Oil falls on concerns over storage, weakening economies
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LONDON (Reuters) – Oil prices fell on Monday, with a U.S. crude futures contract hitting its lowest level since 1998, as concerns that U.S. crude storage will soon be full and bleak economic data hit sentiment.
Brent LCOc1 was down $1.62, or 5.8%, at $26.46 a barrel by 1211 GMT, while the front-month May WTI contract CLc1 fell $6.22, or 34%, to $12.05.
At one point, the contract hit a low of $11.04 a barrel, the lowest since 1998. However, analysts said the sell-off was exaggerated by the contract’s imminent expiry.
“The May contract is set to expire tomorrow and the bulk of the open interest and volume is already in the June contract,” said ING’s head of commodities strategy, Warren Patterson.
The spread between front-month contract and second month was more than $10, the widest in history, as the June contract CLc2, which is more actively traded, fell $2.63, or 10.5%, to $22.40 a barrel.
Many investors appeared to be misled by what appeared to be a low oil price, without taking into consideration the fact that the oil future contracts expire normally on a monthly basis, Commerzbank analyst Carsten Fritsch said.
The volume of oil held in U.S. storage, especially at the Cushing delivery point for the U.S. West Texas Intermediate (WTI) contract in Oklahoma, is rising as refiners throttle back activity in the face of weak demand. [EIA/S]
“As production continues relatively unscathed, storage is filling up by the day. The world is using less and less oil and producers now feel how this translates in prices,” said Rystad’s head of oil markets, Bjornar Tonhaugen.
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