US crude prices fell below zero, and oil traders turn to salt caverns in Sweden and train cars in Chicago
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Oil traders turn to salt caverns in Sweden and train cars in Chicago
From salt caverns in Sweden to train cars in Chicago, oil traders spent the past two months stuffing unwanted crude into any available space after demand collapsed in the face of the coronavirus pandemic.
Traders called on locations they usually ignored, including barges on rivers normally used for making relatively small deliveries to inland markets. Rail cars were filled up and so were “frac” tanks, normally used for holding water and chemicals used in the hydraulic fracturing process.
In late April, benchmark US crude prices fell below zero for the first time in history. Traders due to take delivery of oil at Cushing, Oklahoma, struggled to access the storage they needed, forcing them to pay rivals to take the crude off their hands. Brimming tanks and a growing armada of floating supertankers suggested that the world was running out of places to stow its fuel.
As traders looked for places to stow unprecedented volumes of excess oil, the cost of hiring a very large crude carrier, capable of being parked at sea holding more than 2m barrels, surged to about $230,000 a day in late March, according to Clarksons Platou Securities.
In the past week, prices have rebounded by about $5 a barrel. The oil market might even be at an inflection point, traders said, as many countries ease lockdowns and travel bans, boosting demand.
Shipping rates have fallen, with the cost of hiring a VLCC halving over the past week to $88,600 a day. The six-month Brent spread has almost halved to below $7 a barrel.
The rosier outlook is partly due to supply cuts by Opec members and their allies, due to take effect on May 1. Other countries such as Norway have announced their own curbs. About 3m barrels a day of North American output is also being taken off the market as low prices and limited pipeline capacity force shale and tar-sands producers to scale back.
"It took some time but the size of the cuts is now coming faster and larger than we expected,” said Ben Luckock, co-head of oil trading at Trafigura, one of the world’s biggest independent oil traders. “We might still be some distance away from being a healthy market, but we think the peak of the crisis for oil storage has passed."
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