May 20, 2022
Oil barrels

The price of US oil jumped by almost 20% today, continuing its recovery having previously hit a 21-year low.

The recovery follows a historic shock on Monday, when US oil for May delivery traded at negative prices due to a combination of evaporating demand as a result of the pandemic and a critical lack of storage for the excess barrels created. The situation saw traders effectively paying people to buy American crude from them.

U.S. benchmark West Texas Intermediate rose by 19.7% to settle at $16.50 per barrel, having recovered to $11.57 on Tuesday after falling as low as $6.50. Brent crude, the international benchmark, gained 4.7% to settle at $21.33.

But the strength of performance over the last two days has not gone too far in recovering oil’s 75% year to date loss – WTI started the year trading above $60. Monday was the first time in history that WTI had traded at negative prices.

The market has become more volatile due to concerns over where to store barrels that nobody wants as the coronavirus pandemic causes demand to disintegrate. Saudi Arabia and Russia have agreed with other members of the OPEC+ alliance to cut supply in response to the situation, but this seems to have done little to calm investor fears.

“The problem is that storage costs money, and there is a limited supply of storage facilities” said Alistair Healy, CEO of Sunborn Consulting. “Storage is scarce at the moment and therefore expensive, so it’s not cost effective to buy oil and store it.”

With the June WTI contract expiring on May 19, it is entirely possible it could plunge in the same manner.

“June could see a repeat of the same scenario, with storage tanks struggling to come off highs” Added Healy.