US oil nosedived below $11 a barrel on Tuesday after a major exchange-traded fund started selling its short-term contracts of the commodity, and storage concerns mounted as the coronavirus strangles demand.
West Texas Intermediate, the American benchmark, for June delivery dropped 14.8% to $10.88 a barrel in Asian morning trade – a day after plunging 25%.
International benchmark Brent crude slipped 4.4% to trade at $19.10 a barrel.
Prices have plunged in recent weeks as demand for the commodity collapses owing to lockdowns and travel restrictions imposed worldwide to fight the virus.
Last week, US oil fell below zero for the first time as investors scrambled to offload it before the expiry of the May trading contract, but could not readily find buyers.
The latest fall was driven by the United States Oil Fund – a massive, oil-backed exchange-traded vehicle – saying it would sell all its holdings in the WTI contract for June delivery.
By investing in longer-dated contacts, the fund’s move put pressure on the June contract, analysts said.
The move highlighted continued concerns that storage is filling up and that when futures contracts do expire, buyers may find there is little space to put the oil they have purchased.
“The startling June sell-off is in part due to the reality of storage facilities filling up rapidly,” said Stephen Innes, global market strategist from AxiCorp.
The Oil Fund’s move “is causing a massive price distortion between June and July,” he added. WTI for July delivery was changing hands at more than $18 a barrel on Tuesday.
The storage concerns have overshadowed signs that some countries are starting to slash production in line with a major agreement hammered out this month.
Top producers have agreed to reduce output by 10 million barrels a day from May to shore up markets, a deal that marked an end to a price war between Russia and Saudi Arabia.
Prices have won back ground since falling into negative territory last week, but remain at their lowest levels for years.