The largest oil supply surplus the world has ever seen in a single quarter is about to hit the global market from April, creating an imbalance of around 10mn bpd
An exclusive Rystad Energy analysis shows global storage infrastructure is in trouble and will be unable to take more crude and products in just a few months.
Rystad’s projections indicate that oil supply will outstrip demand by an average of six million barrels per day, equivalent to a storage requirement of two billion barrels this year.
Based on its rigorous analysis, Rystad finds that the world currently has around 7.2bn bbl crude and products in storage, including 1.3bn to 1.4bn bbl currently onboard oil tankers at sea. The consultant estimates that, on average, 76 per cent of the world’s oil storage capacity is already full.
There is essentially no idle storage capacity available on tankers, as Saudi Arabia and other producers might have already wiped out the available population of Very Large Crude Carriers (VLCC) for March and April 2020.
In theory, running at this level of surplus, it would take nine months to fill all onshore tanks. However, in practice the limit will hit the ceiling within a few months due to operational constraints.
Paola Rodriguez-Masiu, Rystad Energy’s senior oil markets analyst, said, “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 US$10 per barrel.
“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.