Oil supply surge could inundate global storage, push prices below $20/bbl - BoFA

(Reuters) - An oil supply surge from the Organization of the Petroleum Exporting Countries and other producers could overwhelm global storage as the coronavirus squeezes demand, pushing prices below $20 a barrel, Bank of America Global Research said on Wednesday. Oil prices have tumbled to below $30 a barrel in March due to the impact of the virus and a push by Saudi Arabia and Russia to ramp up output after the collapse of a deal between OPEC and its allies, known as OPEC+, to curb supply

Reuters March 19, 2020 03:05:37 IST
Oil supply surge could inundate global storage, push prices below $20/bbl - BoFA

Oil supply surge could inundate global storage push prices below 20bbl  BoFA

(Reuters) - An oil supply surge from the Organization of the Petroleum Exporting Countries and other producers could overwhelm global storage as the coronavirus squeezes demand, pushing prices below $20 a barrel, Bank of America Global Research said on Wednesday.

Oil prices have tumbled to below $30 a barrel in March due to the impact of the virus and a push by Saudi Arabia and Russia to ramp up output after the collapse of a deal between OPEC and its allies, known as OPEC+, to curb supply.

"(Around) 4 million barrels per day (mbpd) of new OPEC+ supply could arrive in the next two months," BoFA said, adding global consumption could contract by over 0.5 mbpd in the first half of 2020, with the situation likely spilling over into the second half if the virus outbreak is not contained.

This surplus could quickly fill the available global storage capacity - and if the land-based capacity is insufficient, additional floating storage would be needed, the bank said.

As oil stocks rise, the contango in the West Texas Intermediate - wherein prices for future delivery are more expensive than those for immediate dispatch - could widen, and make U.S. crude more expensive than the global benchmark Brent crude, it added.

This could displace U.S. shale output, but "it would take roughly 12 months for U.S. supplies to fall 4 mbpd if shale drillers stopped completing wells today", BoFA said.

Goldman Sachs predicted global demand would drop a record 1.1 mbpd this year, and slashed its second-quarter Brent price forecast to $20 a barrel.

Oil prices fell for a third day on Wednesday with U.S. crude futures tumbling to a 17-year low as the coronavirus epidemic knocked the outlook for demand. [O/R]

(Reporting by Harshith Aranya in Bengaluru; Editing by Emelia Sithole-Matarise)

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