Oil Storage Buckles As Virus Saps Demand
Faizan Hashmi 7 days ago Fri 27th March 2020 | 08:40 AM
London, (UrduPoint / Pakistan Point News - 27th Mar, 2020 ) :Global oil storage capacity is under intense pressure because of booming output from Saudi Arabia and the United States while the coronavirus outbreak slams the world economy and crude demand.
That all changed earlier this month when Saudi Arabia launched a vicious price war with Moscow, after OPEC and non-member Russia failed to clinch an output-cutting deal to curb the market impact of the deadly COVID-19 outbreak.
The perfect storm sent oil prices collapsing to their lowest levels in almost two decades, with London Brent North Sea hitting $24.52 per barrel and New York's WTI crude striking a nadir of just $19.46.
And the estimated level of total oil stockpiles has now overtaken the previous peak set in early 2017, according to data from energy sector intelligence firm Kpler, which warns stocks continue to swell.
Michael Tran, energy strategist at RBC Capital Markets, predicts the global surplus could now reach 10.
- Challenge to capacity - "Global storage is currently 66 percent utilised and nearly 1.7 billion barrels of unused capacity remains," Tran said.
"By our estimation, inventories may challenge global storage capacity limits late this year or early next." Kerosene or jet fuel -- which is refined from crude -- is often the first oil product to suffer because aviation demand tends to falter first in a weak global economy.
"Among the various fuel sectors, we expect jet fuel to be hit the hardest," added Rystad Energy analyst Bjornar Tonhaugen.
"Storage tanks, especially for jet fuel, will reach (their maximum level) possibly .. during April." SEB analyst Bjarne Schieldrop painted a similarly gloomy picture of the outlook for oil storage, as crude prices languish close to recent lows with no sustained recovery yet in sight.
"We are now looking at surplus in the second quarter of 2020 at a scale that we have never seen before," he said, adding that with people now sitting at home in confinement that demand could fall even more.
"It means that storage capacities will be breached. The oil price will then have to crash to a level where production more or less immediately is shut down. This now seems to be where we are heading," Schieldrop warned.