Oil prices under pressure after slipping into negative territory for the first time

US benchmark West Texas Intermediate swung back into positive single digits while Brent languished at 18-year lows as President Trump pledges to support American producers

A pumpjack brings oil to the surface in the Monterey Shale, California. The landlocked nature of US production constrains the ability to use floating storage as an option. Reuters

Oil prices were under pressure on Tuesday, a day after US crude fell into negative territory for the first time as the markets remained unprepared for a supply glut with storage options close to saturation.

West Texas Intermediate, which tracks North American crude grades, traded in positive single digits late Tuesday after slipping back into the negative during early trading. The US benchmark's May contract was up 114.32 per cent, trading at $5.39 per barrel at 8.19pm UAE time, while Brent sunk to an 18-year low, declining 23.66 per cent to trade at $19.52 per barrel.

Meanwhile, the June contract for the US benchmark was trading at $12.49 per barrel. US crude for May settlement, which expires Tuesday, was revived into positive territory after the US President Donald Trump pledged to support the industry.

"We will never let the great US oil & gas industry down," Mr Trump tweeted on late Tuesday. "I have instructed the Secretary of Energy and Secretary of the Treasury to formulate a plan which will make funds available so that these very important companies and jobs will be secured long into the future."

WTI’s spectacular collapse comes as the US is faced with a shortage of storage for crude, where a record supply from the shale boom has not been matched with adequate storage or pipeline infrastructure.

The lowest level that oil prices had previously fallen was in 1931, when value plunged to $0.1 per barrel. Oil's crash on Monday is also blamed on small-time exchange-traded funds (ETFs), whose routine monthly roll-over was complicated by the fact that there were no takers for oil without booked storage at WTI's physical delivery point in Cushing, Oklahoma.

"Some may dismiss Monday’s fall into negative WTI prices as a quirk of the futures market on the last day before a contract ended," said Jim Burkhard, vice president and head of oil markets at IHS Markit.

"But the fact that prices went this low at all reflects brutal market forces that will not disappear with the expiration of a single monthly contract," he added.

The demand crunch caused by the coronavirus pandemic has hastened the collapse in consumption as airlines stay grounded and people work from home, limiting the demand for crude products. Oil demand is set to contract by 29 million barrels per day in April, according to the International Energy Agency - the lowest since 1995.