The Organization of the Petroleum Exporting Countries in its April Monthly Oil Market Report (MOMR) said that crude oil prices collapsed in March 2020, by the steepest monthly drop since the 2008 global financial crisis. OPEC attributed the massive decline to the COVID-19 pandemic, which caused massive sell-offs in the global oil markets and worldwide oil demand shock, amid a significant excess supply.
In March, the value of OPEC Reference Basket (ORB) dropped by $21.61 (38.9%) month-on-month, to $33.92/barrel, the lowest monthly value in almost 17 years. ICE Brent lost $21.75 (39.2%) month-on-month, to an average of $33.73/barrel, while NYMEX WTI fell $20.09 (39.8%) to an average of $30.45/barrel. DME Oman crude oil futures prices fell in March to $34.22/barrel, $20.08 or 37.0% lower than the previous month. The term structure of ICE Brent, NYMEX WTI, and DME Oman turned into a super contango during the month. On a Year-to-date basis, ICE Brent dropped $13.01 (20.4%), NYMEX WTI was $9.12 (16.6%) lower, while DME Oman fell by $9.04 (15.2%).
As prices persistently fell in March, hedge funds and other money managers cut speculative net long positions. Oil market fundamentals were expected to worsen further as the global economy shrank and oil demand diminished. The market watched all crude benchmark structures turn to a super contango in March. Super contango is used to describe a situation where the spot price for a commodity is trading dramatically lower than the futures price.
In this case, the situation was caused by a massive oil demand destruction, massive refinery run reduction, and rising global oil supply. These factors were expected to lead to a market surplus which would likely reach around 15 million bpd in the second quarter of 2020, pushing spot prices to slump far below longer-dated contracts.
