Oil prices rebounded on Tuesday, with U.S. crude turning positive after trading below $0 for the first time. But gains were capped amid unresolved concerns about how the market can cope with fuel demand decimated by the coronavirus pandemic.
Something bizarre happened in the oil markets on Monday: Prices fell so much that some traders paid buyers to take oil off their hands. The price of the leading U.S. oil benchmark fell more than $50 a barrel to end the day about $30 below zero, the first time oil prices have ever turned negative. Such an eye-popping slide is the result of a quirk in the oil market, but it underscores the industry’s disarray as the coronavirus pandemic decimates the world economy.
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Prices went negative meaning that anyone trying to sell a barrel would have to pay a buyer $30 in part because of the way oil traded. Futures contracts that require buyers to take possession of oil in May are expiring on Tuesday, and nobody wanted the oil because there was no place to store it.
Contracts for June delivery were still trading for about $22 a barrel, down 16 per cent for the day.“If you are a producer, your market has disappeared. If you don’t have access to storage you are out of luck,” said Aaron Brady, vice president for energy oil market services at IHS Markit, a research and consulting firm.
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The May contract expires on Tuesday, while the June contract, which more actively traded, jumped 1.72 cents, or 8.4%, to $22.15 a barrel. “Today it’s pretty clear that a major issue in the market is a glut in the United States and lack of storage capacity,” said Michael McCarthy, chief market strategist, CMC Markets in Sydney.
Meanwhile, U.S. crude inventories expected to rise by about 16.1 million barrels in the week to April 17 after posting the most significant one-week build in history, according to five analysts polled by Reuters. Analysts expected gasoline stocks to rise by 3.7 million barrels last week. The American Petroleum Institute set to release its data at 4:30 p.m. on Tuesday, and the weekly report by the U.S. Energy Information Administration is due at 10:30 a.m. on Wednesday.