The Wall Street Journal - 19.03.2020

THE WALL STREET JOURNAL. Thursday, March 19, 2020 |B5

BUSINESS NEWS

Storage facilities around the

world are brimming with cheap

oil and could run out of space

within months, traders and an-

alysts say, a predicament that

could drive down crude prices

to unprecedented single-digit

dollar amounts.

As the global response to the

coronavirus pandemic saps oil

consumption with factory clo-

sures and travel restrictions,

the Saudi-Russian price war has

caused crude prices to plummet

this month.

A flood of oil from Saudi

Arabia and rival producers is

expected to enter the market

next month, adding to a surplus

of oil that could overwhelm

global storage. As markets

struggle to find places to stock-

pile excess crude, “the prospect

of single-figure prices...is now

pretty inevitable in the coming

months,” London-based con-

sulting firm FGE Energy said in

a recent note.

The big wave of extra crude

will hit Western economies just

at a time when they are likely

to feel the full force of the cor-

onavirus outbreak, creating a

surplus as large as 10 million

barrels of oil a day in the April-

June period, said Warren Rus-

sell, commodities strategist at

Bank of America.

That means oil inventories

could climb by more than 900

million barrels in the three

months beginning April. As a

result, “oil prices might have to

trade down into the teens in or-

der to shut in oil production,”

Mr. Russell said.

One overwhelmed oil-stor-

age facility in the Egyptian des-

ert, filling up with Saudi crude,

portends the ominous months

ahead for global crude markets.

Saudi Arabia has booked all

remaining storage capacity at

Egypt’s Sumed pipeline infra-

structure that starts in Ain

Sukhna on the Red Sea and

ends in Sidi Kherir on the Med-

iterranean, oil traders and offi-

cials said. Middle East export-

ers use the facility, which has a

storage capacity of 12 million

barrels, as a transit point to ex-

port oil to Turkey, Greece,

France, Italy and Spain.

Saudi Arabian Oil Co.,

known as Aramco, is selling

crude for delivery next month

to Southern Europe at some of

its most aggressive discounts—

with reductions of $7 a barrel.

Last week, an oil trader who

tried to book storage of over

one million barrels at the facil-

ity was told there was no space

available.

The fight for market share

will make oil markets the most

oversupplied in over 30 years,

Norwegian bank DNB said in a

recent note. Even before the

Saudi-Russian price war began,

oil buyers had been warehous-

ing large amounts of fuel on the

high seas.

The expected surge of Saudi

oil comes after Russia refused

to join Saudi-backed production

cuts earlier this month. Saudi

Arabia slashed its prices and

said it would hike oil produc-

tion by two million barrels a

day to regain market share

from Russia and U.S. oil pro-

ducers.

As countries like the U.S.,

France and Italy have heavily

restricted travel abroad and

within their territories, oil-in-

dustry executives say the ex-

cess oil is, in many cases, going

into storage as traders are buy-

ing the oil cheaply to refine it

later.

With rising supplies combin-

ing with declining demand,

global oil storage could fill up

within four months, said An-

toine Halff, the chief analyst of

Paris-based consulting firm

Kayrros, which tracks global

storage by using satellite imag-

ing. “It’s a chess game played

with a timer and each player

has a very short time slot to

make his moves,” he said.

China, the U.S. and India—

the world’s three biggest oil

consumers—are considering

procuring inexpensive oil to fill

their strategic reserves.

Beyond European-focused

facilities like Sumed, traders

have also been scrambling for

storage space in places like

Cushing, Okla., and Fujairah in

the United Arab Emirates. In

Shandong, the main hub serv-

ing Wuhan—China’s coronavi-

rus epicenter—storage is now

more than two-thirds full, ac-

cording to satellite-data con-

sulting firm Ursa Space Sys-

tems. Ursa said that was the

highest level it had seen since

it began recording the data in

December 2017.

Some operators are increas-

ingly turning to midsize oil

transport ships, called Suez-

maxes, to store oil. But the

costs have increased sixfold to

$330,000 a day since the begin-

ning of the month, making such

an option increasingly less at-

tractive.

The mounting glut means

the Saudis and others will have

to keep cutting oil prices, in-

dustry watchers say.

In Northwest Europe, for in-

stance, where Aramco cut its

main prices for April orders by

the most, the combination of

higher shipping costs and lower

Brent means the Saudis would

have to cut their prices by at

least $5.50 if they want to re-

main competitive with others

selling into the region.

BYBENOITFAUCON

ANDSUMMERSAID

Overloaded Storage Signals More Price Cuts

A wave of extra crude is projected to hit Western economies just as they are paralyzed by the pandemic. A tanker truck in China.

CAI YANG/XINHUA/ZUMA PRESS

their forecasts.
“We are going to have a mas-
sive surplus in the second quar-
ter, there’s no doubt about it and
the forecasts are all surpassing
each other with how big surplus
is going to be,” said Bjarne
Schieldrop, chief commodities
analyst at SEB Markets.
That tide of oil means inven-
tories could
climb by more
than 900 mil-
lion barrels in 2020s second
quarter, according to Warren
Russell, commodities strategist
at Bank of America.
Across the oil market, inves-
tors and analysts expect prices
to fall further. Goldman Sachs
this week slashed its Brent
price target for the second
quarter to $20 a barrel.
Both Brent crude and WTI
could hit single-digit dollar
prices for a barrel of oil, re-
gardless of purchases by the
U.S. government, said Bob Mc-
Nally, president of Rapidan En-
ergy Group.
“We’re going down to levels
where any company lifting a
barrel of oil from the crust of
the earth will destroy value be-
cause there’ll be nowhere to
store it or burn it,” he said.
The price of other raw mate-
rials also slid Wednesday in a
sign of mounting worries
among investors about the out-
look for the world economy.
Copper—a bellwether for global
growth because it is used as a
building block in construction,
the electricity grid and autos—
dropped 6.7% to $2.16 a pound
in New York, its lowest level
since 2016.
With activity in some key
sectors grinding to a halt in
parts of Europe and the U.S. as
authorities try to contain the
pandemic, traders expect met-
als demand to slide. Analysts
say consumers are likely to cut
back on purchases of nonessen-
tial items made from industrial
metals, such as autos and
washing machines.

Continued from page B1

Oil Crashes

To Lowest

In 18 Years

COMMODITIES

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