As much of the global economy is blocked to limit the spread of the coronavirus pandemic and major oil producers flood the world with crude, investors are wondering where all that oil is going, added the emergency. to the efforts of the Organization of Petroleum Exporting Countries and its allies to reach agreement on production cuts.
“To put this in a certain context, the OPEC Secretariat’s assessment of the world’s available oil storage capacity amounts to more than a billion barrels. Given the unprecedented current imbalance in supply and demand, there could be a colossal surplus of 14.7 million barrels a day in 2Q20, “said OPEC secretary general Mohammad Barkindo, of a virtual meeting of the main oil producers on Thursday.
“This oversupply would add an additional 1.3 billion barrels to global crude oil stocks, and thereby deplete the available global crude oil storage capacity during the month of May,” he said.
Saudi Arabia and Russia agreed in principle on Thursday to cut production by 10 million barrels a day for two months, reports said.
Storage tanks fill up quickly, but not all of them will be ready in the short term, said Geoffrey Craig, global energy analyst at Ursa, a company that uses satellites to track storage levels worldwide.
When people talk about full storage, “it’s more an anticipation of our destination as opposed to the actual situation on the ground,” he said in an interview.
Ursa uses satellites to monitor floating ceilings, or lids, on storage tanks around the world, which it then crunches to calculate the amount of crude in stock. According to the latest estimate, the company found that the world’s storage tanks were about 60% full, leaving around 1.5 billion barrels of storage still available.
“It sounds like a lot but it could be reached in a few months if we started to see big weekly gains,” he said.
The rate of change in the amount of oil stored has changed significantly in the past few weeks, he said, activity in China may offer something of a pattern.
“Just as we see storage in the United States, Europe and the Caribbean starting to fill up, we have seen stocks in China start to drop a little … it’s a sign that things are back to normal in China, “he said. “In a way, oil, inventories mimic the pattern of the epidemic and the way it spread.”
Meanwhile, the U.S. Energy Information Administration said on Wednesday that crude oil stocks in the United States jumped to a record 15 million barrels last week, with stocks in Cushing, Okla.
The oil flood pushed the market into a condition known as contango, which means that deferred oil prices are higher than spot prices, reflecting the overabundance of available oil and potentially making crude oil storage profitable. A long period.
We see that this forces producers to reduce or even stop production in certain regions.
Oil futures contracted volatility on Thursday, concurring with indications that Saudi Arabia and Russia were seeking to implement substantial output cuts in concert with other major producers, but to give up gains despite concerns, the measures will not be enough to compensate for the drop in demand resulting from efforts to contain the COVID-19 pandemic that ended much of the US and global economy.
June Brent Brut Future
the global benchmark, fell $ 1.36 or 4.1%, to end at $ 31.48 per barrel on ICE Europe, while the US benchmark, the West Texas Intermediate crude for delivery in may
fell $ 2.33, or 9.3%, to $ 22.76 a barrel.
Analysts have warned that even with significant cuts, the pressure on storage will continue.
“A solid agreement with OPEC + would be a good development for a market that needs good news. It would not be enough to absorb all of the extra barrels moving around the global supply chain, ”said Robert Yawger, energy director at Mizuho, in a note. “But that would add a few weeks to the” full storage “timeline. Instead of the global storage filling up in eight weeks, it may take eight to 12 weeks. Perhaps Chinese demand will come back by then. “