Crude oil plunges to lowest since 1986 at $10.34 a barrel

Image courtesy: Reuters

New Delhi: Crude oil on Monday (April 20) witnessed its biggest one-day price plunge in recent years, crashing about 40% to around USD 11 a barrel. West Texas Intermediate oil plunged to the lowest level since 1986 at USD 10.34 per barrel as the coronavirus pandemic slashes demand, leaving the world awash with crude, said an AFP report. 

Around 1500 GMT, WTI pulled back to USD 10.82 per barrel but was still down almost 41 per cent compared with Friday. The fall is severe as it concerns the May contract due to expire later Monday and investors don't want to take physical possession of the oil, the report said, quoting traders.

Oil prices fell today, with a US crude futures contract hitting its lowest level since 1998, as concerns that US crude storage will soon be full and bleak economic data hit sentiment. Brent was down $1.18, or 4.2%, at $26.90 a barrel by 1321 GMT, while the front-month May WTI contract fell $5.88, or 32%, to $12.39.

At one point, the contract hit a low of $10.77 a barrel, the lowest since 1998. However, analysts said the sell-off was exaggerated by the contract`s imminent expiry. The spread between the front-month contract and the second month was almost $11, the widest in history, as the June contract, which is more actively traded, fell $2.04, or 8.1%, to $22.99 a barrel.

The volume of oil held in US storage, especially at the Cushing delivery point for the US West Texas Intermediate (WTI) contract in Oklahoma, is rising as refiners throttle back activity in the face of weak demand. Oil in floating tanker storage is also estimated at a record 160 million barrels.

Weak global economic data also put pressure on prices. The German economy is in severe recession and recovery is unlikely to be quick as coronavirus-related restrictions could stay in place for an extended period, the Bundesbank said. Meanwhile, Japanese exports declined the most in nearly four years in March as U.S.-bound shipments, including cars, fell at their fastest rate since 2011.

Oil prices have collapsed by more than 60% since January to levels well below the costs necessary for many shale drillers to break even, leading to drilling halts and drastic spending cuts. Canada, the world`s fourth-largest oil producer, has begun to rein in production, but analysts say the biggest cuts lie ahead.

The Russian energy ministry has told domestic oil producers to reduce oil output by around 20% from their average February levels, two industry sources told Reuters, which would bring Moscow in line with its commitment under a global deal.

Meanwhile, the Organization of the Petroleum Exporting Countries (OPEC) and other large oil producers led by Russia, a group known as OPEC+, agreed to cut their combined oil output by 9.7 million barrels per day (bpd) in May and June in order to combat oversupply.

(With Agency Inputs)