NEW YORK (Reuters) – A month after sellers had to pay nearly $40 a barrel to get rid of U.S. oil futures, the next watershed moment looms with the expiry of the June contract on Tuesday – and so far there is little sign of a repeat of the historic plunge.
FILE PHOTO: Flames emerge from flare stacks at Nahr Bin Umar oil field, north of Basra, Iraq September 16, 2019. REUTERS/Essam Al-Sudani/File Photo
The extent of the damage that the coronavirus pandemic had inflicted on the oil industry came into focus on April 20, when the U.S. benchmark WTI CLc1 contract plunged to minus $38 a barrel.
The virus destroyed so much fuel demand as billions of people stopped traveling that there was almost nowhere left to store the oil. So on the day before the May contract expired, investors stuck with barrels had to pay buyers to take it away.
A month later, governments around the world are slowly lifting travel restrictions and there are signs that demand is recovering from its nadir. Oil prices have staged something of a recovery, with U.S. crude at nearly $30 a barrel.
As oil producers worldwide cut output rapidly, the pressure on storage is easing: U.S. government data this week showed crude inventories fell.
“There’s clearly a different feel to the oil market heading into this contract expiry, with production cuts having been enforced globally, either through deals or unilaterally,” said Craig Erlam, senior market analyst at OANDA.
“But will it be enough to avert another panic selling moment? The odds have certainly reduced … there’s a fine line between confidence and complacency and we can only hope that line hasn’t been crossed or early next week it could quickly unravel.”
Still, the U.S. Commodity Futures Trading Commission, the fe