KUALA LUMPUR (April 21): Brent crude oil price fell below US$20 per barrel for the first time in 18 years, tracking the overnight collapse in US West Texas Intermediate (WTI) as the reality of a supply glut spooked traders. 

At the time of writing, Brent futures for June took a nosedive, falling 22% to US$19.17 before rebounding slightly.

Meanwhile, the WTI futures for May still traded in unprecedented negative territory, while the June contract fell over 23% to below US$16. 

This week’s oil price collapse signalled the emerging problem of storage capacity. Storage is fast getting filled up as production exceeded the capacity to store the incremental volumes. 

There are no takers from the demand side at this point in time, as the Covid-19 global lockdown stopped people from travelling and factories from producing.

In a note, Refinitiv Oil Research (Asia) director Yaw Yan Chong said it remains to be seen if the June contract will similarly fall into negative territory as it approaches expiry at the end of May.

“The US benchmark WTI May contract’s collapse into negative territory is a consequence of the US government’s refusal to regulate oil production and impose mandatory cuts, despite calls to do so during the G20 recent meeting that had led to historic cuts of 9.7 million bpd by the OPEC+ alliance,” Yaw said.

“Thus far, the US government has not changed from its policy of imposing mandatory production cuts on its oil producers, and has taken the approach of allowing natural attrition to reduce production.

“By mid-April, production has fallen by about 700,000 barrels per day, and that is clearly not enough.

“It remains to be seen if the pace of the production fall will [be] enough to stem the collapse in price,” Yaw said.