The most simple explanation for negative oil prices is that midstream players are now paying buyers to take oil volumes away as the physical storage limit will be reached.
That’s what Rystad Energy’s Oil Market Analyst Louise Dickson said in a statement sent to Rigzone, adding that “top dollar” was being paid.
“Pricey shut-ins or even bankruptcies could now be cheaper for some operators, instead of paying tens of dollars to get rid of what they produce,” Dickson stated.
“Traders have been gobbling up cheap oil and pumping storage full, and now, in the case of WTI and Cushing, storage has reached a physical limit - we estimated earlier today that there was only 21 million barrels of free storage left,” the Rystad representative added.
“For months, Rystad and many other agencies have been warning about running out of storage in mid-May - this isn’t news to anyone trading oil. Traders that do not have access to storage can no longer accept volume deliveries as the May contract expires,” Dickson went on to say, adding that traders that have access to storage are “happy to short the market”.
If shut-ins and bankruptcies materialize in the next month, then we can begin discussing optimism in June, according to Dickson.
“But right now, given the likely low compliance of OPEC+ cuts by May 1, the optimism is not yet warranted, and we could see a repeat situation next month,” Dickson said.
In a statement published on its website on Monday, Rystad Energy said public information on U.S. shut-ins is “scarce at the moment” but added that it estimates at least 175,000 barrels per day (bpd) of production was shuttered in March, mainly in the Bakken. For May, the company expects approximately 177,000 bpd of shut-ins across multiple shale plays.
Rystad Energy describes itself as an independent energy research and business intelligence company. The business is headquartered in Oslo, Norway, and has offices in London, New York, Houston, Aberdeen, Stavanger, Moscow, Rio de Janeiro, Singapore, Bangalore, Tokyo, Sydney and Dubai.
To contact the author, email andreas.exarheas@rigzone.com
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