Oil prices plunged for a second day in a row on Tuesday on concerns about dwindling global capacity to store more crude and fears that demand may be slow to recover even after countries ease restrictions to combat the coronavirus pandemic.
Brent crude fell 83 cents, or 4.1%, to $19.16 a barrel at 0808 GMT, following a 6.8% slide on Monday.
U.S. West Texas Intermediate (WTI) crude was down $2.57, or 20%, at $10.21 a barrel. The contract plunged 25% on Monday.
Analysts said part of the WTI decline was due to retail investment vehicles like exchange-traded funds selling out of the front-month June contract and buying into months later to avert massive losses like last week, when WTI fell below zero.
The United States Oil Fund LP (USO), the largest oil-focused U.S. exchange-traded product, said it would further shift its holdings into later-dated contracts.
“The exodus in our view remains motivated by concerns over the saturation of storage capacity at Cushing and the associated risk of negative pricing,” Harry Tchilinguirian, global oil strategist at BNP Paribas, told the Reuters Global Oil Forum.
Although the world economy may start to recover as more countries allow businesses to reopen, analysts say prospects for oil prices remains gloomy with so much crude in storage and supply cuts still not deep enough to counter plummeting demand.
“While we expect oil demand to modestly recover from the April lows as countries ease some lockdown measures, demand will remain under severe pressure in the near term because of the COVID-19 pandemic,” said UBS commodities analyst Giovanni Staunovo.
BP Chief Executive Bernard Looney told Reuters his firm expected global oil demand to drop by about 15 million barrels per day (bpd) in the second quarter due to coronavirus-related movement restrictions.
That is more than the 10 million bpd of cuts agreed by the Organization of the Petroleum Exporting Countries, Russia and other allied producers. The reductions are due to be implemented from May 1.
Russian Energy Minister Alexander Novak said on Tuesday oil markets would start balancing out once an output deal took effect, but no significant rise in prices was likely in the near future due to high levels of global storage.
Global storage onshore was estimated to be about 85% full as of last week, according to data from consultancy Kpler.
In a sign of the energy industry's desperation for places to store petroleum, oil traders are resorting to hiring expensive U.S. vessels to store gasoline or ship fuel overseas, shipping sources said.