Russia of free storage will last for eight days after cessation of exports.
The world is on the verge of exhaustion of free space to store unclaimed oil – this will happen only after three months, according to industry experts quoted by Bloomberg.
According to calculations of the consulting company IHS, Markit, the current pace of supply and demand mean that the reserves will increase by 1.8 billion barrels after the first half of 2020. Given that is still only available to about 1.6 billion barrels of storage capacity, producers will be forced to cut production because by June, no place to store the oil.
The oil market suffered from falling demand as a result of the outbreak of coronavirus, and Saudi Arabia decided to increase production and give large discounts on oil after the collapse of the coalition OPEC+. 26 Mar Pakistan banned the import of oil and fuel, because its storage is full. Vitol Group and Gunvor Group, two of the world’s leading trader, saying that there is great interest in storage, as some traders booked supertankers to store oil at sea.
The offer can exceed demand at 12.4 million barrels per day in the second quarter, while other traders, banks and consultants have also predicted significant excess, according to IHS. On Wednesday, Vitol said that compared to last year the demand fell by 20 million barrels a day.
“Production will need to reduce or even to stop. Now the question is where and by how much,” said Jim Burkhard, the head of oil markets at IHS.
Problems of the United States
Lack of storage facilities is already reflected in prices. In the USA the so-called money circulation WTI is trading at its lowest level since December 2008 on expectations that stocks in the delivery point for futures in the U.S. will grow in the coming weeks and months.
Brent futures traded in a deep contango when spot prices are lower than prices in later months, as the market tries to create the necessary financial incentives for storage, putting pressure on prices more near-term, says Bloomberg.
Indicators of physical market also suggest weakness around the world.
The abundance of American oil is growing so fast that, at least one owner of the pipeline are concerned that traders may attempt to store oil in its network before the price increase, says the Agency.
So, Plains All American Pipeline LP requires clients to prove that they have a buyer or a place to unload oil that they transporterowych pipeline company, Agency sources said.
On key storage in Cushing for more than half of capacity filled, the Agency said. Shale oil producers to reduce oil production, but it is not effective in the near future significant effect.
Who have problems more
According to the IHS analysis, three of the world’s largest oil producers, Russia has the least amount of available storage is approximately eight days. These figures are based on the volume of production that can be saved if the export runs out. Saudi Arabia has 18 days, and in the US for 30 days.
Nigeria, the largest producer in Africa, is the most vulnerable country, said IHS. According to company estimates, the estimated daily production in the first quarter of 2020, 1.9 million barrels will fill available local storage for 1.5-2 days.
As said consultant Wood Mackenzie Lay San (Lei Sun), the largest importer in the world – China – in January and February increased storage of oil by 2.5 million barrels per day as refineries reduced performance at the peak of viral infection in the country. The country is likely to continue to increase the storage of oil in strategic reserves in 2020, but loose power over.
According to consulting company Energy Aspect, “as OPEC pushing production to record highs, stocks will quickly get out of control.” “Early in the third quarter of 2020 we will be over capacity for oil storage and facilities for storage of petroleum products will end earlier”, – consider in the company.