Article content continued

Investors bailed out of the May contract ahead of expiry later on Monday because of lack of demand for the actual oil. When a futures contract expires, traders must decide whether to take delivery of the oil or roll their positions into another futures contract for a later month.

Usually this process is relatively uncomplicated, but this time there are very few counterparties that will buy from investors and take delivery of the oil. Storage is filling quickly at Cushing in Oklahoma, which is where the crude is delivered.

“Pricey shut-ins or even bankruptcies could now be cheaper for some operators, instead of paying tens of dollars to get rid of what they produce,” said Louise Dickson, oil markets analyst at Rystad Energy.

Prices have been pressured for weeks with the coronavirus outbreak hammering demand while Saudi Arabia and Russia fought a price war and pumped more. The two sides agreed more than a week ago to cut supply by 9.7 million barrels per day (bpd), but that will not quickly reduce the global glut.

Brent oil prices have collapsed around 60 per cent since the start of the year, while U.S. crude futures have fallen around 130 per cent to levels well below break-even costs necessary for many shale drillers. This has led to drilling halts and drastic spending cuts.

More Data Sparks Global Economic Concerns

Weak global economic data also pressured prices. The German economy is in severe recession and recovery is unlikely to be quick as coronavirus-related restrictions could stay in place for an extended period, the Bundesbank said.

Japanese exports declined the most in nearly four years in March as U.S.-bound shipments, including cars, fell at their fastest rate since 2011.

Halliburton Co, which generates most of its oil business in North America, joined its larger rival Schlumberger in taking impairment hits in the first quarter and issued a bleak outlook for North America.

© Thomson Reuters 2020