Crude oil price continued to tumble on overnight trading as concerns about oversupply and low demand continued. WTI futures for June delivery dropped to as low as $10.62 barrels while Brent fell to about $21 per barrel.
Oil tankers with nowhere to go
The decline of oil prices is mostly because of low demand in the market. A recent report by NPR said that more than 24 large oil tankers were seen off the California coast with no place to go. This is mostly because American gas stations are not buying any oil since most people are not fuelling.
Just yesterday, another report by South China Morning Post said that dozens of tankers with jet fuel were seen in Singapore. With planes not flying, these tankers will remain at sea for a longer period.
Analysts at Kpler believe that there are currently more than 20 million barrels of oil on board the oil tankers spotted in Californian coast. This is four times than what happens during normal times.
Worse, oil storage facilities are almost getting full, which means that these tankers are being converted into temporary storage facilities. Still, storing oil at these tankers is expensive, which is partly the reason why the price turned negative last week.
Saudi Arabia can’t save oil prices now
In a report yesterday, Saudi Arabia said that it would start cutting oil production before May. This is ahead of what OPEC leaders had agreed. In the United States, oil producers have also been forced to cut production. According to Baker Hughes, the number of active rigs have dropped to below 400 from a high of more than 800 in the previous month.
Similarly, oil companies have started going bankrupt, which will reduce supplies. On Sunday, Diamond Offshore, a leading company that was losing money even before the current crisis went out of business.
Crude oil ETFs not helping
Another reason for the current decline in oil price was that oil ETFs are not helping. According to the Financial Times, the United States Oil Fund started offloading its holdings. This is sad because it is the biggest oil ETF in the world. It said that it would sell oil assets worth more than $3.6 billion, which is about 20% of its portfolio. In a statement, Givovanni Staunovo of UBS said:
“By selling shorter-dated future contracts and investing into longer-dated contracts, they are putting pressure on the front WTI contract.”
On the four-hour chart, we see that the WTI price found significant support around the 18.26 level after its slump last week. The trend of the price is currently bearish as bears remain in control. I expect the price to continue falling, as bears attempt to break the $10 support.
If this happens, the next key level to watch will be last Tuesday’s swing low at about $6.45. This trend will continue so long as the pair remains below last week’s key resistance level at $18.26.