Oil crashes below $18. Crude hasn't been this cheap since just after 9/11

President Donald Trump's victory lap for convincing Russia and Saudi Arabia to cut production looks awfully premature.

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Matt Egan
, CNN Business
CNN — President Donald Trump's victory lap for convincing Russia and Saudi Arabia to cut production looks awfully premature.

US oil prices plunged another 13% Friday, breaking below $18 a barrel. At one point, crude dropped to $17.33 a barrel -- the weakest price since November 2001.

The accelerating crash in the oil market reflects a realization that the record-setting OPEC+ output cuts aren't nearly enough to offset the epic collapse in demand caused by the coronavirus crisis.

Crude skyrocketed to $28.34 a barrel on April 3 after Trump signaled Saudi Arabia and Russia would make massive production cuts. After OPEC+ eventually agreed to those cuts last weekend, Trump thanked Russian President Vladimir Putin and Saudi King Salman for settling their recent price war.

"This will save hundreds of thousands of energy jobs in the United States," Trump tweeted Sunday.

Yet crude has renewed its selloff in recent days and is now down 39% in the two weeks since that April 3 peak.

Friday's selloff was a bit bizarre, though. While US oil prices tumbled, Brent crude -- the global benchmark -- barely budged.

Although the front-month April contract for US oil plunged, the May contract held up well. The April contract expires early next week.

Ryan Fitzmaurice, energy strategist at Rabobank, said he expects this dynamic to be a "recurring theme" in 2020 as the market is forced to price in higher cost storage options.

"There is something anomalous going on. There may be someone caught on the wrong side of this trade who is getting squeezed," said Matt Smith, director of commodity research at ClipperData. "That said, the history books will note that the front month price is at $17. It doesn't particularly matter why."

Supply-demand nightmare continues

Since hitting $63.27 a barrel in early January, US crude has now lost a stunning 73% of its value.

One major problem is that even though OPEC+ reached an historic agreement, the effects of the oil price war linger. Barrels continue to flow to the United States, inundating the market.

The seven-day rolling average of exports from core OPEC nations and Russia has surged by 3.5 million barrels per day in April compared with March, according to ClipperData.

The supply glut keeps getting worse because demand has fallen off a cliff. Social distancing guidelines have shut down many passenger flights, forced people to work from home and shuttered factories.

That has caused barrels to pile up at an unprecedented pace, raising the risk the world will soon run out of space to store it all. The number of oil barrels in commercial storage spiked in the latest week by the most on record, a US Energy Information Administration report earlier this week showed.

"At that pace, storage capacity will be full in the not too distant future," said Ryan Fitzmaurice, energy strategist at Rabobank.

Sub-$20 oil is a nightmare for high-cost US shale oil companies, especially the ones that took on piles of debt to pay for drilling projects that are now uneconomical. Many will be forced to shut down production, dealing a huge blow to the US oil boom.

Rystad Energy recently estimated that 140 US oil producers could file for bankruptcy this year if oil stays at $20 a barrel, followed by another 400 in 2021. That would cause countless jobs to disappear.

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