$ 100 negative oil is not impossible with full tanks

(Bloomberg) – Orbiting hundreds of kilometers above Earth, Sentinel-1 satellites show why oil prices in the United States have dropped below zero and why much of the world can go the same way.

The satellite receives radar signals from the huge metal tanks that store oil, and this data is used to calculate the amount of stored crude oil. The returning message is alarming: oil storage capacity is almost depleted.

It is unprecedented, and the market is just beginning to assess the importance of this. Experts say the space to store oil could run out in a matter of weeks. As a result, oil prices can drop to near zero in many parts of the world, and in some cases, prices could turn negative.

Florian Thaler of Oilx, a research firm that uses satellite data, says the tanks’ global storage capacity may be depleted “in late May or early June.”

The chaos in the U.S. oil market on Monday could lead to clues on the global stage if other tanks begin to fill up. It also shows that the market should anticipate the storage spike, rather than waiting to plummet when the limit is crossed. Some oil producers have reformulated contracts to prevent prices from entering negative territory.

On Tuesday, the wave of sales continued. Futures contracts for Brent-type oil for June delivery fell 15%, trading at around $ 16 a barrel, the lowest level in nearly 21 years. The main European and African oil flows, which are trading at a discount compared to the Brent benchmark, will sell for under $ 10 and even under $ 5 in some cases.

“Clearly, we have been through a daily crisis of large-scale market management,” said Paul Sankey, a veteran oil analyst at Mizuho Bank, who reached the March forecast for negative oil prices. He went even further on Tuesday: “Will we hit a negative $ 100 a barrel next month? It is very possible. “

The negative price market has no floor, and after this week, anything is possible. One certainty is that the latest satellite data shows enormous saturation. Around 50 million barrels of oil are stored weekly, enough to supply Germany, France, Italy, Spain and the United Kingdom.

In India, the refineries’ fuel storage capacity has reached 95%, according to officials from three state processors. Nigeria will cut production because it has nowhere to store oil, Mele Kyari, head of the state-owned oil company NNPC, said in an interview with a local newspaper.

Oil refineries have not been buying crude oil because there is no demand for gasoline. Some producers have reduced production, but others continue to pump. Even a few dollars is better than none for indebted companies. Oil has nowhere to go except storage.

Satellite data may even be underestimating the amount of storage actually available. Merchants have already rented a lot of empty space.

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