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Oil lowest in decade
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May 19, 1998: 6:22 p.m. ET
June contract hits its lowest since 1988; demand expected to shrink further
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NEW YORK (CNNfn) - June crude futures on the New York Mercantile Exchange (NYMEX) slumped sharply Tuesday, partly on worries about brimming storage tanks at the contract delivery hub in Cushing, Okla., traders said.
In a day of volatile trading, the June contract settled $1.11 lower at $12.96 a barrel, having traded between $13.90 and $12.50. The June contract, which expired Tuesday, hit its lowest since 1988.
Scott Ryll, an oil trader at GSC Energy, and Ed Kevelson of Paribas Futures attributed the sell-off partly to gross oversupply of oil in the market.
Storage in the United States is full and demand for oil, which has been largely driven by Asia in past years, is slowing down, Ryll said. To make matters worse, demand is expected to contract even further while production continues to be on the upswing, he added.
Ryll expects near-term pressure to continue in the oil market and said investors are still looking for evidence that OPEC and non-OPEC members will fully comply with previously announced production cuts. Not everyone has yet, he said.
Ryll added that oil prices could strengthen in the second half of the year, but it depends on whether and how much oil producers adhere to production cutbacks.
While June prices fell sharply, July was down just 10 cents at $15.01, leaving the June discount to July at $2.05, the widest gap since the Gulf crisis.
Such a wide gap would normally make it profitable to buy prompt-delivery crude, put it in storage and sell it forward. But inventories at the contract delivery hub in Cushing last week were just below 82 million barrels, the highest since 1990 and near the estimated total capacity of 85 million barrels.
"There's absolutely no storage in Cushing," a trader said, who noted this had forced traders to liquidate.
"We haven't seen anything like this before," said a NYMEX floor trader.
"Unless we see fundamental changes and OPEC and non-OPEC producers take steps to mop up excess oil, I would doubt whether we can see any improvements," said William Brown, president of the consultancy W.H. Brown & Co. of New York.
Traders also said they expect heavy delivery of non-U.S. crude on the June contract, predicting about three million barrels, which would be nearly as much as last spring's record.
Meanwhile, refined products futures had a fairly quiet day, awaiting the weekly status report from the American Petroleum Institute.
Traders and analysts said they were expecting the report to show gasoline and distillate stocks building last week as refineries cranked up production. While both gasoline and distillate stocks were expected to be up 1.4 million barrels on the week, crude inventories were expected to decline by 2.5 million barrels.
June gasoline futures were down 0.02 cent at 50.03 cents a gallon, while heating oil was off 0.04 cent at 40.95 cents. 
-- from staff and wire stories
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