International Oil Prices Plunge Again Amid Fears of Negative Rebound... WTI Down 24.6%

[Asia Economy Reporter Naju-seok] International oil prices have plummeted once again. Concerns are growing that international oil prices could fall into negative territory again due to a shortage of crude oil storage facilities.

On the 27th (local time) at the New York Mercantile Exchange (NYMEX), June West Texas Intermediate (WTI) crude oil closed at $12.78 per barrel, down $4.16 (24.6%). At the London ICE Futures Exchange, June Brent crude oil fell $1.45 (6.8%) to $19.99 per barrel.

The main cause of the crash in oil prices on this day was the decision by the world's largest crude oil exchange-traded fund (ETF), the 'US Oil Fund,' to sell off all of its near-month June contracts over four days. While crude oil demand has sharply declined due to the novel coronavirus disease (COVID-19), the reduction in crude oil supply has been relatively smaller, leading the global oil market to desperately seek storage space. Due to this market situation, following the historic negative price of May WTI delivery, concerns have grown that the same situation could be repeated for June delivery.

What is particularly worrisome is the possibility of a global 'tank top' around the June WTI expiration date on the 19th of next month, when all global crude oil storage tanks could be full. A tank top refers to a situation where crude oil inventory increases to the point that storage tanks can no longer hold any more oil. The US investment bank Goldman Sachs forecasted, "Within the next 3 to 4 weeks, global crude oil storage capacity will be put to the test."

The market is especially watching the crude oil storage situation in Cushing, Oklahoma, USA. There, crude oil storage increased by 10% in one week, reaching 59.7 million barrels, with about 25 million barrels of storage space remaining.

Rebecca Babin, Senior Energy Trader at CIBC Private Wealth Management, said, "There is no one wanting to hold futures," adding, "Everyone is watching how far storage capacity can go; it's a precarious situation," and "Everyone is so afraid of negative oil prices that they cannot look away."

The market is hoping that the oversupply situation will be resolved through production cuts. OPEC+ (the Organization of the Petroleum Exporting Countries (OPEC) member countries and non-OPEC allies) reduced production by 9.7 million barrels starting from the 1st of next month. Additionally, oil production is being halted in various parts of the United States. Private companies in the US are also consecutively stopping crude oil production. According to market research firm analysis, only about half of all drilling rigs are operating compared to last month.

Despite efforts to adjust supply and demand, market concerns remain. Particularly worrisome is the expectation that the oversupply situation will persist for a long time. Besides June contracts, July WTI also fell 14% to $18.18 per barrel, and August WTI dropped 9% to $21.50. CNBC explained, "The market does not expect any meaningful reaction for the coming months."