$20 a barrel is in pipeline due to ‘freakish amount of oil’

OIL is heading for $20 a barrel without immediate intervention from major producers like Saudi Arabia and Russia, which are both attempting to flood the world with cheap crude.

Their action is heralding a rare phenomenon known as supercontango.

A regular contango happens when there is an oversupply of oil on the market, driving the price for immediate delivery below that of the price for future deliveries, leading to stockpiling.

Supercontango, meanwhile, happens when there’s “a freakish amount of oil”, said Credit Suisse global energy economist Jan Stuart. Bjarne Schieldrop, chief commodities analyst at SEB, said: “Saudi Arabia is now selling its oil into Europe at about $25 a barrel and inventories are building. The Brent curve has moved into supercontango.

“As the coronavirus crisis now accelerates in the US and Europe, there is little that can save Brent from $20 a barrel

‘As the crisis now accelerates in the US and Europe, there is little that can save Brent from $20 a barrel’

except for a war in the Middle East or a last minute Opec+ deal.”

Plummeting oil prices have spelt trouble for the UK’S indebted North Sea explorers.

Premier Oil’s shares spiked 27pc yesterday after the company reassured investors of its financial health in the wake of half its market value being wiped out in this week’s market crash.

Premier said that it retained significant liquidity, including cash reserves of $135m (£109m) and agreements with lenders for an additional $330m that it has yet to call on. Its shares, trading near 100p at the start of the year, ended up 3.4p at 16p.

In light of this week’s market volatility and the crash in Brent oil prices, Premier said that it planned to cut its capital expenditure by $100m this year. The company said its debts are subject to quarterly “covenant” tests, which could be affected by low oil prices

The group is scrambling to raise $500m to buy North Sea gas fields from BP in a bid to generate cash and pay off its $2.4bn debts – a pile about 16 times its market value.

Premier is also locked in a bruising battle with its largest lender, Hong Kong-based hedge fund ARCM, over plans to pay down its debts. The acquisition plan assumed oil prices would be between $60 and $70 a barrel for the next five years. Brent crude settled up 1.9pc at $33.85 yesterday.