Oil prices are eventually worse. Global oil storage could reach maximum capacity within weeks, energy analysts have told. It caused by the coronavirus crisis dramatically reduces consumption. And also, some of the world’s most powerful crude producers start to ramp up their output.
The coronavirus pandemic has meant countries have effectively had to shut down, with many governments imposing draconian measures on the daily lives of billions of people. In addition, oil prices could eventually plunge.
It has created an unprecedented demand shock in energy markets, with storage space – both onshore and offshore – quickly running out.
At the same time, a three-year pact between OPEC and non-OPEC partners to curb oil output ended on Wednesday. It was paving the way for oil producers to ramp up production.
According to CNBC, OPEC kingpin Saudi Arabia has pledged to hike output to a record high.
Bjarne Schieldrop, chief commodities analyst at SEB, told CNBC via email this week. He said, “Refineries in many places are now losing money for every barrel they process, or they have no place to store their output of oil products.”
He pointed out that when refineries shut down, many oil producers have nowhere to send their crude if the refinery is also part of the logistical chain to the market.
Landlocked Crude Prices Seen Falling Below Zero
International benchmark Brent crude traded at $25.33 Wednesday afternoon, down more than 3.8%, while U.S. West Texas Intermediate (WTI) stood at $20.54, around 0.3% higher.
Both benchmarks recorded their worst-ever quarter through the first three months of the year, according to data compiled by CNBC. Brent futures collapsed over 65% in the first quarter, while WTI slumped more than 66% over the same period.
To date, around 862,000 people have contracted COVID-19 worldwide, with 42,404 deaths, according to data compiled by Johns Hopkins University.
Analysts at Goldman Sachs have warned the coronavirus shock is “extremely negative for oil prices and is sending landlocked crude prices into negative territory.”
Storage Capacity to Hit Its Limit ‘by Midyear’
“With demand collapsing but supply rising after OPEC and non-affiliated Russia failed to reach a production cut agreement in early March, global inventories could reach their maximum capacity within weeks,” analysts at Eurasia Group said in a research note published Monday.
“Already, ports and refiners are turning away oil tankers. This will put even more downward pressure on prices and pose an existential threat to many companies,” Eurasia Group said.
Analysts at Energy Aspects expect the ongoing oil price war between Saudi Arabia and Russia will keep production elevated until the end of the year.
This means the world will run out of crude storage capacity early in the third quarter of the year, they added, with product containment arriving earlier.