Home Broker News Oil Prices Plunge As Oversupply Causes A Global Storage Problem

Oil Prices Plunge As Oversupply Causes A Global Storage Problem

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  • WTI Oil prices drop 16%
  • Oversupply leading to storage problems
  • Producers start delivering oil to strategic petroleum reserve (SPR)

Oil price dropped 16% on Tuesday in the early session extending the almost 25% losses reported on Monday as oversupply concerns grow which has resulted in a storage crisis.

Crisis looms as oversupply overwhelms oil storage capacity

WTI Oil the US benchmark dropped 16.12% to $10.72 per barrel while Brent crude the international benchmark dropped 5.45% to $18.90/barrel. Oil prices are under pressure following a decline in crude oil storage. The COVID-19 pandemic has led to a decline in demand for oil globally leading to a collapse in prices

Already oil producers have begun delivering oil to the strategic petroleum reserve. So far 1.1 million barrels have been delivered in April to the SPR storage. The Energy Department said on April 14th that it was in discussions with nine producers regarding possible leasing deals. The department indicated that it was to rent around 23 million barrels of storage capacity in the emergency stockpile. This is part of the government’s initiative to help address the growing surplus of crude oil.

Oil analysis

In a note, Goldman Sachs’s commodity analyst Jeffrey Currie indicated that crude oil has been accumulating in storage facilities at unprecedented levels, and storage capacity globally could be filled in around four weeks. Jeffrey indicates that oil is a spot asset and this it has to clear current demand and supply that is still out of balance globally.

Because of this bleak situation, oil producers will have to significantly cut supply to match the loss in demand which means they have to cut up to 20 million barrels/day by mid next month. Oil prices have dropped 74% year to date and since supply is higher relative to demand. Therefore, chances of the prices recovering are minimal unless US shale production falls significantly.

Time                            : 28-04-2020

Pivot                            : $12.46

Technical View              : Short below $12.26

Target                         : $12.06

Comments                 : Storage problems are putting oil prices under pressure

Last Price                  : $10.72

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