Because of the restrictive measures imposed to limit the spread of coronavirus infection, since the beginning of the year demand for oil and its products has being shrunk as much as 30%: less people are driving, airplanes are grounded, factories were brought to standstill.
In April OPEC members, Russia and other major oil producers agreed to cut crude oil production by nearly 10 million barrels per day, which is about 10% of the global output. However, the deal will not have an effect till May.
On Monday the May contract for WTI futures felt into negative territory for the first time ever. The May WTI contract settled at $10.01 per barrel, it had closed at a discount of $37.63 in the previous session. The contract for June delivery of the benchmark traded at $10.85 on morning April 22, down over 6%. WTI had fallen more than 40% in the previous session, while, international benchmark Brent crude traded nearly 12% lower and stood at $17.01. This week oil price was negative the first time ever, and sellers had to pay people for taking the oil.
Meanwhile, world facilities keep pumping oil. Experts warn that global storage hubs could fill up in late April or early May ‒ space may become more valuable than oil. Dozens of oil tankers have been booked in recent days to store at least 30 million barrels of jet fuel, gasoline and diesel. Onshore tanks are already full or reserved.
Recently tankers, usually anchored near Europe coast, have been diverted to the New York region, carrying at least 1.5 million barrels of diesel. New York Harbor and Houston deepwater ports are no more available – the US has storage hubs left in the area from the Midatlantic to the Southeast and along the Gulf Coast. The US Cushing storage hub was reported to be 77% full in the middle of April and is expected to be completely full within weeks. With many oil tanks filling up, the US Department of Energy is currently in the process of leasing some of the 77 million barrels of available oil space in the Strategic Petroleum Reserve. On Monday President Donald Trump said that he would consider the prospect of preventing incoming Saudi Arabian crude oil shipments in order to ease pressure on US shale industry. Trump also reaffirmed his intention to top up the country’s emergency fuel storage of petroleum.
Europe’s northwestern refining and storage hub still has space to fill but industry experts say most of the remaining capacity has already been booked. Salt caverns in Sweden and other Scandinavian countries were either full or fully booked.
If storage capacities are run out, oil producers may start shutting in wells which will lead to damaging reservoirs and make the reviving of future output impossible.