Oil prices could hit $10 per barrel as storage facilities across the world run out of space amid a coronavirus-inspired price war, it is reported.
Worldwide oil storage has reached three quarters of capacity, it was reported today, after Saudi Arabia flooded the market with cheap oil to hurt its rival, Russia.
Canada, a key oil producing nation particularly in its west, is thought to be days away from running out of storage capacity for its domestic oil.
In theory, there is international storage capacity for oil for nine months.
However, this is unlikely to be enough as demand falls and supply rises, the Guardian reported.
Firms could use surplus oil tankers to store excess supply. But oil prices would have to fall further to make this economically viable after Saudi Arabia block booked vessel storage.
That has sent freight prices “through the roof”, according to analysts at ratings agency S&P.
Oil fallout hurts energy firms
They have warned oil prices could fall as low as $10 a barrel this year from a high of $65 in January.
Brent crude is currently trading at $26 with WTI at $23 as they booked respective daily falls of three per cent and two per cent.
And Rystad Energy analyst Paola Rodriguez-Masiu told the Guardian: “At the current storage filling rate, [oil] prices are destined to follow the same fate as they did in 1998, when Brent fell to an all-time low of less than $10 per barrel.”
Oil prices collapsed on the Saudi-Russia price war earlier this month. That price war was triggered by a slump in demand for fuel over coronavirus travel restrictions.
Several major oil producers have had to reduce production and/or expenditure as a result.
Premier Oil has identified at least $100m of potential savings on its 2020 capital spending plans.
The company’s shares rose five per cent today.
Shell has also slashed spending plans, along with its dividend.
Many firms have also reported an impact on their results and workforces, also suspending dividends.
Will oil prices rise again?
According to Philip Whittaker, partner and director at Boston Consulting Group, the primary factor in whether oil prices will rise again is what stimulus packages states offer to offset coronavirus.
As a secondary factor, he cited: “Anything that may happen with OPEC.”
Figures released this morning showed low oil prices have led to lower UK inflation.
However, figures from the AA showed this has not led to the average fuel price falling, despite major supermarkets cutting their prices.