Demand for oil is disappearing, and despite a deal by Saudi Arabia, Russia and other nations to cut production, the world is running out of places to put all the oil being pumped out.
Oil’s meltdown is continuing.
The unprecedented price plunge that hit the main U.S. oil benchmark on Monday spread to other parts of the oil market on Tuesday as traders realized that output remains far too high and storage is running out.
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The action on Monday was mostly in the futures contract for West Texas Intermediate crude to be delivered in May, which fell into deep negative territory. In other words, some traders were willing to pay buyers to take oil off their hands. The price of that contract actually rose on Tuesday, but wavered between positive and negative territory.
Other parts of the oil market were slammed on Tuesday. The West Texas Intermediate contract for June delivery was down about 22 percent, to about $15.93 a barrel, and Brent crude, the international benchmark, was down about 18 percent, to $20.90 a barrel.
These eye-popping price slides underscore the industry’s disarray as the coronavirus pandemic decimates the global economy. The volatile prices are “an illustration of how broken” the market is, said Paola Rodríguez-Masiu, an oil analyst at Rystad Energy, a consulting firm.
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Demand for oil is disappearing, and despite a deal by Saudi Arabia, Russia and other nations to cut production, the world is running out of places to put all the oil being pumped out — about 100 million barrels a day. At the start of the year, oil sold for over $60 a barrel.
Refineries are unwilling to turn oil into gasoline, diesel and other products because so few people are commuting or taking airplane flights, and international trade has slowed sharply. Oil is already being stored on barges and in any nook and cranny companies can find. One of the better parts of the oil business these days is owning storage tankers.
On Tuesday, President Trump said on Twitter that he was asking administration officials to “formulate a plan that will make funds available” to help the oil and gas industry. He has previously asked Congress for $3 billion to purchase oil for the Strategic Petroleum Reserve but lawmakers did not include it in last month’s $2.2 trillion stimulus package.
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