Oil prices continue to tank as storage fears persist, and commodity giant BP warns of a shock 'on a scale never seen before'

• Oil prices fell for a second consecutive session on Tuesday on fears that global storage for oil is running out.
• The price of West Texas Intermediate fell to a low of $10.07 a barrel on Tuesday.
• Oil prices plummeted 30% after United States Oil Fund, one of the largest oil ETFs announced it would sell all futures contract for delivery in June over a four day period.
• Follow the price of oil live with Markets Insider.

US oil prices tanked on Tuesday as fears mounted that global oil storage is running out, prompting concerns that the June contract could significantly plunge in the same way as the May contract did last week.

As of 5.30 a.m ET, US oil prices shed 15% and were hovering around $10.96 per barrel.

Meanwhile, Brent, the international benchmark was also down, albeit by just 1%, trading around $19.50 a barrel.

Oil prices had recovered from historical lows in recent days, but on Monday oil prices plummeted 30% after United States Oil Fund, one of the biggest exchange traded funds in oil announced it would sell all futures contracts for delivery in June over a four day period.

Neil Wilson, chief markets analyst at Markets.com, said: "On oil, the front-month (June) WTI contract is coming in for the expected bashing. Prices plunged Monday and have extended losses in Asia after USO said it was dumping its June contracts, about 20% of its holdings."

He added: "Increasingly there are also signs floating storage is running out for Brent. There is nothing to stop front month WTI approaching zero again with nowhere to stash the oil."

Global storage is running out

Oil prices remain under historical pressure due to lack of demand as the coronavirus has crippled economic activity and brought every major economy to standstill.

Lack of storage options, particularly at a key storage facility in Cushing, Oklahoma, and the reduction in demand for the commodity during the ongoing coronavirus pandemic has tanked prices in recent days.

These factors drove the West Texas Intermediate to turn negative for the first time in history last week, and Brent followed some of the losses, dropping to two-decade lows.

Saudi Arabia has scrambled to cut production ahead of a 1 May deadline and the US has slowed down drilling operations in efforts to prevent oil prices from tanking further.

South Korea reached its maxium storage on Monday, Bloomberg reported. The US's delivery hub in Cushing is also reaching its maximum limit, threatening to trigger WTI contract volatility as the deadline for June deliveries inches closer.

Goldman Sachs warned last week that it could take just 3 weeks for the world to hit its maximum oil storage capacity.

Oil market volatility in recent days comes despite a deal by OPEC and its members to reduce supply by 9.7 million barrels. Last week's stunning falls prompted OPEC to summon its allies and agree on cutting supply earlier than intiially agreed.

Naeem Aslam, chief market analyst at Avatrade said: "Most of the sell-off is mainly because of the fear that the expiry date for this contract is approaching fast and there isn't much space left for storage."

"The anxiety among traders is that we are likely to see the repeat of what happened with the previous month's contract and this is the reason that we are seeing many oil ETFs, such as USO, moving all of their positions out of the June contract to later months," Aslam warned.

He said if the June contract falls below $10 then the next support level for traders to keep a look out for will be $5.

Aslam added: "A further drop from that will open the door for a panic sell-off and the possibility of negative oil price may become a reality once-again—meaning you will have to pay to sell oil."

Wilson added: "The market will remain in steep contango as traders try to find shelter in future months but this only heaps more and more pressure on the front months. "

The term contango means that future prices are more expensive than spot prices, indicating lack of demand in the present.

But Aslam pointed out the fundamentals are pointing towards an improved picture saying "demand has hit a rock bottom".

"Overall, I do contemplate that fundamentals are improving to a small extent because the US shale oil rig count has dropped vividly over the last week, and it is bound to have a positive influence on supply."

"This is because, with the easing global lockdown measures, it is only a matter of time when we will start witnessing the demand equation showing more signs of life," he added.

Oil giant BP reported a 66% drop in first quarter profits on Tuesday as the impact of coronavirus bites companies across the globe, particularly the energy sector.

"Our industry has been hit by supply and demand shocks on a scale never seen before," Bernard Looney, BP's CEO said in a statement.