Oil Plummets as Physical Market Shows Copious Supplies

Oil fell below $70 as the physical market for crude signaled that supplies are more than adequate to meet tepid demand. 

West Texas Intermediate’s June-July cash roll, which reflects crude supply balances at Cushing, Oklahoma, dropped to a discount of 30 cents a barrel, indicating lower demand for barrels being delivered in June than in July. Stockpiles at the delivery point for benchmark US crude futures rose 1.05 million barrels in the week ending May 26, according to traders, who cited data from Wood Mackenzie.

The futures market also reflected ample supply in the short term as the front-month WTI spread deepened into contango, with shorter-dated contracts trading at a discount to longer-dated ones.

Crude prices have dropped about 13% this year amid China’s lackluster recovery from its Covid Zero policy and concerns about aggressive monetary tightening in the US. All eyes will be on the OPEC+ coalition’s next meeting on June 4. Last week, Russia said OPEC+ is unlikely to take any further measures at its meeting, undercutting Saudi Arabia’s warning to oil short sellers to “watch out.” 

Prices:

• West Texas Intermediate for July fell $3.21 from Friday’s close to settle at $69.46 a barrel in New York.
  • There was no settlement on Monday due to the US holiday and trades will be booked Tuesday.
• Brent for July settlement dropped $3.53 to settle at $73.54 a barrel.

Despite Russia having previously pledged to reduce output, its crude oil flows to international markets show no substantive sign of the curbs. Meanwhile, the country aims to boost its daily diesel exports from key western ports by nearly a third in June as some refineries resume full operations following seasonal maintenance.

-With assistance from Lucia Kassai, Devika Krishna Kumar and Sri Taylor.