ChristopherCarrollSmith

Beware the approaching storage capacity limit

FX:USOIL   CFDs on Crude Oil (WTI)
An article in The Guardian reveals that the world's oil storage is now at 75% of capacity, and Canada may be just days away from reaching capacity. The rest of the world may still have a couple months. But as oil storage runs out, storing excess crude is going to become less of an option for producers. They will have to either stop production or sell at lower prices. The Guardian is warning that this could lead to $10 per barrel oil . I'm not sure we'll get that low as economies come back online, but this does mitigate some of the upward price pressure we've been seeing from dollar inflation and reopening businesses in China.

Oil itself may or may not take a price hit, depending on whether producers decide to stop production or sell at lower prices. But producers's stock prices will fall regardless, so the best way to play this on the short side might be to short oil and gas stocks. On the long side, there's an opportunity in shippers. I didn't realize this was happening, but Saudi Arabia has already driven tanker booking costs to record highs with its increase of oil output. And now tanker booking fees may go even higher as oil producers all over the world look to ship their excess crude to available storage locations. The danger with playing it this way, however, is that tanker demand will eventually fall as storage capacity runs out and producers cut production.
Comment: Oil looks like it will retest the $20 low today or tomorrow.

Comments

A few data points:
- PADD 2: ~50% utilization, operational capacity ~100mmbbl
- PADD 3: ~55% utilization, operational capacity ~340mmbbl

https://www.bloomberg.com/news/videos/2020-03-25/vitol-says-oil-demand-is-down-as-much-as-20-million-barrels-a-day-video?sref=EjVG448W
+1 Reply
Interesting that you mentioned $10.xx oil. Time will tell is my limited ew suffices.
Reply
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