Global Oil Storage May Hit Capacity Within Months — Analysts
LONDON (Reuters) — The oil market could see a record supply surplus in April as coronavirus wipes out demand and big producers pump more, creating a global glut that threatens to overwhelm storage capacity within months and force widespread industry shutdowns, analysts said on Wednesday.
Crude is already gushing into storage at land and sea worldwide as countries curb travel and economic activity falls due to coronavirus. Storage levels are rising even before a wave of supply hits the market from Saudi Arabia, Russia and other producers who are gearing up to fight a price war for market share.
U.S. benchmark crude fell to its lowest since April 2002 at $22.60 a barrel on Wednesday and is down more than 60 percent since the start of the year. Brent crude prices have fallen almost 45% in March alone, following the most pronounced demand destruction since the financial and economic crisis of 2008.
As storage reaches capacity, a slide toward $10 per barrel is possible, according to some investors and analysts. That last happened during the 1998 glut before both oil companies and oil producing nations curbed supply.
Some Canadian crude is already trading not far off $10 per barrel because of steep price discounts to U.S. benchmark WTI crude.
“We believe we have not seen the worst of the price rout yet, as the market will soon come to realize that it may be facing one of the largest supply surpluses in modern oil market history in April,” said Rystad Energy’s Head of Oil Markets Bjornar Tonhaguen.
IHS Markit analysts estimated the global oil supply surplus on a monthly basis to range between 4 million barrels per day (bpd) and 10 million bpd from February to May 2020 - equal to 4-10% of global demand.
Standard Chartered Bank expected an “extreme” global surplus of 12.9 million bpd in the second quarter - 13 percent of global demand - and a cumulative surplus exceeding 2.1 billion barrels by the end of the year - well above the annual output of OPEC’s second largest producer Iraq.
“Does the world have enough storage capacity to handle it? ... For crude oil, we estimate total spare inventory capacity at 900 million barrels,” BofA Global Research said.
Goldman Sachs sees over 1 billion barrels of unused storage still available and said while it does not expect the glut to lead to a breach in storage capacity, “it will likely lead to a breach in logistical capacity, meaning ships, pipelines, terminals and processing units.”
STRATEGIC RESERVES
The Organization of the Petroleum Exporting Countries (OPEC) and Russia failed to seal a deal to cut oil production earlier this month, as they disagreed on how to respond to the impact on demand of coronavirus. Since then, OPEC’s de facto leader Saudi Arabia has pledged to flood the world with cheap oil.
Saudi Arabia now plans to boost its crude oil production to a record high of 12.3 million bpd in April, and its crude oil exports to more than 10 million bpd from May.
Some major oil consuming nations like the United States and India have tried to take advantage of low oil prices and bulk their its strategic stockpiles.
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