“Oil in teens” was being rubbished as doomsayers’ wish by the more seasoned market experts when the coronavirus had just started spreading its wings beyond the Chinese borders. Then came the Opec meltdown – as Russia pulled out of a four-year long arrangement, and the market consensus said that this will balance the market in the medium term. The year-end expectations by the big boys were reading $55-65 bbl just a month ago.
Then the coronavirus reality hit and with it came the humbling of the black gold. At one point in trading yesterday, WTI had touched $19.9/bbl. The teens have been visited, and no one should be surprised anymore if that becomes the new normal at least in the near-term. The Brent crude has also lost more than half its value since the beginning of the month – and was barely hanging on to $23/bbl. This is an 18-year low for Brent. All this has come after a week of relative calm in the markets.
But the stimulus packages being poured in from all over the world have not proven enough to convince the market that any stimulus of any size could be big enough to salvage some demand, let alone restoring it to last year’s level.
Last week, the USA was thinking of easing restrictions, and limiting deaths to 10,000. Yesterday saw President Trump dropping the idea of any early relaxation of distancing measures and acknowledging the possibility of more than 100,000 deaths in the US alone. The UK thinks it would have done well to curtail deaths to 20,000 or less, while preparing for months of staying home.
The demand side dynamics lay bare – as cars stay in the garages, planes at airports and factory production is down. The supply side dynamics are scarier, and worrisome enough to singlehandedly lead the oil price slide, even if it were not compounded by the demand side miseries. Saudi Arabia and Russia are all set to pump record high oil levels from tomorrow onwards.
And therein comes the fast-exhausting storage capacity for oil around the world. There are growing concerns that if demand does not bounce back, and the all-out supply war extends beyond two months – the second half of 2020 could well see the world grappling for storage space. Vessels in the waters, tanks and pipelines on the land – have all seen the levels filled by more than three-quarters in the last two months. This is one oil price slump, that not even an oil importing country would wish to continue for longer – for it reads, major global economic disruption.