Oil cascaded 5 % to near 6-year lows prior to its recovery last week and Brent shortly traded at par to U.S. crude for the first time in three months as several traders move to take advantage of ample storage space in the U.S.
Traders were looking to store the surplus of oil, which has knocked prices down 60 % in the last preceding months. This week, Brent has lost 7 % and the U.S. crude 5 % respectively.
Brent settled down 84 cents at $46.59 a barrel following its fall to $45.19, its lowest level since March 2009. Moreover, U.S. crude closed down 18 cents $45.89 following a hit on April 2009 low of $44.20.
Oil likewise tumbled earlier following big OPEC produced United Arab Emirates shielding the group’s decision not to cut output in order to bolster prices.
Losses were strip by an outbreak of short-covering towards the close as players move to cash in on profitable short positions.
The arbitrary range between U.S. and Brent crude traded at close parity for the first time since October with both markets reaching a $46 a barrel at a certain point.
According to traders, the benchmarks converged where there is restricted storage on land for Brent forced traders to search for more storage options in the Cushing, Oklahoma, delivery point for U.S. crude.
U.S. onshore storage tanks for crude are hardly a third full which shows the highest vacancy rate since the government ‘s Energy Information Administration started its bi-annual survey of its tank farm capacity since 2010.
The convergence was seen as not sustainable because the narrowed arbitrage attracted foreign imports. In the case of Brent, some of the world’s largest traders reserved supertankers to store around 25 million barrels at sea in recent days in high hopes of profiting later should prices recover.
At least eleven very large crude carriers (VLCCs) have been reported reserved with storage options shipping sources and fixtures list reveal a rise of five vessels at the end of last week with each of these VLCC can hold a maximum of 2 million barrels of oil.
Price differentials for U.K. North Sea Forties were waning down last week pressured by an abundance in supply in the Atlantic basin. According to the U.S. government, domestic oil production will rise by 200,000 barrels per day by the year 2016 the slowest rate of growth in more than four years which is indicative of the adverse effects of plunging prices on drilling.
Traders persisted in their inquisitive inquiries regarding the price rout and when it will subside. Albeit the magnitude of the selloff, there are no indications anyone knows what lies at the end of the tunnel.
The industry group American Petroleum Institute (API) late last week reported that the U.S. crude stocks had risen 3.9 million barrels last week along with distillates and gasoline stockpiles.