Positive News on the Ongoing Global Glut

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Positive News on the Ongoing Global Glut

As you may know by now, the coronavirus has caused major issues for the petroleum industry. Crude oil prices dropped exponentially due to low demand and storage units have been filling up in an extremely speedy manner, all leading to another global glut similar to the oil glut from the 1980s. Luckily, things are finally starting to look up.

People are starting to commute and travel once again, as more than half of the United States have begun lifting their stay-at-home orders. As a result, the demand for oil is slowly starting to rise.

A lot has been going on in the back end of things in the oil industry to try to slow things down and balance everything out. Basically, preventing the oil glut from turning into a completely devastating recession.

Along with the price reductions in the oil market, oil producers had to pause production and cut output. Due to excess oil and limited storage availability, some oil producers had to pay buyers to take all the excess oil off their hands.

The oil industry has been racing against the clock to find any suitable storage options, for example oil tankers are being used as makeshift floating warehouses to absorb the overflow on a scale never seen before. Everything from pipelines, to rail cars, are also being used as a unit for oil storage.

Goldman Sachs Group, who just last month warned everyone that global storage capacity would be maxed out within weeks, is now saying, “the worst of this cycle is effectively over."

More Good News

Everyone seems to be working together to get the remaining amount of excess oil back to a normal balance. Much of the glut has been tackled by the Organization of Petroleum Exporting Countries (OPEC) and its allies, who agreed to curb production by just under 10 million barrels a day, or about 10% of global supply from May 1st.

According to Bloomberg, international oil prices have now rebounded by about 50% just in the past two weeks, and as demand and supply begin to even out, oil is now being traded at almost $30/bbl in London. Antoine Halff, who is the chief analyst at Kayrros said that price signals have “worked their magic and the market has managed to re-balance and avert the worst.”

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