U.S. crude prices collapse

U.S. crude oil prices collapsed by nearly 20 per cent on Monday as trading reopened with the Benchmark WTI crude touching nearly 20 year lows.

The collapse in prices is due to the continued drop in demand for oil and oil storage around the world is starting to running out. This is despite a landmark Opec+ deal to slash nearly 10 per cent of global supply.

Head of Oil Markets at Rystad Energy Bjornar Tonhaugen explained: "The real problem of the global supply-demand imbalance has started to really manifest itself in prices. As production continues relatively unscathed, storages are filling up by the day. The world is using less and less oil and producers now feel how this translates in prices. As always, you will see days with small up and downs, but the trend will certainly be a decline. At least until some serious help comes to the OPEC+ promised cuts from more producing nations."

The sudden drop was also led by a technicality of the global oil market. Oil is traded on its future price and May futures contracts are due to expire on Tuesday.

Tonhaugen noted:"In particular, the WTI Cushing futures for May 2020 are seeing a massive drop this morning to below $15 a barrel, which is a result of the severe oversupply in the crude markets during April, a burden that will also devastate markets in May. The May 2020 contract has its last trading day tomorrow 21 April, and we are seeing a combination of weak fundamentals for US crude balances as the remaining storage capacity at Cushing of 21 million barrels will be more and more exhausted in the coming weeks, leading to downwards pressure on WTI spot prices. A trading squeeze ahead of the futures contract expiry is exacerbated by the dislocation in the fundamentals this time around, contributing to these large price swings."