As prices for oil continue to hover around $25 per barrel, many industry experts are becoming jittery as output continues to skyrocket. With both Saudi Arabia and Russia pumping out more oil than ever, the world is coming close to run out out of storage space for all this excess production.
As such, some analysts have worried that prices for the energy commodity could fall to $10 per barrel or less as countries around the world don’t have anywhere to store oil. With this threat looming on the horizon, hopes that an agreement will be made between the Saudi’s and Russia is gaining steam.
Prices for West Texas Intermediate shot up by 5.5% over the course of Tuesday, or $1.3 per barrel, to $24.9 in light of these new rekindled hopes. Brent crude increased by 2.4% to $32.6 per barrel, recovering from what was previously a disastrous trading session for the energy commodity.
A video meeting is scheduled on Thursday to take place between OPEC members and their allies, which includes Russia. The last time the group held a meeting was in March, with the Saudi’s ending up failing to get Russia to agree with supply cuts at that time. Now that prices for oil have plummeted and storage facilities filling up, it’s expected that this meeting will be much more fruitful. Saudi officials have gone on to state that should there be no deal; the country will end up having to fill up oil tankers and leave them floating in the sea without a destination.
A potential wildcard in these negotiations will be how the U.S. responds to this issue and whether it would be going along with supply cuts of its own. If America did, the Saudi’s and Russians would be more likely to come to an agreement. The U.S. Department of Energy said that the country’s oil output had already started to decline without the government taking any real action. The Energy Information Administration (EIA) stated on Tuesday that crude production in the U.S. is expected to fall by 470,000 barrels per day while demand is expected to decline by 1.3 million barrels per day in 2020.
Energy traders and officials have responded to this supply glut by searching everywhere on the planet for places to store this oil. This includes old refineries in Morocco that have gone out of business as well as various assets in the Caribbean, which were abandoned.
The impact of the coronavirus pandemic certainly isn’t helping oil demand either. The airline industry has been almost completely shut down, while travel and tourism have ground to a halt. With a significant chunk of the global economy being suspended amidst lockdowns and quarantines, demand for oil has been lower than it otherwise would have been. At the moment, the number of global coronavirus cases is sitting at over 1.4 million, with around 400,000 of them being from the U.S.
Considering everything that’s going on right now, it seems likely that the Russians and Saudi’s will come to an agreement. There’s not enough storage space for either of these two countries to continue posturing, as both are becoming all the more desperate.
