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Oil futures saw further pain on Tuesday, with the most-active June contract for the U.S. benchmark falling to a roughly 21-year nadir a day, after the May contract made history by settling in negative territory for the first time ever, as a glut of oil and dwindling places to store the commodity combined to obliterate crude values.
Meanwhile, Brent tumbled into the teens for the first time in about 18 years as the international grade oil succumbed to heavy selling pressure.
West Texas Intermediate crude for June delivery CLM20, -20.65% was down $3.93, or more than 19%, at $16.50 a barrel, after tumbling 18.3% on Monday, putting prices around its lowest level since 1999, according to FactSet data.
Meanwhile, WTI crude for May delivery CLK20, +89.37% CL.1, +89.37%, which expires at the end of trade at 2:30 p.m. Eastern Time Tuesday, pared its losses and was trading at negative $6.30 a barrel after picking up $31.33 in the session, following a stunning 306% decline that placed the front-month contract at negative $37.63 a barrel.
The traverse into negative territory effectively means that producers of crude must pay for buyers to take oil off their hands due to a dearth of places to store the commodity.
“When oil turns into a negative-yielding asset, that’s a signal that the imbalance between supply and demand has reached a crescendo so great that producers are losing money to get oil off their books,” said Marios Hadjikyriacos, investment analyst at XM, in a daily research note.
The epic decline for crude prices comes even after a group of major producers, including the Organization of the Petroleum Exporting Countries and Russia, a group collectively referred to as OPEC+, last week struck a historic agreement to curb daily output among oil producers by around 10 million barrels.
The pact was intended to end a price war between Saudi Arabia, the de factor leader of OPEC and Russia, which had erupted just as demand for oil was expected to tumble amid the outbreak of COVID-19. The pandemic has caused world-wide closures of business and travel, badly damaging demand for oil.
Read:Why oil prices just crashed into negative territory — 4 things investors need to know
“The mix of two black swans, namely the tragic spread of coronavirus and the missed agreement between OPEC+ has been the trigger for this dramatic collapse,” wrote Carlo Alberto De Casa, chief analyst at ActivTrades in a Tuesday research report.
Analysts estimated that the OPEC+ deal, which included agreements to reduce daily output by non-members including Norway and the U.S., wasn’t sufficient to sop up the excess oil and offset the shock to demand exerted by the virus.
“The deal was simply not enough with analysts estimating a fall on the demand side of close to 30 million barrels per day, three times the cut reached by OPEC+,” De Casa wrote.
The unbalanced state of the energy market has encouraged producers to store oil in the hopes that prices will recover but expectations for higher values in the future have only exacerbated further declines.
WTI contracts for later delivery, for example, have traded at much higher prices than the front-month May contracts. The steep upward slope for prices in later months in crude, a condition known as contango, underlines the dearth of storage of crude in recent weeks as the coronavirus wreaks havoc on global demand for oil.
“And speculators are playing a game of ‘musical chairs’ to see who ends up holding those contracts at the end,” Hadjikyriacos wrote.
On Monday, speaking during a daily briefing about the U.S.’s response to the pandemic, President Donald Trump said the U.S. is “looking to” add as many as 75 million barrels of oil to the Strategic Petroleum Reserve.
The president said he was considering the move “based on the record low price of oil,” and that the action would “top it out.”
Steve Goldstein contributed to this article
