Home Forums Hunting & Shooting Hunter's Campfire The Global Oil Market Is Broken, Drowning in Crude Nobody Needs

The global oil market is broken, overwhelmed by an unmanageable surplus as virus lockdowns cascade through the world’s largest economies.
Onshore tanks in many markets are full, forcing traders to store excess oil in idle supertankers. Refineries are starting to shut down because nobody needs the fuels they produce. In physical oil markets, barrels are already changing hands for less than $10, and in a few landlocked markets producers are paying consumers to take away their crude.

“The physical oil market has seized up,” said Gary Ross, an influential oil watcher and chief investment officer of Black Gold Investors LLC. “The logistics are struggling to cope because we are facing a catastrophic loss of demand.”

Oil traders say it’s likely to get worse this week.

The root cause is an accelerating plunge in consumption that’s without precedent since a steady flow of oil became essential to the global economy more than a century ago. The great crash of 1929, the twin oil shocks of the 1970s and the global financial crisis don’t come close. The world normally uses 100 million barrels of oil day, and traders and analysts reckon as much as a quarter of that has disappeared in just a few weeks.

The global airline industry is grounded, countless businesses and factories are shuttered and billions of people have been forced to stay home.

“Demand clearly is off, in some parts of the world, very dramatically,” Chevron CEO Mike Wirth told Bloomberg TV.

The immediate problem is a lack of storage in the right places. With demand running 20 million barrels a day below supply, the world won’t have enough tanks to store the surplus in two or three months. But the issue is even more pressing because global tank capacity, mostly concentrated in a few hubs like Rotterdam, the Caribbean and Singapore, isn’t available to every producer. For those without access to pipelines and ports, local storage will run out in days, traders and consultants say.

For those with access to the coast, one solution is to use the supertanker fleet as floating storage tanks, and that’s happening at an unprecedented rate. The CEO of the world’s largest tanker owner, Frontline Ltd., said on Friday that he’d never known such demand to hire ships for long-term storage. Traders could put 100 million barrels at sea, he estimated, but even that accounts for just a few days’ oversupply.

In the U.S., one of the largest pipeline companies, Plains All American Pipeline LP, has asked oil producers to voluntarily cut output to avoid overwhelming the network that connects well heads to refineries through thousands of miles of pipelines.

The world is running out of places to put oil because the shutdown of vast swathes of the economy has been catastrophic for demand. The collapse in commercial air travel has cut jet fuel use by up to 75%, or almost 5 million barrels a day.

As for gasoline, American drivers are the single biggest source of demand, using more than 9 million barrels a day, according to the Energy Information Administration. As whole states, including California and New York, have told people to stay home, billions of car journeys have been lost. It’s a pattern repeated in Europe and Asia.

“Demand destruction is unprecedented,” said Ben Luckock, co-head of trading at Trafigura Group, the second-largest independent oil trader. He estimates the hit to consumption will total 22 million barrels a day in April.

Around the world, about 700 refineries turn crude oil into gasoline, diesel and other fuels. They are starting to dial down production and even shut outright because demand for the fuel they produce is so dire. In India, for example, where 1.3 billion people are under lockdown until mid-Aptil, the nation’s biggest refinery has cut processing rates at most plants by as much as 30%.

A small refiner in Italy, the epicenter of Europe’s virus outbreak, shut on Friday because demand for fuel plunged 85%.

As the refining system withers, the crude oil market is suffering. Many crudes, especially sticky, sulfurous grades that refiners find hard to process, trade at hefty discounts to international benchmarks. Western Canadian Select, a tarry blend squeezed from Alberta’s oil sands, reached a record low of $4.51 a barrel on Friday.

In the U.S., Oklahoma Sour is changing hands at $5.75, Nebraska Intermediate at $8, while Wyoming Sweet prices at $3 a barrel.

In one obscure corner of the American crude market, prices have already turned negative. Wyoming Asphalt Sour, a dense oil used mostly to produce paving bitumen, was bid at minus 19 cents a barrel in mid-March by Trading Mercuria Energy Group Ltd.

Read: One Corner of U.S. Oil Market Has Already Seen Negative Prices

The surprise, perhaps, is that benchmark futures are still trading as high as they are. Brent, the North Sea grade that sets the price for about two-thirds of the world’s oil, ended last week at $24.93 a barrel, well above the historic low of $9.55 a barrel in 1998.

Luckock at Trafigura says future prices are likely to fall another $10. Black Gold’s Ross also says Brent and the U.S. benchmark, West Texas Intermediate, will be trading in the teens within days.

The next stage of the oil market’s meltdown will be widespread production shutdowns as drillers decide the only option is to leave it in the ground until better days return. There are signs this is starting to happen.

Brazil’s state oil company Petrobras has announced it will reduce output by 100,000 barrels a day this year because of the lack of demand. In Canada, some producers have shut down output, and Glencore Plc., the world’s largest commodity trading house, has shut down its production in Chad.

Read more: Oil Industry Braces for Biggest Idling of Wells in 35 Years (1)

Many producers are reluctant to shut wells because even though they’re losing money at today’s prices, some cashflow is often better than none at all. But as more refineries idle, the pipeline system grinds to a halt and storage tanks fill to the brim, they will soon have no choice.

“The problem is no one wants to be the first to shut-in,” Black Gold’s Ross said.

Maybe folks will learn, especially here in the US , that they don't need so much 'stuff ' to survive.

This is a nightmare for the Demonrat party,cheap gas. LOL

Wifey is in the oil business. This isn’t good news.

It's not just because of the coronavirus shutdown. Russia and Saudi Arabia are in price war and both pumping far more oil than needed, that's the main reason oil prices are plummeting.

Glad I'm not in the oil business or holding oil stocks.
Though with Vanguard Energy ETF dropping like 60% I have considered buying some.

A perfect storm

No. It isn't.


The economic repercussions will be felt for a long time on this.

It's always been boom or bust in the oil business, but this bust doesn't come at a good time at all.

If it goes on for another year, you’ll see one of two things happen. All the debt saddled companies who’ve been drilling unconventionals the last ten years will be bankrupt. The super majors (shell, BP, Exxon, Chevron) will purchase all of it for pennies on the dollar. Or the government will sweep in and purchase the distressed assets as a form of bailout for the industry. Then nationalize the production.

I'm ready for 99.9 per gallon. And I want it to stay that way for 2 years. Be Well, Rustyzipper.

The way things are going that could very well happen, but I don't think we will see 24.9 like it was back in the good ole days.

I can see summer fun with the boat being really cheap.
My boat holds 70 gallons !

Sorry, but I quit moving rigs 6 years ago, and dont miss it one bit.
The ups, the downs, the 100 hour weeks, the loss of having a life, the missing of special days, etc.

50 cent a gallon gas !
You betcha !

How bout diesel prices??
I can see souping my power stroke up, or buying a real cheap new, Ford F350 !!

We should be filling the Strategic Reserve. But, thanks to demon-crats that won't be happening.

It'll happen.
Trump will figure out something.

Dosent it seem to anyone but me how coincidental the Saudi and Russian oil spat was perfectly timed with C19 blooming worldwide.
Naw......
They couldnt be in cahoots with the chinese to crush the U.S economy and get a patsy liberal socialist democrat in office.
Just cause President Trump stood up to em all....


My 2nd kook of the day post on this basic overall subject line.

I wish more would catch on.

"The cure for low prices is low prices, the cure for high prices, is high prices."

Too many taxes on gas to go below a dollar.

The democrats will add more while it's low, if we let them.

We let the domestic producers ho down, we will pay this savings back in spades down the road. I'd much rather pay $3/gal and keep our boys pumping.