The oil market collapses … a barrel of $ 10 and producers pay to get rid of their stocks
Reports revealed on Sunday that the global oil market is witnessing an unprecedented fallout and drowning in an uncontrollable surplus due to the continued embargo imposed by the spread of the Corona virus on the world’s major economies.
Tanks are filling up in many markets, requiring producers to store surplus oil in old giant tankers.
Refineries have started shutting down, because no one wants the fuel they produce and in real-world markets the barrel is sold for less than $ 10, but oil producers in some locked markets are paying buyers to rid them of their crude, according to a report published by the American Bloomberg Agency.
“The oil market has swelled on the ground, and the logistics sector is making a great effort to keep up with inflation because we are facing a catastrophic drop in demand,” said Gary Ross, oil inflation overseer and head of the investment sector at Black Gold Investors LLC.
The report reveals the reasons for this, including the rapid decline in consumption, which has not been seen since the flow of oil to the global economy became essential more than a century ago. Even the Great Depression of 1929, the two oil shocks of the 1970s, and the global economic crisis are all incomparable events. The world normally consumes about 100 million barrels of oil per day, and traders and analysts believe that about a quarter of this demand has simply disappeared within a few weeks.
Besides low oil prices, international air traffic has stopped, huge numbers of factories and companies have been closed, and billions of employees have been forced to sit in their homes.
Mike Wirth, Chevron CEO tells Bloomberg TV: “Clearly, in some parts of the world, demand has declined sharply.”
The current problem is the lack of strength in the right places. With demand less than supply by about 20 million barrels per day, the world will not have sufficient tanks to store the surplus within two to three months. But it is more dangerous than that, because global storage capacity, mostly concentrated in hubs such as Rotterdam, the Caribbean and Singapore, is not available to all producers. For those who do not have access to pipelines or export ports, the local reservoirs will be filled in full within days, merchants and consultants say.
For those with coastal access, one solution is to use the tanker fleet as floating tanks, which happens at an unprecedented rate.
The CEO of Frontline Ltd, owner of the world’s largest oil tanker, says he has never seen so much demand for long-term rental of tankers. It is estimated that merchants may store about 100 million barrels at sea, but that amount represents only a surplus of production for a few days.
In addition, the world may deplete oil storage, because the closure of large sectors of the economy has been disastrous for demand. Suffice it to mention that the collapse of commercial aviation services has reduced aviation fuel consumption by 75%, or nearly 5 million barrels per day. Source