Global liquids surplus will hit hardest in crude sector, IHS Markit has reported.
The spread of COVID-19 and, more directly, the lockdown measures being enacted by the world's governments have caused an unprecedented drop in oil product demand, according to the company.
IHS Markit estimates that global consumption of gasoline, diesel, and jet fuel is down nearly 20 percent this month (year on year basis) with a 30 percent decline looming in April.
“In volume terms, this works out to 367 million fewer barrels consumed this month and 553 million fewer next month (again, year on year basis),” the company said in its report.
IHS Markit predicts that global liquids supply will exceed demand by more than 1.8 billion barrels during the first half of this year. “This is a staggering number; the previous "record" was a 350-million-barrel surplus in 1H2015.”
And for the reasons described above, most of the "burden" of managing this massive liquids surplus will fall on the crude sector, the company believes.
However, IHS Markit estimates that currently available crude storage capacity is only around 1.6 billion barrels. “Clearly, something will have to give. Perhaps more crude will be refined into product and subsequently stored - though of course there is a finite volume of product storage as well. The unavoidable fact is that, absent a decrease in projected supply or increase in projected demand, significant bottlenecks will develop in the global liquids value chain by the end of next month.”
While the looming oversupply will have negative implications for the entire oil sector, some countries are more vulnerable than others, according to the report.
For example, Nigeria, Alberta, and Norway (among others) have less than five days of domestic crude storage available, the company said.
“That is, absent an export market or functioning local refineries, these countries would run out of room for their crude production in less than five days. Put yet another way, these are countries that depend on the smooth functioning of the global oil system. This is true for all countries, of course, and the reality will be messier than a simple "days of storage" calculation, but it is clear that some countries are more vulnerable to a breakdown than others. Notably, Russia's days of available storage number is around eight; for Saudi Arabia, the figure is closer to 18.”
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