NEW DELHI: Negative oil prices, ships dawdling at sea with unwanted cargoes, and traders getting creative about where to stash oil. The next chapter in the oil crisis is now inevitable: great swathes of the petroleum industry are about to start shutting down.
The economic impact of the coronavirus has ripped through the oil industry in dramatic phases. First, it destroyed demand as lockdowns shut factories and kept drivers at home. Then, storage started filling up and traders resorted to ocean-going tankers to store crude in the hope of better prices ahead.
Now, shipping prices are surging to stratospheric levels as the industry runs out of tankers — a sign of just how distorted the market has become.
The specter of production shut-downs — and the impact they will have on jobs, companies, their banks, and local economies — was one of the reasons that spurred world leaders to join forces to cut production in an orderly way. But as the scale of the crisis dwarfed their efforts, failing to stop prices diving below zero last week, shut-downs are now a reality. It’s the worst-case scenario for producers and refiners.
“We are moving into the end-game,” Torbjorn Tornqvist, head of commodity trading giant Gunvor Group Ltd, said. “Early-to-mid May could be the peak. We are weeks, not months, away from it.”
In theory, the first oil output cuts should have come from the Opec+ alliance, which earlier this month agreed to reduce production from May 1. Yet after the catastrophic price pl