US oil prices turn positive, another bloodbath expected Tuesday

Updated: Apr 21, 2020, 16:06 IST | IANS | New York

The decline of oil prices comes despite the recent output cut agreement between the Organisation of the Petroleum Exporting Countries (OPEC) and its allies

Gas station prices are adjusted as prices fall nationwide due to the coronavirus pandemic in Los Angeles on March 20, 2020. Pic/AFP
Gas station prices are adjusted as prices fall nationwide due to the coronavirus pandemic in Los Angeles on March 20, 2020. Pic/AFP

Oil is doing something that is even making Market veterans shake their heads in wonder. After shedding more than 300 per cent or $56 a barrel in one single day on Monday, the West Texas Intermediate (WTI) crude for May delivery gained some ground early on Tuesday, recovering 103 per cent to come back in the positive zone at $1.35 a barrel.

But analysts expect that bloodbath in US oil market may continue well into Tuesday when May future contracts are expiring and traders still left with long positions facing actual delivery of oil may look to liquidate their stock even if they have to pay to do this. In simple terms this means that traders do not want to store crude by taking actual delivery for May and incur cost while not finding any buyers in the absence of demand that has also shrunk sharply by more than a third in Covid-19 pandemic.

"We could again see price of oil in US going into the negative zone on Tuesday. But this could be a lot less sharper than what was witnessed on Monday," said an oil sector analyst asking not to be named.

He said that lower oil prices bore good for India but how much oil companies can gain from US fall is uncertain as the Indian oil companies are not very active in the US markets and trade very small quantities in the spot market. Still some of this oil could be contracted if freight arrangements are worked out on time.

While US oil has shown significant fall, Brent has maintained a fairly steady path. The benchmark Brent oil is still hovering at $ 25 a barrel. The US WTI for June delivery is still keeping its heads up at over $ 20 a barrel. But it would be seen if Covid-19 situation improves in coming days and demand picks up. Otherwise, June oil futures can go the May way.

The decline of oil prices comes despite the recent output cut agreement between the Organisation of the Petroleum Exporting Countries (OPEC) and its allies.

There were hopes that agreement would stabilise oil prices, but with the Covid-19 pandemic continuing, there has been a large slip in demand that is not letting a pick-up in oil prices.

The current market is oversupplied on shrinking demand, creating a situation of free fall for crude.

The price of oil has now reached a point that it is increasingly becoming difficult for higher cost producers to remain in operation and rather look at declaring bankruptcy.

A lot of US shale producers are in deep trouble and analysts expect that low oil price for few more months will result in a spate of bankruptcies in the US.

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