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| Wed, 29th Apr 2020 14:58:00 |
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Why Is So Much Oil Still Being Produced If No One Wants It? |
The spread of the novel coronavirus has ravaged the global energy industry. Even before the spectacular oil price crash that sent the West Texas Intermediate benchmark to nearly $40 below zero, the global demand for oil had plummeted as COVID-19 pressed the pause button on economies around the world.
Despite the desperate plunge in oil demand, however, a spat between Russia and Saudi Arabia pushed both countries to produce more oil in an oil-price war that has caused a historic global crude glut that has maxed out a vast amount of storage capacity and has oil sitting in tankers around the world as the glut continues to grow. If no one is buying oil and global storage is already edging toward maximum capacity with the potential to push the Brent international crude benchmark into negative pricing territory, why is oil still being produced at an alarming rate?
"The short answer is that production is decreasing — just not fast enough," reported National Public Radio on April 22. "The crude markets move in slow motion," said vice president of market intelligence for Enverus Bernadette Johnson in an interview with the public broadcasting company last week. "So what we're seeing is almost a slow-motion train wreck."
Part of the problem is that the infrastructure of the crude oil trade itself moves at a snail's pace. "Crude in a pipeline can take weeks to reach its destination, which means oil purchased in mid-March could still be in transit in mid-April. This spring, the world completely transformed faster than some oil could finish that trip."
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