Page 6 - FSUOGMWeek142020

FSUOGM COMMENTARY FSUOGM
Global oil storages near capacity
The world’s oil storage facilities have filled up rapidly amid a glut in supply and spiralling oil product demand
GLOBAL
WHAT:
With oil prices at multi- year lows, countries have begun looking to store as much oil as possible.
WHY:
The collapse of the OPEC+ production agreement has sent supply soaring even as COVID-19 has destroyed demand.
WHAT NEXT:
Unless a severe production cut is introduced soon prices have further to fall.
THE unprecedented glut in global oil supply has tested storage capacity to the limits, driving the world’s biggest producers to negotiate a truce this week and curb their output.
Oil prices have more than halved this year, as efforts to slow the spread of the coronavirus (COVID-19) pandemic have cut deeply into fuel demand. Expectations are that global oil consumption could plummet by somewhere between 10 and 20mn barrels per day (bpd) this month as a result of lockdowns.
China, the US and others have helped prop up weak oil prices by exploiting the situation to fill up their strategic petroleum reserves (SPRs). But storage space is growing increasingly scarce, leading to dire warnings of a further price rout. In some regions, this could even result in some oil temporarily selling for less than zero.
Oil storage levels across the world’s storage facilities have climbed to more than three-quar- ters full on average since China began shutting down its refineries in January, Rystad Energy estimated in late March. This means the world only has less than 1.7bn barrels of unused onshore crude and petroleum product storage left.
“Theoretically, the unprecedented stock- build might mean negative oil prices in places, should the world or some regions run out of stor- age and if higher-cost production is stickier than thought,” Citibank warned in a research note this week.
Globally, the International Energy Agency
(IEA) has warned that oil inventories will still rise by 15mn bpd in the second quarter, even if Russia, Saudi Arabia and other producers agree to take 10mn bpd of supply offline as planned.
With land storage reaching the brim, oil trad- ers are currently storing as much as 80mn barrels of oil at sea, Reuters reported on April 1. This is nearing the level reached after the 2008 financial crisis, when more than 100mn barrels of oil were temporarily stored at sea following a collapse in demand.
Storage tanks in the UAE’s flagship Fujairah oil hub were reported to have reached full capac- ity for both crude oil and petroleum products at the start of this month.
Fujairah, at the entrance to the Strait of Hor- muz, is one of the Middle East’s biggest storage locations. The Fujairah emirate aims to boost capacity to 14mn cubic metres this year, from 10 mcm previously. To the extent that it is possible, construction work is likely to have been fast- tracked since oil prices collapsed in early March. But the emirate is yet to announce any concrete progress in expanding capacity.
Opening up
The US government has already taken steps to help the country’s producers amid mounting concerns over how they will handle the glut cre- ated by the collapse of oil prices last month.
Last week, it was announced that the US Department of Energy (DoE) would make 30mn barrels of storage in its SPR available with
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w w w . N E W S B A S E . c o m Week 14 08•April•2020