U.S. Oil Prices Drop to Lowest in Two Decades as Storage Facilities Struggle to Cope with Glut of Crude

U.S. oil prices have tumbled further as the world economy grapples with the COVID-19 coronavirus pandemic and storage facilities fill up, even as the world's largest oil nations attempt to prop up prices with historic production cuts.

On Monday, crude oil reached its lowest price since March 1999. Prices on the May contract for West Texas Intermediate crude futures fell as low as $14.47 per barrel in afternoon Asian trade—just above the $14.40 price set more than 21 years ago—CNBC reported. The international benchmark Brent crude futures, meanwhile, fell 2.8 percent to $27.28 per barrel.

The oil industry has been grappling with a lack of global demand driven by the coronavirus economic slowdown. Demand is estimated to have dropped some 30 percent worldwide, according to Reuters.

Since March, a dispute between Russia and the Saudi-dominated OPEC cartel have driven prices even lower. OPEC agreed to cut production to buoy prices, but Russia refused, possibly seeking to grab a larger market share or undercut U.S shale producers. In response, OPEC flooded the market with oil, driving down prices in the hope of forcing the Russians to comply.

Russia and OPEC have now agreed historic production cuts—totaling 10 million barrels each day, or 10 percent of production—to try and prop up prices. The cuts will kick in next month, augmented by cuts by non-OPEC firms and nations—including the U.S.—that could total another 10 million barrels a day.

But months of sluggish demand have left hundreds of millions of barrels in storage around the world, further depressing prices. Reuters reported there are some 160 million barrels of oil in storage onboard ships, while analysts IHS Markit warned before this month's deal that the first half of 2020 could see inventories exceed storage space by 200 million barrels by June.

In the U.S., producers cutting operations and storage facilities—for example at the WTI delivery point at Cushing, Oklahoma—are absorbing more of the excess supply. Bjornar Tonhaugen at Rystad Energy noted that Cushing has 21 million barrels of excess storage, which he predicted will be "more and more exhausted in the coming weeks."

The U.S. has become the world's largest oil producing nations in recent years as a result of shale extraction. But the meteoric rise of shale producers has come with large debts. An extended period of low prices could force smaller firms out of the market. Producers have been lobbying lawmakers and President Donald Trump to intervene.

Reuters cited James West, an analyst at Evercore ISI, who said that North American exploration and production companies have cut their budgets by around 36 percent versus a year ago, while international firms have cut spending by 23 percent.

Tonhaugen said the the downward trend in oil prices is likely to continue, at least until the OPEC+ agreement kicks in next month. Tonhaugen described Monday's WTI May price fall as "massive" and said it is the "result of the severe oversupply in the crude markets during April, a burden that will also devastate markets in May."

gas, prices, crude, coronavirus, US, producers, storage
This file photo shows a customer at a gas station on the outskirts of Milan, Italy on March 25, 2020. MIGUEL MEDINA/AFP via Getty Images/Getty