Support 100 years of independent journalism.

  1. Science & Tech
  2. Coronavirus
22 April 2020updated 06 Oct 2020 9:45am

Expect oil market “pandemonium“ next month, analyst warns

By Samuel Horti

Plummeting oil demand and record-low prices could cause “pandemonium” in the market next month, Nandakumar Premchand, director at GlobalData, has warned. 

It followed news that the price of West Texas Intermediate (WTI) May futures contracts nosedived 300 per cent on Monday and turned negative for the first time on record, meaning producers had to pay buyers to take barrels they could not store.

Premchand said that the coronavirus crisis has caused demand to shrink by 30 per cent, and many believe the 10 per cent cut in production will fail to stablisise the market:

Though OPEC+ decided to cut production by 10 per cent by 9.7 million barrels per day, that will only take effect in May,” he said. “Saudi has already lined up shipments for the United States. Given this and the storage space in the US fast filling up, we are looking at massive storage issues in the months to come.

The WTI June futures were trading at around $22. Taking note of the fact that exchange-traded funds like the USO will not take a physical delivery of oil, the strategies adopted by traders for the June expiry will be closely examined. With many feeling that the 10 per cent production cut wasn’t enough in the current times, it will be interesting to see if there are further production cuts or if the FED intervenes in some fashion to douse the fire.

Sign up for The New Statesman’s newsletters Tick the boxes of the newsletters you would like to receive. Quick and essential guide to domestic and global politics from the New Statesman's politics team. The New Statesman’s global affairs newsletter, every Monday and Friday. The best of the New Statesman, delivered to your inbox every weekday morning. The New Statesman’s weekly environment email on the politics, business and culture of the climate and nature crises - in your inbox every Thursday. A handy, three-minute glance at the week ahead in companies, markets, regulation and investment, landing in your inbox every Monday morning. Our weekly culture newsletter – from books and art to pop culture and memes – sent every Friday. A weekly round-up of some of the best articles featured in the most recent issue of the New Statesman, sent each Saturday. A newsletter showcasing the finest writing from the ideas section and the NS archive, covering political ideas, philosophy, criticism and intellectual history - sent every Wednesday. Sign up to receive information regarding NS events, subscription offers & product updates.

Oil prices at these levels and the lack of demand will mean that we could be looking at pandemonium next month, especially if the lockdown extends beyond May. With companies signing up for floating storage tankers globally to store excess oil, even this option will cease to exist shortly.

Content from our partners
How do we secure the hybrid office?
How materials innovation can help achieve net zero and level-up the UK
Fantastic mental well-being strategies and where to find them