"The oil storage shortage problem is real and the delayed reaction to it is the reason markets are in panic during the last days, suppressing prices across WTI and Brent.
In the past weeks, the market had OPEC+ and G20 meetings to hold onto, Tweets that would help enthusiasm spread and build hopes for a strong reaction to the crisis. Now traders have exhausted their ‘hope storage’ and have nothing else to count on. OPEC+ next meeting is in June if further cuts in the group are to be announced and countries outside the alliance are not promising cuts to the extent the market expected so far. Shorting positions could come as a daily routine.
This morning, the world’s waterborne light sweet crude benchmark, Brent futures, succumbed to further spillover pressure from the WTI collapse and fell to new lows.
The market seems to be realising what we have pointed out as a huge risk a already since mid-March, that we may run out of storage capacity if not enough supply is taken off the market.
Physical prices in the North Sea have traded in the teens for a while, but June Brent futures have held up - until now. Dated Brent, the physical benchmark for mid-May loadings was assessed at US$13 yesterday while June futures are now below US$17.
Our latest storage capacity models suggest we may run out of onshore storage either first week of May, or if we include all remaining storage with 100% utilisation, the theoretical deadline would be postponed to end of May - even with OPEC+ cuts implemented from 1 May.
Time to throw old perceptions of physical laws to the side and be prepared for more surprises in this broken oil market. Prices can go to unprecedented low levels even for Brent as, unless there are further cuts announced, storage capacity will just not be enough.
Unless there is a massive shock, like millions of bpd in new shut-ins or new production curbs that will handicap the oil supply tornado, or decisions by countries around the world to open up sooner and increase demand, don’t be surprised if a barrel of oil gets cheaper than a latte in a while."
Read the article online at: https://www.oilfieldtechnology.com/special-reports/22042020/storage-problem-begins-to-sink-in-for-industry/