After yesterday's historic crash which left the West Texas Intermediate U.S. benchmark settling at -$37, panic is beginning to spread through markets, with Brent crude oil prices plummeting by over 20 percent into the $18 range in early morning trading.
The drop, sparked by a perfect storm of COVID-19 fueled demand destruction and global crude storage facilities reaching their limits, is unlike anything markets have ever seen. And it's left every even the most. veteran industry players scratching their heads.
From Asia to North America, all over the world oil producers and traders are looking for just one thing - a place to put their unwanted products.
Supertankers are in high demand and often left idling offshore as on-shore facilities are out of space. In the North Sea, for example, vessels have been parked for days, loaded with gasoline and jet fuel with nowhere to go.
Even the world's largest oil storage firm, Vopak, which operates three main facilities in Singapore, Rotterdam and Fujairah, is saying they're at capacity.
Gerard Paulides, the chief financial officer of Rotterdam-based Royal Vopak NV, noted that “For Vopak, worldwide available capacity that is not in maintenance is almost all gone and from what I hear elsewhere in the world we’re not the only ones.”
Premium: Oil Storage Nears Its Limit
In addition to the storage crisis and COVID-19 fueled demand destruction, Oilprice.com reported that a wave of oil from Saudi Arabia was heading to U.S. shores. And with little commercial space available, the additional crude could potentially force deeper production cuts in the U.S. shale patch in the coming months, an issue that has been the center of a heated debate in Texas.
The Texas Railroad Commission is set to meet again later today to discuss the crisis. Last week the three commissioners failed to come to an agreement regarding mandated cuts across the state, but with WTI prices dropping by 300% yesterday, free-market or not, the commissioners might just change their tune.
By Michael Kern for Oilprice.com
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They want the whole world to cut back production so they can continue riding high on a paper mache money cow. Without cooperating with the rest of the international industry including OPEC and cutting back their over priced production, they brought about a collapse on themselves foremost.
The Texas RRC should resign immediately and reappoint those who were around the 60's.
Meanwhile, it is far better for countries of the world to implement the strict measures that enabled China to control the outbreak and open the country to business again. This will certainly shorten the duration of the global lockdown and enable people to resume their normal activities including demand for crude oil rather than wasting their time making production cuts which are futile in the current circumstances.
Once the outbreak is contained, the global economy and China’s will behave like a patient who has been quarantined with no food. Once out of the quarantine, his appetite would be rapacious and this is exactly how the global economy and the global oil market will react with oil imports doubling if not tripling to recoup lost demand. Oil prices and demand will recoup all their previous losses.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London