Oil recorded its first loss in three days on signals that a glut is growing at America’s biggest storage depot and concern that an upcoming meeting among producers won’t yield large enough production cuts to offset cratering demand. Futures closed 8% lower in New York Monday, after earlier plunging as much as 11%. Industry data provider Genscape Inc. reported a 5.8 million-barrel rise in crude inventories in Cushing, Oklahoma, last week. This would be the largest weekly build at the hub in data going back to 2004 if the U.S. Energy Information Administration confirms it Wednesday.
“Cushing is expected to fill up in the next several weeks after the April futures contract expired with a deep contango to May,” said Andy Lipow, president of Lipow Oil Associates in Houston. “Cushing will become operationally full over the next four to six weeks and therefore Cushing prices will be under pressure as producers look to divert ongoing output away from Cushing and toward the Texas Gulf.” The May contract settled at $3.90 a barrel below June, the weakest spread in a nearly week. The spread could widen further as the United States Oil Fund ETF will start rolling its positions out of the front month Nymex West Texas Intermediate May contract from Tuesday. This will finish by April 13. The fund, with $3.5 billion in assets, holds about 20% of the open interest in the May contract as of Friday.
Traders are also concerned output cuts being touted so far for Thursday’s OPEC+ meeting won’t be enough to offset the 25 million to 30 million barrel a day decline in demand from the coronavirus pandemic, Lipow said. In three days, the world’s largest oil-producing nations are expected to negotiate a deal to stem the price crash. Russia and Saudi Arabia want the U.S. to join in, and America’s energy secretary said he had a “productive discussion” with his Saudi counterpart over the weekend about the instability in oil markets.