NEW YORK (Reuters) - U.S. cash crude prices plunged on Monday, with popular export grades sliding to their weakest levels in more than a year and a half, following a collapse in benchmark futures in the biggest daily price rout since the 1991 Gulf War.
Saudi Arabia and Russia have launched a global price war, and signalled they would hike output in a market already awash in crude.
That will have a dramatic effect on U.S. crude grades, which have grown increasingly popular among foreign importers since the United States lifted its 40-year-old ban on crude exports in late 2015. The drop in global benchmark Brent crude was sharper than the fall in U.S. prices, making exporting U.S. crude to Europe and Asia more challenging.
“We have to let markets calm down a bit to see if exports can still find a home. My guess is U.S. crude has nowhere else to go, so it will be priced to clear in Europe or Asia,” said Sandy Fielden, director of oil and products research, Morningstar in Austin, Texas.
West Texas Intermediate at East Houston, known as MEH, WTC-MEH slid to as low as $1.20 a barrel above benchmark futures, traders said, the weakest since July 2018. That puts it less than $2 a barrel below Brent, which would not be enough to entice buyers in distant markets who are now set to receive Saudi oil at much lower prices.
U.S. crude’s discount to Brent futures at one point on Monday narrowed to as little as $1.40 a barrel, the smallest since November 2016, traders said.
WTI Midland, reflecting prices at the heart of the Permian, the biggest oil basin in the United States WTC-WTM, slipped into negative territory and was at about 50 cents a barrel below futures, the weakest since August 2019.
Mars crude, another popular export grade, was seen at a discount between $1.90 and $1 a barrel below futures, dealers said, the weakest since July 2018.
“The market will do its best to close the arbs (arbitrage) to export U.S. crude as more local Saudi grades will be more competitive into Asia. The question lies in whether or not they still take U.S. crude regardless as they need the lighter grades such as MEH,” said Scott Shelton, energy salesperson from United ICAP.
Producers operating in the Permian have already started to cut activity.
“No choice but to cut. Blood on the street. This is directly going after the producers,” one trader said.
Reporting by Devika Krishna Kumar in New York; Editing by Matthew Lewis