Companies looking for places to store oil could be in for a shock over the coming as the economic meltdown caused by the coronavirus dramatically reduces consumption, which has not stopped some suppliers from lifting their output
Governments have introduced draconian measures such as not being able to drive cars or operate heavy machinery unless deemed essential which has seen the oil storage facilities come under strain and such a situation threatens to push the price into negative territory as companies are forced to pay more to transport oil than the market price
“Refineries in many places are now losing money for every barrel they process, or they have no place to store their output of oil products,” said Bjarne Schieldrop, chief commodities analyst at SEB.
“For land-based or land-locked oil producers, this means only one thing, the local oil price or well-head price they receive very quickly goes to zero or even negative, because if they have too much oil, they must pay someone to transport it away until they have managed to shut down their production.”
Even before the coronavirus struck, 2 of the world’s biggest oil producers, Saudi Arabia and Russia failed to secure an agreement on production cuts which caused a flood of oil on the market and the coronavirus only exasperated things and caused the price to fall at a record pace.
The question is now, in the nearest weeks is how low can the price go, which seems to be closely connected to the spread of the coronavirus and with countries failing to contain the spread, we may see the price flirt with single digits
“There is a very good chance that the oil price will still fall, even to levels of $10 for WTI. It’s just going to fall further because the reality is it can fall further. $15, $13, $10. I think that’s kind of the number we might be looking at.” said Ravi Krishnaswamy, senior vice president of Frost & Sullivan’s Asia Pacific industrial practice.
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