Following the outbreak of the pandemic disease sweeping across borders, productions everywhere around the globe are either slowed down or completely stopped. Since billions of people are confined in their homes, there is increased pressure in the energy markets as storage space onshore and offshore declines.
An analyst from Goldman Sachs an American multinational investment bank stated that the sudden outbreak of COVID-19 is negative for oil prices. As gathered, global oil storage could hit its highest capacity in a number of weeks this will be a result of the global crisis dropping consumption and the top crude oil producers in the world ramping up their output.
Since the three-year pact OPEC had with its Non-OPEC partners to eradicate oil output was nullified four days ago, oil producers may capitalize on the situation by ramping up production.
OPEC Kingpin Saudi Arabia announced plans to make output jump or plunge to a record high. According to Bjarne Schiedrop, SEB Chief commodities analyst, the coronavirus crises will make refineries shut down following limited places to store oil output for the barrels processed. This certainly doesn’t look good because refineries shutting down as direct effects on several oil producers who won’t have a place send their crude.
This translates that land-based oil producers, the local prices they receive quickly drops to zero. In another case, it might drop to even negative because if there is abundant oil, they will need to transport those oil to other places till the shutdown production is resolved. Therefore, they need to pay to get the oil transported. The producer will want to pay any amount to get the oil transported.
In the afternoon on Wednesday, International benchmark Brent Crude traded at $25.33 while U.S. WTI traded at $20.54. Down more than 3.8% and 0.3% higher respectively.
According to data from CNBC, these two benchmarks were met with the worst-ever quarter through the first three months of the year.
According to the U.S investment bank, 1 billion barrels of spare storage capacity in the world may not be used as the global crisis and shock will affect transportations networks. WTI, WTI Midland and Western Canada Select will be terribly affected by this.WCS traded for as low as $4.18 this week which is lesser than a good pint of beer in Canada.
“Industry participants are saying it is virtually impossible to find conventional onshore tanks. Even if OPEC and other producers start restricting their output again soon, the supply overhang from the global lockdown is so big that storage capacity will likely hit its limit by midyear.” Eurasia group commented on storage capacity hitting its limit by mid-year.
According to analysts, the world will run out of crude oil storage capacity, this will happen around the third quarter of the year.
