- Western Texas Intermediate reaches a low of $US14.30 a barrel, dropping to its lowest level since 1999 as coronavirus tanks demand for the commodity.
- On Friday, data from Baker Hughes showed that the number of active oil rigs in the US dropped by 35% compared to the same time last month.
- The WTI market has entered contango, with spot prices lower than prices of future delivery of crude oil
- Follow the price of oil live with Markets Insider.
The price of oil dropped as low as just $US14.30 per barrel on Monday to reach its lowest level in 21-years, pushed downwards by a slump in demand as the coronavirus pandemic economic shutdown lessens the need for fuels.
At its worst levels, WTI crude oil – the US benchmark – was down as much as 21% to $US14.30 a barrel, according to Markets Insider data. That’s it’s lowest price since 1999. At the European open Monday, the price of crude was just shy of $US15 per barrel, a loss of around 18%.
By comparison, Brent crude, the international benchmark Brent, didn’t move as much, and fell just over 4.2% to $US27.05 per barrel, according to Markets Insider data.
The steep losses in the oil market come despite a recent deal signed by OPEC and its members to cut supply by 9.7 million barrels of oil per day in May and June, as the organisation tries to cushion the economic fallout from coronavirus.
Naeem Aslam, chief market analyst at Avatrade said: “Basically, bears are out for blood [as] WTI dropped over 18% today and made a low of $US14.45, a price level that has surprised traders.
“The steep fall in the price is because of the lack of sufficient demand and lack of storage place given the fact that the production cut has failed to address the supply glut.”
Aslam warned that WTI will crash further to even $US10 a barrel as US rig counts – the number of active oil producing facilities – have fallen to their lowest levels since 2016.
“The bottom line is that there is no doubt that oil prices are way oversold at the current level, but given the circumstances, it is likely that the price may continue to fall further because the rig count hasn’t touched its bottom yet.”
Oil prices and rig counts are strongly correlated. The idea is that usually higher the oil price, more rigs reach the fields as it becomes more profitable to produce oil, and the opposites applies when prices fall.
The closely-watched Baker Hughes oil rig report showed that as of Friday oil rig counts in the US were 544, 35% down compared to the same time the previous month.
Oil is now in contango
The movements prompted WTI oil prices to enter “contango,” meaning that oil contracts for future delivery are more expensive than spot prices.
Jeffrey Halley, senior market analyst of Asia Pacific at OANDA, said: “The contango on WTI from now spot to the June contract can be described as a mega-contango. As of Friday, spot was $US18 a barrel with the June contracts around $US25 a barrel.”
“The extreme contango tells us nobody in America wants the oil in the short-term,” Halley added.
Aslam added: “For an investor who holds a long term perspective, a time frame of 12 months to 24 months, the current plunge in oil price represents an opportunity.”