Negative Oil Prices Become Reality as Storage Capacity Runs Out
The prospect of oil prices turning negative in various landlocked producing regions around the world has become increasingly likely, as producers are forced to pay for offtake rather than opting to shut-in wells. With global oil storage capacity both onshore and offshore on crude tankers fast running out, producers will continue to have little option but to sell crude at record low prices or shut-in production.
Last week saw negative bids for Wyoming Asphalt Sour, a heavy crude used to produce bitumen for road making. The prices of other North American crudes have also collapsed to low single digits, with Bakken crude in Guernsey, Wyoming, trading at US$3.2 per barrel, and Western Canadian Select in Hardisty, Alberta trading at around $4.2 per barrel at the start of this week.
A global slump in demand due to the coronavirus epidemic has been exacerbated by a price war between former OPEC+ allies Saudi Arabia and Russia. Analyst forecasts for the drop in April crude oil demand currently range from 15 millions barrels a day to as high as 22 million barrels. Before the outbreak of the pandemic, global oil consumption had averaged around 100 million barrels a day during 2019.