Specter Of Overbrimming Stocks Threatens Vulnerable Producers

3 Apr 2020 Issue: 63 / 14 By: Jamie Ingram

During the last price crash from late-2014, output declines were slow to materialize. This time around things may be different as storage fills up at unprecedented rates. Even firms willing to resist economic forces can’t produce if they can’t move the barrels.

Oil markets are rushing towards an inflection point. Global demand is dropping at unprecedented levels as economies across the world are placed on lockdown in a bid to curb the spread of the Covid-19 pandemic. With the demand shock now augmented by a supply wave after the 1 April expiry of Opec+ cuts (MEES, 6 March), prices are poised to drop even further. Producers in Russia and the US appear vulnerable to the risk of shut-ins.

A number of US producers have been visibly shaken by the risks, with some going so far as to lobby authorities for a production cut agreement, or to place restrictions on imports of Saudi crude. Initially bullish statements from Russian producers have also faded away. US President Trump then tweeted on 2 April that after speaking with the Saudi crown prince, he expected a new Saudi-Russia agreement to cut (MEES, 3 April). (CONTINUED - 1279 WORDS)