Next month's contract for West Texas, the U.S. is entered into a negative region with each barrel price sinking to minus $37.63. The event will mark its place in the history of the industry with a declining percentage of 305. Currently, the prices are set at minus $40.32. The standard international price, i.e., Brent crude oil that is referred to as the barrel price in the U.S. went down to $26.60 for every, which is a drop of 5.27 percent.
The demand for crude oil went down by 30 percent due to the ongoing coronavirus pandemic. One of the main hubs for storage of crude oil in the U.S., i.e., Cushing, Oklahoma, may also fill up within weeks. Buyers are straying away from buying barrels because they might require their delivery in May. Phil Verleger, who is an independent consultant and veteran oil economist, believes that people who don't have storage places have to opt-out of the buying.
Moreover, countries that are the major oil producers are reducing output. Also, global companies are taking the same course of action. Unfortunately, the reduction won't stop immediately and might lead to a clog. The excess production from overseas producers will most probably get stored aboard sea tankers and other places.
But the same isn't right for domestic producers in the U.S. and Canada. Besides this, according to the expiring May crude contract of U.S. West Texas Intermediate and the agreement about its next month, the barrel costs might come down to $51.90, which is not much of a gap of the ongoing $60 price.
The contract expires on Tuesday, and therefore buyers will unwillingly buy the barrels. Edward Moya, an OANDA, New York market analyst, stated to a source that the company is falling short of storage space. Presently, the June contract states a dip in 16 percent of prices and makes the price per barrel as $20.43.
At this point, traders will most likely make decisions about the upcoming contracts and in due course. Fortunately, this is a straightforward process for most contractors; however, the decline of May's deal may worry suppliers due to excessive supply. Additionally, they are worried that their foreign shipments from Saudi Arabia may cause even more of a glut.
Another area of concern is reducing storage space at the Cushing, Oklahoma hub. It is the central hub where barrels for future deliveries into the market occur. According to sources and U.S. Energy Department data, only 50 percent of storage space was available at the hub almost four weeks ago. At present, 69 percent of the area at the storage hub is already acquired.
Lipow Oil Associates's Andy Lipow believes that the center will fill up and remain full for the upcoming months because producers are failing to decrease their production and place is probably going to store an "overwhelming amount" to sell to global consumers. Stockpiles of crude at the Cushing, Oklahoma hub increased by nine percent around April 17. At this point, the center incorporates 61 million barrels. The sources derived the numbers from Genscape's market analysis report noted on Monday.
Global crude oil producers who are leaders in the market are going to reduce production by 9.7 million BPD. By doing so, they are aiming to control the decreasing market demand. Unfortunately, the cuts won't begin before May. At this point, Saudi Arabia is increasing oil deliveries, which include numerous big shipments to the U.S.
According to sources, daily oil consumption rounds off to 100 million barrels. Therefore, the supply of oil also follows the same demand. Unfortunately, as mentioned earlier, the use of crude oil has diminished by 30 percent due to the ongoing coronavirus pandemic. Stay tuned for more information on the oil industry.