NYMEX June crude plunges below $12/b as storage fills

NYMEX June crude futures plunged below $12/b Tuesday as storage continues to grow because of low demand caused by the coronavirus outbreak.

The June contract fell $8.86, or 43%, to settle at $11.57/b, after dipping to as low as $6.50/b.

"This is a historic, spectacular sort of drop," said Jamie Webster, senior director at Boston Consulting Group's Center for Energy Impact. "The market figured out this whole crunch is going to continue next month, so most of it is happening now."

Weakness was seen out along the curve, with the NYMEX June 2021 contract settling below $30/b, and the contango structure remaining in place.

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The expiring NYMEX May contract that fell to an all-time low of minus $37.63/b Monday actually spiked by $47.64/b Tuesday to settle at $10.01/b.

ICE June Brent fell almost 25% and settled at $19.33/b, down $6.24/b on the day.

Also bearish Tuesday was news that the Texas Railroad Commission delayed its decision on mandatory production cuts for companies operating within the state until May 5.

"Oil prices are collapsing because no one wants to be the first one on the production-cut dance floor," said Edward Moya, senior market analyst with OANDA, in a note. "Texas punted their decision and, with OPEC not showing any urgency, that pretty much means the world will run out of room to store oil by the second week of May."

A lot of smaller and mid-sized North American shale players won't survive, he said.

"Storage is pretty booked or close to full," said Doug Terreson, an analyst with Evercore ISI. "Significant shut-ins would be the first step to rebalancing the market."

Those anticipated shut-ins already announced by dozens of companies are arguably the biggest sign of optimism for the bulls for now.

That's why Terreson expects to see $40/b Brent crude by the end of 2020. ICE December Brent ended Tuesday at just $31/b.

Roughly 1.3 million b/d of cuts have already been announced in the US and Canada combined. But S&P Global Platts Analytics estimates that another 2.5 million b/d and 3.5 million b/d will be needed on top of that to help balance the market.

Simmons Energy projects US crude production to fall to just more than 9 million b/d by the end of the year, a dip of about 3.3 million b/d as more wells are shut in.

STORAGE FILLING

In the meantime, storage is rapidly filling, especially at Cushing, Oklahoma, the NYMEX crude delivery point.

The key US storage hub was already at 70% capacity as of April 10 and inventories are expected to have risen last week. Platts Analytics expects Cushing stocks to have climbed another 5 million barrels.

The US Energy Information Administration will release its weekly inventory data Wednesday.

Overall US commercial crude storage is closer to 60% full and could be practically full in one month.

Monday's headline-grabbing dive into negative territory was largely on paper - and more Cushing specific - as traders aimed to avoid physical deliveries, and roll positions out of the May contract.

On Tuesday, more than 2 million NYMEX June US crude contracts were traded, a new one-day record, according to the CME Group.

Negative pricing has so far been limited to crude delivered at Cushing. Elsewhere, prices are low, but so far positive.

In the US Gulf Coast, May barrels of medium sour crude Mars were assessed by S&P Global Platts Tuesday at $13.51/b. In the Permian, Midland, Texas May WTI was assessed at $10.10/b.

There's a broader acceptance that the OPEC+ deal to end the Saudi-Russian pricing war and to cut nearly 10 million b/d from global supplies will not do nearly enough to cut into almost 30 million b/d of demand collapse.

Thus analysts are not ruling out a return to negative prices.

"There's no demand. There's nothing. It's going to overwhelm the market for quite some time and keep prices depressed," Webster said.

"Oil price volatility will remain high and, now that single digits were already reached with the June WTI crude contract, there should be no surprises if we see prices turn negative at one point over the next several sessions," said Moya.

In refined products, NYMEX May RBOB settled down 15.80 cents/gal at 51.03 cents/gal Tuesday, and May ULSD dropped by 16.09 cents/gal to settle at 72.69 cents/gal.