Oil prices have stabilized somewhat around the $60 per barrel mark, and over the past few weeks oil has shown less volatility than the preceding six or seven months.
But another swoon could be just over the horizon. That is because oil producers are starting to run out of storage. As production has soared and global demand has failed to keep up, oil producers have been diverting oil into storage tanks at a remarkable rate since last summer.
The latest EIA data shows that weekly inventories jumped by another 7.7 million barrels, with total inventories now having reached 425.6 million barrels, the highest level l of oil sitting in storage in over 80 years, and more than 20% higher than the five-year average.
The data is also important because it highlights two things. First, oil production has not leveled off yet, despite several months of prices sitting below the breakeven mark for many producers. But also, the data indicates that U.S. producers may soon start to top off storage tanks. If production does not decline and oil storage capacity begins to run out, the glut of oil on the market could worsen pretty quickly, sending prices down once again.
Rig counts continue to decline amid weak prices.
On the other side of the world, the Russian Arctic is also seeing a pullback in activity. Although the culprit is not entirely, or even primarily, the collapse of oil prices, Russian state-owned firm Rosneft plans to postpone exploration of 12 Arctic licenses. Rosneft had ambitious plans to tap Arctic oil with the help of several international oil majors, but western sanctions have forbidden the involvement of those firms. While the Russian government originally scoffed at western sanctions when they were introduced last year, the major delay to Russia’s Arctic dreams demonstrates that the West’s ploys are having a bite.
When adding in the deteriorating currency and depressed oil prices, Russia may produce 560,000 barrels less per day in 2020 than it otherwise would have,
Meanwhile, in the short-term, Russia’s dispute with Ukraine over natural gas pricing is once again coming to a head. Gazprom has insisted that Ukraine has only paid for gas through the end of the week.
Other oil exporters are also showing more and more signs of strain. Norway’s exports have fallen by more than 18% year-on-year for the month of January.
Brazil’s state-owned oil company Petrobras shares dropped to “junk” status. The corruption probe that has widened in recent months is taking its toll. Already the world’s most indebted oil company, Petrobras’ fortunes have taken a turn for the worse over the last six months.
While demand for crude is showing some signs of life, the final deathblow is drawing near for the infamous Keystone XL pipeline. Despite Obama’s insistence that he merely opposed the procedural runaround pushed by the most recent legislation and that he may “still” approve the pipeline, at this juncture his veto makes final approval unlikely.
