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All oil storage capacity will be full in the next two weeks, predicts the US bank Goldman Sachs. We are talking about both land warehouses and oil tankers.
The OPEC + agreement, which came into effect on Friday, will help the oil industry, what will happen to oil prices and the dollar exchange rate?
Do not overflow
Last April was the most difficult month in the history of the oil industry. Demand for black gold has collapsed due to a sharp decline in economic activity in all developed countries amid a coronavirus pandemic and massive quarantine measures. However, in May, the industry will face another challenge, writes Pogled Info.
There is no place to store oil. South Korea announced last week that its oil storage facilities were full. The same situation is with the Singapore coastal reservoirs.
In India, refineries have already used 95% of their storage capacity. Europe is fast approaching these figures: Oil supplies to Germany, France, Italy, Spain and the United Kingdom exceed demand by 50 million barrels per week. An American oil center in Cushing reports that its storage facilities are 81% full.
“A sad end will come soon,” concludes Thorbjorn Thornquist, chief trade officer for one of the world’s largest merchants in the Gunvor Group. “It won’t come in months, but in weeks,” he said.
Oilx, a research company that analyzes satellite data, is more optimistic: Its experts say it will have enough capacity for another five to six weeks. “It won’t all be overflowing until early June,” Oilx analyst Florian Thaler said.
Tankers are used as floating storage facilities. According to calculations by the Saudi state oil company “Saudi Aramco”, this is the role that every tenth VLCC-class super-tanker performs. They can ship up to two million barrels.
160 of these deposits are anchored just near Singapore, more than forty off the California coast and 30 off the northwest coast of Europe. A total of 350 supertankers are used to store oil worldwide.
“The floating tankers are also running low,” warns Markets.com chief analyst Neil Wilson. “And there is no hope,” he added.
There is only one perspective: stop oil production. When this is not possible, consumers will have to receive extra money to take the oil or simply burn it.
Is there life after OPEC +?
All hopes rest on the OPEC + agreement. As of Friday, world oil production has fallen by 9.7 million barrels per day. However, analysts say this is not enough.
Goldman Sachs estimates that in mid-May, demand will drop to 18 million barrels, which means that the imbalance will continue. And this is the most optimistic assessment. Analyst Rystad Energy expects demand to drop to 20 million, while oil trader Trafugura to 35.
The situation will begin to improve only in the second half of the year. “Demand will decrease in May, as will supply when American mining companies stop,” said Naim Aslam, chief analyst at Avatrade.
“By the end of April, the number of operating oil companies in the United States had reached a four-year low, falling by 40%. This should have a positive effect on the market,” he added.
According to experts from the largest Swiss bank UBS, oil prices will stabilize in the summer, and in the fourth quarter Brent will be priced at more than $ 40.
“There will even be a shortage as quarantine in developed countries will be lifted and demand for fuel will grow rapidly,” said UBS chief investment officer Mark Hefele.
Russia is holding
Russia is helping China to survive the crisis. According to the Chinese customs service, in March Russian imports increased 31% to 1.66 million barrels per day, which is only 72 thousand less than supplies from Saudi Arabia.
There is a real possibility of overtaking the Saudis in May: the port of Kozmino in the Far East, where oil is delivered, will export 3.2 million tons, 200,000 more than in April. And mainly to China.
“The economy is recovering, refineries are opening and they can recycle foreign raw materials,” said Yang Chon, director of the refining and forecasting company Refinitive.
According to Refinitive, China bought 44.9 million tons of oil in March (39.8 in March), and the figures should be even higher in April and May.
In Europe, the situation is more complicated due to apparent dumping from Saudi Arabia. Riyadh offered its Europeans oil at a price of $ 10.25 below Brent.
However, the overproduction crisis has affected light oil the most, as world demand has plummeted, especially against aviation oil and kerosene, amid the pandemic.
Heavy varieties, like the Russian Urals, are more in demand because they have higher diesel yields, which are now more necessary than gasoline. Even Poland, which recently announced that it would not buy Russian raw materials in April and May, could not do without the Urals. As reported by the navigation portal Marinetraffic last week, on April 30, the Rivera tanker delivered more than 100,000 tons of oil from Ust-Luga to Gdansk.
Swiftness has won another victory over political words: Polish refineries are designed to refine the Urals, so Saudi oil must be mixed with Russian.
The ruble will follow oil.
After the collapse of the oil market in March, the Russian currency was sensitive to price fluctuations. As the situation in May will remain difficult, most experts expect a rate of around 75 rubles per dollar.
A further relaxation of the Bank of Russia’s monetary policy and the reduction of the key interest rate to 4.5% in May could have a positive effect.
“This will serve as a good stimulus to maintain the interest of non-residents in Russian debt instruments, which in turn will support the ruble, whose exchange rate will strengthen in the medium term to 70-71 per dollar,” said Sergei , analyst at Finam. Drozdov.
At the same time, Western analysts see the great risks associated with the abolition of quarantine in many countries. “The second half of May is an important time for the ruble,” says Nordea Bank. “If new outbreaks of disease continue, the appetite for Russian debt instruments in the markets may disappear.” Investors will start selling Russian assets again, and the dollar will return in the range of 75-80 rubles.
Translation: V. Sergeev
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