Brent and West Texas Intermediate futures are holding above $20 a barrel, while prices of actual barrels are in freefall. The difference between paper market trades and the real barrels has widened to multi-decade highs in some cases, suggesting financial flows are supporting the futures market, according to analysts.
With demand weakening and Saudi Arabia and Russia continuing their price war, Dated Brent, the benchmark for about two-thirds of the world’s physical oil, was assessed at $17.79 a barrel on Monday, the lowest since 2002.
In North America, WTI in Midland, the capital of the Permian region, traded at just over $12 a barrel, while some lesser known grades have posted negative prices.
Refineries in South Africa and Canada have shut down while others in major consuming countries, such as India, are cutting back. Saudi Arabia is unleashing a flood of oil to Europe and traders expect Aramco to slash prices for Asia further. To make matters worse, space to store the huge oversupply is quickly running out.
“Global storage capacity will be exhausted” by the end of the second quarter, Morgan Stanley analysts including Martijn Rats said. “At that point, Brent would need to fall to $15-$20 to balance the market.”
Brent futures are signalling a historic glut is emerging.
The May contract is trading at a discount of about $14 a barrel to November, a more bearish super-contango than the market saw even in the depths of the 2008-09 global financial crisis.
“The Kingdom intends to increase its crude oil exports, starting from May, by about 600 thousand barrels per day, bringing the total of Saudi petroleum exports to 10.6 million barrels per day,” an official at the Saudi Arabian Energy Ministry said on Monday, as carried by the official Saudi Press Agency.
According to the world’s top oil exporter, “This increase came as a result of displacing crude with natural gas from the Al-Fadhili gas plant, as a fuel for generating electricity, and from the decrease in local demand for petroleum products due to the decrease in transportation from the precautionary measures in place to limit the coronavirus outbreak.”
Nigeria has thrown itself into the battle for market share that was started by Saudi Arabia, offering its main export crudes at the lowest price relative to the international benchmark in more than a decade. Nigeria, which relies on oil shipments for about two-thirds of government revenue, is also increasing output.
Africa’s largest producer is hoping to increase the daily production of crude and a light oil called condensate to 2.5 million barrels a day from about 2.2 million currently, Timipre Sylva, Nigeria’s oil minister, said in an interview recently.
