the oil is running out of space to be stored

As a habitant of this world, one can recognize that the Coronavirus is affecting the world’s economies, however this is not the unique crisis that nowadays threats the global economy. Before the boom of the pandemic there were clues which indicated that the oil was about to suffer a price crisis due to the disagreements between the producer countries members of the Organization of the Petroleum Exporting Countries (OPEC) and Russia.

Then, at the begging of the Covid-19 juncture the prices of the hydrocarbon started to drop also, so, these crises mixed and created an atmosphere of economic uncertainty for developing and developed countries. But how these crises interact one each other? Well the answer relies in the fact that both Russia and Saudi Arabia “opened the tap” in the production and started a price-war in a moment where the world is not demanding such amount of petroleum due to the coronavirus disease.

Oil prices

A long-lasting war is not affordable for small producers or high-cost producers like the United States. Additionally, the oil-based developing economies are facing challenges because with the current prices and lack of demand there is not enough money neither to cover the demands of a confined population nor paying the international debt. The analysts consider that in April some 6 million barrels per day might literally have nowhere to go.   

However, the countries do not want to be the first ones in turning off the production even when they are having loses, that could mean a supply glut so overwhelming that the world won’t have enough space to store it. Since the warehousing systems are designed to move the merchandise rather than store it for a long time; Goldman Sachs says that “the facilities, terminals, ships and pipelines could reach the capacity for the first time since 1998”.

Oil Storage Company in Rotterdam - Delta Oil Tanking BV
Bulk oil storage tanks

This represents a challenge to the international logistic, which is trying to find ways to storage the oil which is not being sold in the market but that stills coming like if it was. For that purpose, the option of using the crude carrier vessels as floating storage, although these ones will not cover all the space needed to keep the potential surplus. The market recovery seems to be far, but the reality is that while the world fights back the Covid-19, there are other crisis that also threat the economy.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s