Filling the world’s oil reserves is now a significant concern for the commodity market, while it could play a role in changing the fate of the market in the post-Macron era.
The oil industry has been severely affected by the coronavirus in recent months. It has experienced a historic downturn, and experts believe that demand is falling more than ever. The decline in demand has led to oil production being diverted to storage tanks. But do these reserves have the capacity to withstand such a high supply? What are the consequences for the market?
The US tries to increase the level of its strategic reserves
In recent days, reports have been circulating that oil storage tanks are gradually filling up, leading to an oil spill in production facilities shortly. It will only result in a sharp drop in prices.
China has filled its reserves with cheap oil and reduced its demand to a reasonable level.
The United States, on the other hand, is moving to store oil in small boats, indicating that land and sea reserves are full.
In recent days, the United States has tried to increase the level of its strategic oil reserves. And this has led to some growth in the commodity prices.
The oil reserves of these two major world economies are bad news for the oil industry because they indicate a further decline in demand.
Meanwhile, the value of oil reserves in Saudi Arabia has reached $ 464 billion, the lowest level since 2011.
Crude oil storage capacity will be full in the next three to four weeks
Brent crude fell more than 50 percent in March and has declined as low as $20 a barrel since then. According to the International Monetary Fund, oil-producing countries like Saudi Arabia need it to balance their budgets.
Analysts at Goldman Sachs say that global crude oil storage capacity will be full in the next three to four weeks. Furthermore, a 20 percent drop in global crude oil supply will be needed to prevent this from happening.
Jeff Corey, Goldman analyst, stated that when there is no room left for storage. Thus, drilling companies are forced to reduce supply to such an extent that it is opposing the weakness created in demand.
Goldman Sachs estimates that demand will decrease by about 18 million barrels a day in mid-May. It will lead to sharp fluctuations in production. As long as supply and demand are the same, the market will be more downward, Corey said.
Producers will be forced to reduce the oil supply. On the other hand, OPEC+’s cut of 10 million barrels could gradually lead to higher prices.
Some analysts believe that in line with OPEC and its allies, the average price of the black gold could rise to $35 a barrel in May and June. After the cure for the coronavirus is found, demand will increase shockingly. Technical difficulties would not make it possible to increase the supply of oil immediately. It could cause a price shock in the market.
