US crude oil inventories near all-time highs as demand dries up
US crude oil inventories neared record levels today as producers continued to pump despite a near-total collapse in demand.
Crude inventories rose by 15m barrels in the week to April 17 to 518.6m barrels, putting them within striking distance of an all-time record of 535m barrels set in 2017.
Rystad Energy analysts had predicted an increase of 23.6m barrels for the week ending 17 April, far higher than the previous record build of 19.3m barrels.
Although not quite as big an increase as anticipated, the supply glut continued to grow, with no end to the demand collapse in sight.
Production fell by 100,000 barrels to 12.2m barrels a day last week, but the fall was nowhere near enough to offset the oil inventory glut.
Volumes at Cushing in Oklahoma, the US domestic market’s oil storage hub, are expected to hit 76 per cent capacity this week.
However, as traders found on Monday, the reality is that the majority of any remaining storage space has already been exclusively leased, meaning additional capacity is in even shorter supply than it seems.
Prices rebound in ‘broken’ market
The increase in US inventories came on a day in which global prices seesawed wildly in market that analysts described as “broken”.
Brent crude initially fell 12 per cent to reach its lowest levels since the last century, before rebounding back to sit at over $21.
West Texas Intermediate June futures, which seemed yesterday to be following May contracts into the negative, rose 28 per cent to $14.8.
Prices were boosted further by US president Donald Trump’s comments that the US Navy should “shoot and destroy” Iranian gunboats that harass tankers in the Straits of Hormuz.
Rystad Energy’s head of oil markets Bjorn Tonhaugen said that it was “time to throw old perceptions of physical laws to the side and be prepared for more surprises in this broken oil market”.
Despite today’s price whiplash, Tonhaugen said traders should expect further downward pressure unless dramatic action to cut prices was taken:
“Unless there is a massive shock, like millions of bpd in new shut-ins or new production curbs that will handicap the oil supply tornado, or decisions by countries around the world to open up sooner and increase demand, don’t be surprised if a barrel of oil gets cheaper than a latte in a while”.
Opec in “unchartered territory”
The wild fluctuations in prices have underlined what many analysts had predicted: that Opec’s record productions cuts would prove ineffectual against the demand slump.
With demand running at almost 30 per cent lower than normal, but cuts only reducing output by about 10 per cent, further action now looks inevitable to protect the fragile market.
Yesterday de facto Opec leader Saudi Arabia said it was ready to take further action, a stance reinforced by other producing nations like Iraq.
Opec member Nigeria said it could be compelled to make further reductions “with or without Opec”.
An Opec source told Reuters: “We are in uncharted territory. Everything is possible, including the unbelievable”.
“Turn the tankers around”
The US’ storage difficulties could be further heightened through imports, with satellite data showing 19 oil supertankers on their way from Saudi Arabia to the US.
The ships are estimated to be carrying 40m more barrels, which will put more pressure on oil inventories.
With nowhere to put them, Washington is reportedly considering blocking the delivery, government officials have said.
Senator Ted Cruz, writing on Twitter yesterday, put it more prosaically:
“My message to the Saudi’s: TURN THE TANKERS THE HELL AROUND”, he wrote.