The coronavirus pandemic and related self-isolation measures have triggered a massive fall in global demand for oil. Traders are now struggling to find storage space for excess crude, hoping that demand will increase rapidly once the lockdowns are lifted.
President Trump said a coalition of 23 nations that reached a deal on Sunday to address a mounting global oil glut is aiming to cut production by 20 million barrels of oil a day, more than twice the number originally revealed https://t.co/7j6fNP6U5P
— The Wall Street Journal (@WSJ) April 13, 2020
The real oil market has a huge glut and the OPEC+ output curbs won’t even begin until May, so the curbs won’t really affect physical oil supply for months https://t.co/6JjDwp7SxP
— Bloomberg (@business) April 15, 2020
Gas prices have fallen across most of the country because we have an oil glut. There's so much oil, there's virtually no place to store it. Yet in California, gas prices are STILL around $4.00/gallon. pic.twitter.com/Mx4CoXHb9O
— Tom Odell (@TomKOdell) April 19, 2020
A record 160 million barrels of oil is currently being stored in large tankers outside shipping ports due to a lack of storage space, Reuters reported citing sources from the shipping industry. This represents the highest level of tanker-stored oil since 2009, when over 100 million barrels were floating at sea, and double a previous estimate from two weeks ago.
— sloan rosa (@sloanrosa1) April 19, 2020
In February, around 10 very large crude carriers (VLCCs), also called supertankers as they are able to hold up to 2 million barrels, were chartered to store oil at sea in lieu of conventional oil facilities. This number has now risen from 25-40 at the start of April and has now reached 60, with the large vessels being mostly located near Singapore and in the US Gulf Coast. It is believed that storage charter rates have now reached $350,000 a day – doubling in a month.
— Řębęł☆Bųddhä (@Rebel_I3uddha) April 19, 2020
Small tankers are also being used for storage as traders seek to keep oil in storage until the situation stabilises and global oil demand returns to “normal”.
“This is an unprecedented time in the history of tankers and while VLCC tanker storage is garnering the headlines, smaller crude and product tankers are also being used for storage”, said BTIG shipping analyst Gregory Lewis, as quoted by Reuters.
According to estimates, the amount of VLCCs used for storage may even triple in the upcoming months.
A surge of Saudi crude is expected to worsen a U.S. supply glut as drillers and refiners cut output and storage space fills up. Some want the U.S. government to intervene. https://t.co/hS6UuYTZwy
— Real Time Economics (@WSJecon) April 19, 2020
Why is There So Much Oil?
The current glut was triggered by a drop in global oil demand, as a result of the ongoing coronavirus pandemic. The health crisis has halted economic activities and travel, resulting in substantial demand destruction.
Anyone want to tell me exactly what strain of “free market conservatism” this represents?
U.S. Weighs Paying Drillers to Leave Oil in Ground Amid Glut https://t.co/o3z2Jk8sUs
— Rick Wilson (@TheRickWilson) April 16, 2020
The oversupply has now reached around 9 million barrels per day, which has created an overfilling of storage units, with experts concerned that the world could run out of storage by May.
Last week, Saudi Arabia, Russia and other petroleum-exporting nations within OPEC+ agreed to cut their oil production by 9.7 million barrels per day through June, in an attempt to remove some of the oversupply from the market.
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