NYMEX WTI again tests $20/b as oversupply concerns take focus

New York — Crude futures settled sharply lower Tuesday amid concerns that the OPEC+ producer cuts would be insufficient to prevent a near-term oil glut.

ICE June Brent settled down $2.14 at $29.60/b and NYMEX May WTI moved $2.30 lower on the day to finish at $20.11/b.

"The market continues to signal its unease with idea that the record production cut is enough to offset the destruction in demand from quarantine measures," Tradition Energy analyst Gene McGillian said. "The proof is in the pudding about whether we are going to see a significant enough supply cut to balance things until we come out of this health crisis."

On Sunday, OPEC and its allies agreed to cut oil production in May and June by a collective 9.7 million b/d, but many oil analysts see this as merely putting a floor under the market.

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Crude futures raced lower in the final minutes of trading Tuesday after Saudi Arabia energy minister Prince Abdulaziz bin Salman said the kingdom would continue producing at its maximum level of 12.3 million b/d in April.

Front-month WTI briefly dipped under $20/b, falling to a session low at $19.95/b, but clawed back to settle 2 cents above 18-year lows seen in late-March.

Even with strong compliance from OPEC+ members, realized production cuts are likely to reach only 5.5-6.5 million b/d in May versus April, according to S&P Global Platts Analytics.

"Given how deep the cuts are, full compliance especially within one month will be difficult for many," said Shin Kim, Platts Analytics head of production and supply.

Weakened demand outlooks sent the WTI forward curve deeper into contango Tuesday. The year-ahead contract settled at a $17.25/b premium to front month, opening the widest one-year spread since January 2009.

Oil prices will average $35/b in 2020 as the global economy contracts 3% in the worst deterioration in economic conditions since the Great Depression in a best-case scenario and stay around that level for 2021, the International Monetary Fund said Tuesday in its World Economic Outlook. (See story 1523 GMT)

US crude storage facilities are rapidly approaching tank tops. Enterprise Products Partners plans to move crude oil on an existing pipeline from the Texas Gulf Coast north to the Cushing, Oklahoma, storage hub starting May 1, in order to meet growing demand to store oil at inland facilities, according to a regulatory filing made late Monday.

Nine US oil producers facing dwindling options for crude storage are negotiating with the government to store a total of 23 million barrels in the Strategic Petroleum Reserve, the Department of Energy said Tuesday.

US crude stocks have surged 29 million barrels since late March, and a further 10.1 million barrels is expected to have been added to storage during the week ended April 10, according to analysts surveyed by S&P Global Platts on Monday.

RBOB CLIMBS AS STATES MULL ECONOMIC RESTARTS

NYMEX RBOB futures settled higher Tuesday as several US states took first steps toward reopening their economies, indicating a potential rebound in gasoline demand.

NYMEX May RBOB settled up 1.67 cents at 72.00 cents/gal, while May ULSD traced crude lower and was down 5.04 cents at 94.42 cents/gal.

Governors from seven US Atlantic Coast states announced late Monday that they would form a joint council tasked with creating a regional plan to reopen their respective economies in the wake of the coronavirus pandemic. Connecticut, New Jersey, Rhode Island, Pennsylvania, Delaware, and Massachusetts will join the council, according to media reports.