Oil resumed losses after a brief bounce higher amid the aftershocks of a major index tracked by billions of dollars in funds exiting near-term contracts for fear prices may turn negative again.
June WTI fell about 6% after climbing as high as $13.69 in trading Tuesday morning after an abrupt decision by S&P Global Inc. to tell clients to sell their June West Texas Intermediate holdings. Physical inventory levels of crude are filling quickly, forcing investors to reconsider holdings in the near-term contract.
Oil’s 80% plunge since the start of the year has come as the coronavirus outbreak destroys demand for fuels globally. In response, the world’s biggest producers have pledged to slash daily output starting next month to balance the market, but the collapse in consumption has led to a swelling glut that’s testing storage limits worldwide.
S&P is behind the GSCI commodity index, a popular investment product tracked by pension funds and other global investors. When S&P changes the investment policy, the banks who sell the product in turn move their holdings, triggering volatile energy markets.
While the market is being hit by financial flows, Russia warned that there will be no quick fix to low prices. The nation’s energy minister, Alexander Novak said Tuesday that the oil market may only start to rebalance in the second half. Prior to the output cuts, which begin on May 1, supply from the Organization of Petroleum Exporting Countries climbed to over 31 million barrels a day, according to Geneva-based tanker tacker Petro-Logistics.