Storage Facilities 75% Full! Oil Could Crash To $10 a Barrel!

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  • Oil prices may fall to $10 a barrel as the world runs out of storage space.
  • Saudi Arabia prepares to increase its fossil fuel production when global demand for energy continues to fall.
  • World’s storage facilities have climbed three-quarters full on average since the January shutdown of major refineries in China.
  • Oil-rich regions in Western Canada might have to curb production by about 400,000 barrels of oil a day by the end of the month.
  • The global oil industry to store their extra crude oil in offshore oil tankers economically, oil prices have to fall further.
  • The affordable oil storage search will be even more difficult after Saudi Arabia’s “vessel booking spree”. 
  • The global oil price fell to lows of $25 a barrel last week, from more than $65 at the start of the year, and remains below $30 a barrel.

With Saudi Arabia increasing its oil production even when the demand for energy continues to fall amidst coronavirus shutdowns, world’s oil storage capacity may soon run out of space, reports The Guardian.

Storage space for extra oil 

Fossil fuel production 

The world may soon run out of space to store its extra oil as Saudi Arabia prepares to increase its fossil fuel production when global demand for energy continues to fall due to the Covid-19 pandemic.

China’s refinery closure

Oil storage levels throughout the world’s storage facilities have climbed three-quarters full on average since the January shutdown of major refineries in China’s industrial heartlands.

Storage facilities in Canada 

According to analysts at energy consultancy Rystad Energy, Canada in the next few days will run out of storage for its domestic oil production. The same applies to the rest of the world in a few months.

Production curb

The analysts expect that oil-rich regions in Western Canada have to curb production by about 400,000 barrels of oil a day by the end of the month.

Thomas Liles, an analyst at Rystad said, “Compounding the situation is the near-certainty of a steep reduction in crude-by-rail exports this year.” 

How to store extra crude?

The global oil industry may increasingly look to offshore oil tankers to store their extra crude oil. But for this to be economic, oil prices have to fall further.

Oil price fall

Rystad has already warned the industry that the oil price may fall to $10 a barrel this year.

The global oil price fell to lows of $25 a barrel last week, from more than $65 at the start of the year, and remains below $30 a barrel. 

Vessel booking spree

The affordable oil storage search to be even more difficult after Saudi Arabia’s “vessel booking spree”. This has pushed freight rates to maximum in the past three weeks, the analysts said.

Opec and Russia agreement

Next month, an agreement between the Opec oil cartel and Russia to hold back oil production is due to end. The oversupply of oil after this agreement is expected to balloon next month.

The collapse of the deal allows Saudi Arabia, Opec’s de facto leader, to race Russia to increase oil production in a bid to grab a greater share of the market.

Oil price war 

The oil price war is expected to raise the world’s oil production by more than 2.5m barrels of oil a day. This would outpace demand for crude by 6m barrels of oil a day.

Crude and products in store

Analysts at Rystad estimate that the world has about 7.2bn barrels of crude and products in storage, including 1.3bn to 1.4bn barrels onboard oil tankers at sea.

Lack of space

It would take nine months to fill the world’s remaining oil stores, but constraints at many facilities will shorten this window to only a few months.

Price per barrel

Rystad Energy analyst Paola Rodriguez-Masiu said at the current storage filling rate, prices are destined to follow the same fate as they did in 1998, when Brent fell to an all-time low of less than $10 per barrel.

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Source: The Guardian

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