed."