Crude oil supplies will outrun the global storage capacity in just a few months after OPEC+ countries failed to make deeper and longer cuts in their production levels, according to oil consultancy company Rystad Energy on March 20.
More than three quarters of the global storage capacity is now filled and the demand-supply imbalance currently sits at around 10 million barrels per day (mbpd), Rystad said, which indicates that crude oil production would outstrip demand by an average of 6 mbpd, equal to this year's two-billion-barrel storage need.
"We find that the world currently has around 7.2 billion barrels of crude and products in storage, including 1.3 billion to 1.4 billion barrels currently onboard oil tankers at sea. We estimate that, on average, 76% of the world’s oil storage capacity is already full," the firm said.
It would take nine months to fill all onshore tanks based on the current surplus level in theory, however, in practice the ceiling will be hit within a few months due to operational constraints, according to the consultancy service company.
“The current average filling rates indicated by our balances are unsustainable. 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,” said Paola Rodriguez-Masiu, Rystad Energy’s senior oil markets analyst.
Normally floating storage uses Very Large Crude Carriers (VLCC), which can hold about 2 million barrels. Around 802 VLCCs with a total capacity of 250 million deadweight tonnage (dwt) are operating worldwide, capable of collectively storing 1.8 billion barrels. The entire global fleet is projected to have a total capacity of 630 million dwt, or 4.6 billion tons, including smaller Suezmax and Aframax vessels, Rystad’s data said.
“We find that liquid supply will have to be reduced by around 3.0 million to 4.0 million bpd compared to the current production planning to bring the implied stocks builds closer to 2.0 million to 3.0 million bpd for 2020, which is the level of implied stocks build that we find sustainable in the short to medium term,“ Rodriguez-Masiu concluded.
Tensions have risen in oil markets following a breakdown in talks between the Organization of Petroleum Exporting Countries (OPEC) and Russia on March 6 to secure a further oil output cut in their production levels.
The futures of Brent and WTI crude have plummeted to under $30 per barrel, as fears of an imminent price war between producers became a reality.
On March 13, crude oil prices recorded an almost 20% weekly loss, posting the largest weekly decline in 29 years due to coronavirus-related low demand coupled with the risk of growing oversupply.
Saudi Arabia's state-run oil company, Saudi Aramco, announced last week that it would raise its crude oil supply to 12.3 million barrels per day in April. The Kingdom later announced that it aims to further increase oil production in April and May, with the aim of peaking at more than 10 million barrels a day as the kingdom explores a new field.
By Sibel Morrow