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Oil slumped below $12 a barrel as the biggest oil ETF said it will sell out of its June WTI futures position, adding to the downward pressure from a huge glut.
Futures in New York slid as much as 30%, snapping a four-day recovery and deepening losses after the U.S. Oil Fund’s announcement. While U.S. drilling is sliding and Saudi Arabia has started reducing output ahead of the start date for OPEC+ supply cuts, an immense surplus of oil means storage tanks are close to capacity around the world. South Korea, which holds the fourth-biggest commercial storage capacity in Asia, was said to have run out of onshore space.
With a number of producers commencing output cuts, some of the huge discounts seen in physical markets have eased, particularly in Europe. Swaps markets in the North Sea and Russia were trading stronger last week, though there’s still plenty of cause for pessimism. On a global level, the swelling glut is set to test storage capacity limits in as little as three weeks, according to Goldman Sachs Group Inc., with traders, refiners and infrastructure providers seeking novel ways to hoard crude, including on tiny barges around Europe’s petroleum-trading hub, and in pipelines.
“After a turbulent week the market might have found the bottom, but prolonged price strength is not expected until global demand significantly improves,” said PVM Oil Associates analyst Tamas Varga. “These curtailments, as supportive as they sound, are already part of the supply-demand equation and are built in the price.”
There were tentative signs at the weekend that the coronavirus outbreak might be loosening its grip, with death tolls slowing by the most in more than a month in Spain, Italy and France. Reported fatalities in the U.K. and New York were the lowest since the end of March.
Saudi Aramco last week began curtailing daily output from about 12 million barrels to 8.5 million, according to a Saudi industry official familiar with the matter. OPEC+ has agreed to reduce production by about 9.7 million barrels a day in an effort to stem oil-price losses.
The U.S. Oil Fund will move its portfolio to hold WTI futures from July through June 2021, according to a filing. It will also conduct a lengthened roll as of May 1.
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