Sharp selloff in oil as world runs out of storage space

By Sharon Cho and James Thornhill

(Bloomberg) – Crude extended its slide below $11 a barrel after the biggest oil exchange-traded fund unexpectedly began selling all its holdings of the most active contract amid rapidly dwindling storage capacity.

Futures fell about 17% in New York after losing a quarter of their value on Monday. The United States Oil Fund sold all of its West Texas Intermediate June contracts, significantly widening the spread between July WTI and raising concerns of a repeat of the collapse that sent oil below zero for the first time ever last week. US producers have started making crude deliveries to the nation’s emergency stockpile as storage space runs out.

Oil has lost more than 80% this year as the coronavirus outbreak vaporised demand for everything from gasoline to crude despite global efforts to stem the spread. The world’s biggest producers have pledged to slash daily output from the start of next month to try and balance the market, but the collapse in consumption has led to a swelling glut that’s testing storage limits worldwide.

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South Korea, which holds the fourth-biggest commercial storage capacity in Asia, was said to have run out of onshore space run by two big operators, while Singapore’s coastline has become even more congested with oil-laden tankers. In order to avoid the US hub of Cushing from becoming more than 90% full in May and June, total production shut-ins would have to equate to 1 million barrels a day this month, according to JPMorgan Chase & Co.

“The startling June sell-off is in part due to the reality of storage facilities filling up rapidly,” said Stephen Innes, chief global market strategist at AxiCorp. “The pressure on global storage capacity for oil and oil products remains in focus.”

West Texas Intermediate for June delivery dropped $2.13 to $10.65 a barrel on the New York Mercantile Exchange as of 8:09 a.m. London time. Futures fell $4.16, or 25%, on Monday to close at $12.78. The gap with the July contract was wide at about $7 a barrel.