Oil traders across the globe are offering cargoes far in advance as rapidly vanishing demand drives key physical crude prices to multi-decade lows, with some US oil valued at roughly $10 a barrel.
The oil market is caught between a collapse in demand due to the coronavirus pandemic and a price war between Saudi Arabia and Russia. Both factors are expected to flood markets with oil.
Refineries worldwide have started to shut units, with some closing outright, while major operators like India's IOC have declared force majeure on crude purchases as they struggle with the sudden stoppage in demand. Key benchmarks in Canada and Mexico traded at less than $10 per barrel on Monday, less than the cost of production.
Oil futures rallied on Tuesday, on hopes that potential negotiations between US and Russia would end the oil-price war. But the weakness in physical markets shows market participants more focused on the avalanche of coming supply running into a worldwide collapse in demand.
"The gap between physical assessments and futures reflects the differences between the realities on the ground and speculations about efforts to ease that pressure going forward," JBC Energy consultants wrote Tuesday.
Trafigura on Monday estimated global oil demand will fall by about 30 million bpd, or about one-third of daily world consumption, as lockdowns hammer fuel needs.
Saudi Arabia is due to announce its official selling prices by next week. These typically set the tone for sour barrels and more cuts are expected, adding pressure on traders to get rid of long-term supplies fast.
In a sign of that desperation, traders were offering May cargoes of WTI Midland to Europe, unusually far in advance. Typically, cargoes for May delivery do not surface until at least April.
Commodities merchant Mercuria offered three May cargoes carrying WTI-Midland at dated Brent minus $3.40 for Rotterdam delivery on Monday, while Trafigura offered the same at minus $4.10 a barrel.
JBC Energy consultancy estimated that there would be around 6 million barrels per day (bpd) of homeless crude in April and about 7 million bpd in May.
West Texas Intermediate crude (WTI) at Midland, the United States' flagship crude oil grade priced in the heart of the Permian Basin, fell to about $10 a barrel, its lowest since late 1998, as demand plummeted and tanks filled. That means for March, that grade has dropped 75%, while US futures are down by 52%.
Midland traded as low as $9.75 below the US benchmark, which settled near $20 a barrel on Monday.
The price differential for key North Sea grade Forties fell to a record low at minus $3.25 a barrel versus benchmark dated Brent on Monday. Kazakhstan's CPC Blend fell to a record low at a $7.65 a barrel discount.
Dated Brent is the physical European benchmark, used to price over half of the world's crude oil.
Export barrels at the US Gulf were also offered at record discounts to US futures, traders said, another signal of slumping demand.
US pipeline operators have told producers to stop sending barrels without proof of buyers, lest pipelines be stuck with barrels. However, some producers that locked in space on new arteries to the US Gulf are forced to ship those barrels due to long-term shipping agreements - meaning they are now flooding the coast with cheap crude.
WTI at East Houston (MEH) crude, one of the biggest Gulf Coast export grades, traded at $6 below benchmark futures, lowest on record. Mars crude, the US Gulf sour benchmark, weakened to $8 below futures, the lowest since 2008.
Canada's Western Canadian Select heavy oil for April delivery in Hardisty, Alberta, traded at about $7 per barrel, a discount of $13 to US futures, according to NE2 Canada Inc, though volumes were thin.Mexico's Maya heavy crude, the primary Latin American oil price benchmark, fell to $9.24 per barrel on Monday, according to S&P Global Platts, the first time it hit the single digits in over 18 years.