Oil prices drop amid supply glut, fears of second coronavirus wave

SINGAPORE (Reuters) – Oil prices slid nearly $1 a barrel on Monday as concern over a persistent glut and economic gloom caused by the coronavirus pandemic combined to cancel out support from supply cuts at some of the world’s top producers.

Brent crude futures LCOc1 were down 73 cents, or 2.4%, at $30.24 a barrel by 0114 GMT, while U.S. West Texas Intermediate crude futures CLc1 fell 81 cents, or 3.3%, to $23.93 a barrel.

Both benchmarks have notched gains over the past two weeks as countries have eased business and social lockdowns imposed to cope with the coronavirus and fuel demand has rebounded modestly. Oil production worldwide is also declining.

But possible signs of a second wave of coronavirus infections in northeast China and South Korea worried investors even as more countries started to pivot towards easing pandemic restrictions in moves that could support oil demand.

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“They’ve removed some of the lockdowns but does that mean the worse is over for now?” said Tony Nunan, a senior risk manager at Mitsubishi Corp in Tokyo.

Global oil demand has plummeted by about 30% as the coronavirus pandemic curtailed movement across the world, building up inventories globally.

“Oil companies are dealing with a plethora of challenges due to the sudden decline in demand,” GlobalData oil and gas analyst Haseeb Ahmed said in a note.

“North America is battling a severe shortage of storage capacity … it may be only a matter of time, before the country (the United States) runs out of storage space.”

Fears that the United States is running out of storage space triggered WTI prices crashing into negative territory last month, prompting some U.S. producers to slash output.

In a sign of that impact, the number of operating oil and gas rigs in the world’s largest oil producer fell to 374 in the week to May 8, a record low according to data released on Friday from energy services firm Baker Hughes Co (BKR.N) going back to 1940.

“People are surprised by how quickly the U.S. is shutting in production and that’s exactly what we need in order to support prices,” said Mitsubishi’s Nunan.

“There’s another 10 days before the June contract expires … if the WTI contract can avoid a crash going into expiry, hopefully we’ve seen the bottom.”

(This story corrects number of rigs to 374, not 74, in paragraph 10.)