Oil prices fell Monday as producers scrambled to shut down wells before the world’s crude storage capacity reached its limit.
Futures tied to West Texas Intermediate crude in June, the U.S. benchmark, fell 17% to $14.08 a barrel. Brent crude futures, the global benchmark, fell 4.6% to $23.66 a barrel, extending their losses over the past week to 16%.
Starting Friday, globally coordinated cuts in oil production are set to kick in. Oil-producing nations have agreed to reduce output by 9.7 million barrels a day, approximately 13% of global supply.
Private-sector companies, particularly those in the Gulf of Mexico, have already begun shutting off taps. Baker Hughes’s closely watched weekly report on drilling activity released Friday showed that the number of active oil rigs in the U.S. dropped by 60 last week to 378—down by almost half since March 13.
Energy markets convulsed when WTI futures fell below zero last week, a historic decline driven by a lack of space to house oil at a storage hub in Cushing, Okla. Now, traders are focusing on whether oil-producing nations and companies can cut production fast enough to stop storage filling up world-wide.
Negative oil prices were “the slap in the face that the market probably needed,” said Ben Luckock, co-head of oil trading at Trafigura Group. “The market was producing too much crude oil and people were just trying to hold on for a while.”
Oil prices fell Monday as traders guessed whether the cuts would be enough, according to Ehsan Khoman, head of Middle East and North Africa research at Mitsubishi UFJ Financial Group. He said producers, particularly in North America, likely have no choice but to reduce output by 10 million barrels a day in addition to the 9.7 million barrels agreed upon by major global oil producing nations.
Uncertainty about whether the world will run out of space to store crude will spark more price swings in the coming weeks, traders and analysts say.
Pipelines run to Enbridge's crude-oil storage tanks in Cushing, Okla.
Photo: ReutersIf storage facilities don’t overflow in May or June, traders and analysts said prices could rebound later in the year. A pickup in Chinese oil consumption suggests demand could recover in the U.S. and Europe when lockdowns keeping billions of people at home are rolled back.
The amount of crude oil being processed by refineries in China has bounced from its lows in February, when swaths of the economy were shut down to contain the coronavirus. Independent refining in industry-heavy Shandong province recently hit record levels, according to Warren Patterson, head of commodities strategy at ING Groep.
Write to David Hodari at David.Hodari@dowjones.com and Joe Wallace at Joe.Wallace@wsj.com
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