By Irina Slav
The growing supply glut in oil markets could end up filling all storage tanks worldwide, potentially causing prices to drop even further
Global oil storage could overflow in the coming weeks as the coronavirus pandemic has dealt a severe blow to demand while Saudi Arabia has promised to supply 12.3 million bpd—not just in April but also over the next few months.
Reuters reports, citing analysts, that such a development would overwhelm the already troubled oil industry, forcing production shutdowns. Storage facilities—both on land and offshore—are already filling up, the news agency noted, and Saudi Arabia has not yet started to increase its deliveries of crude.
If such a scenario unfolds, some analysts believe oil prices could slide as low as $10 per barrel.
“We believe we have not seen the worst of the price rout yet, as the market will soon come to realize that it may be facing one of the largest supply surpluses in modern oil market history in April,” Reuters quoted Rystad Energy’s head of oil markets, Bjornar Tonhaugen.
Saudi Arabia said yesterday it will maintain oil supply at 12.3 million bpd over the next few months, with exports to rise to a record 10 million bpd from next month, Reuters reported on Wednesday.
Meanwhile, the glut is causing traders to offer their cargos at steep discounts in a desperate effort to find buyers, Reuters also reported. This raises some questions about Saudi Arabia’s ability to sell the excess crude it plans to be producing over the coming months.
“There are no buyers,” an oil trader from the U.S. told Reuters. “Refiners in trouble, exporters in trouble, producers in trouble. This is a disaster with no end in sight.”
“Cargoes are being severely discounted to move as there are little prospects to export and also very few options to store on ship and/or tanks,” another industry source told Reuters.
At the time of writing, Brent crude was trading at less than $28 a barrel, with West Texas Intermediate at $22.78 a barrel.
By Irina Slav for Oilprice.com