U.S. crude oil prices tumbled over 20% on Monday after the United States Oil Fund (USO) announced it would sell all its futures contracts for June delivery over a four-day period.
The world’s largest oil-backed exchanged traded fund (ETF) said the move was driven by “evolving market conditions, regulatory accountability levels and position limits being imposed on USO with respect to oil futures contracts.”
There are growing concerns the U.S. oil price benchmark West Texas Intermediate will plunge again into negative territory, as lack of storage capacity remains a critical issue, Kallanish Energy reports.
WTI June contracts plunged to as low as $11.88 a barrel on Monday, settling down by 25% at $12.78/Bbl.
The number of active oil rigs continue to decline in the U.S., with Baker Hughes reporting on Friday the rig count fell by 60 to a total of 378. The rig count is falling quickly towards the lows seen in 2016.
According to ING Economics, “since mid-March, the number of active oil rigs in the U.S. has fallen by around 45% — a clear signal that output is heading lower in the coming months.”
Yet, prices are failing to shift the downward pressure. In fact, futures prices continue to fall despite the some Opec+ countries’ decision to start early production cuts, ahead of May 1.
Bringing forward cuts by a handful of producers may be helpful to a certain extent, but will have little impact on the oil balance in the short term.
Brent crude futures for June delivery settled at $20.03 a barrel – a drop of 6.53%, or $1.40.
This post appeared first on Kallanish Energy News.