Tuesday, 02 June, 2020

Oil extends gains on output cuts, US-Iran tensions

Oil heads for another weekly slide after coronavirus turmoil US oil prices plunge below zero amid coronavirus pandemic
Ginger Lawrence | 24 May, 2020, 01:55

There are mitigating circumstances to these insane numbers. That yawning gap emerged because owning the May contract when it expires on Tuesday means that buyer is obligated to take those barrels, which few want to do.

It marks the first time an oil futures contract has traded negative in history, according to Dow Jones Market Data.

US West Texas Intermediate (WTI) crude for May delivery was up $38.73 at $1.10 a barrel by 0117 GMT after settling down at a discount of $37.63 a barrel in the previous session.

Trifecta Consultants analyst Sukrit Vijayakar said U.S. refineries were not processing the crude supplies fast enough, resulting in fewer buyers and storage facilities filling up.

Commercial crude oil inventories in the US rose by 15 million barrels, or 3%, to 518.6 million barrels for the week ending April 17, according to data released by the Energy Information Administration (EIA) on Wednesday.

A massive supply glut brought on by the pandemic and a worldwide shortage of storage space have touched off an relentless rout that has shifted the entire forward curve for oil.

Faced with the situation, the Organization of the Petroleum Exporting Countries (OPEC) and its allies including Russian Federation, a grouping known as OPEC+, have agreed to cut output by 9.7 million barrels per day (bpd). The Texas Railroad Commission, meanwhile, opted to put off a decision on whether to impose oil-production quotas.

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Available storage space is dropping fast at the Cushing, Oklahoma, hub, where physical delivery of USA oil barrels bought in the futures market takes place.

The decline was in part due to the end of trading for May delivery.

"It's clear that Cushing is going to fill, and it will stay full for the next several months", said Andy Lipow of Lipow Oil Associates.

However, U.S.' crude oil inventories showing another strong increase continues to keep pressure on prices.

The crisis was worsened by a price war between Saudi Arabia and Russian Federation. Analysts expected gasoline stocks to rise by 3.7 million barrels last week.

US exchange-traded funds are also playing a role in the action, analysts said.