WEEKLY ENERGY RECAP: US, China, investors all seek to store oil

This photo taken on March 20, 2020 shows a Kuwaiti oil tanker unloading crude oil at the port in Qingdao, in China's eastern Shandong province. (AFP)
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Updated 22 March 2020

WEEKLY ENERGY RECAP: US, China, investors all seek to store oil

  • The cost of transporting oil on supertankers has soared as refiners and traders scramble to secure vessels to ship more crude. That has increased the cost of loading barrels from Arabian Gulf producers

Crude oil prices continue to fall with steep fluctuations — dropping more than half since the start of the year, as the coronavirus pandemic leaves stock prices low, airlines hurt and supply chains broken.
The collapse of equity markets has added to the downward trend.
Brent crude retreated to $26.98 per barrel and WTI fell to $22.43 per barrel — an 18-year low — as the pandemic creates uncertainty.
Meanwhile the oil futures market has moved into a super-contango, with prompt barrels much cheaper than longer-dated deliveries.
This has prompted refiners and traders to buy cheap crude oil to store and sell later at a higher price.
This gives investors an incentive to wait for a recovery, seeing storage being filled faster than expected, with more supply than demand.
This has caused shipping freight rates to surge and may mean global oil storage capacity is maxed out in months as demand drops further.
The cost of transporting oil on supertankers has soared as refiners and traders scramble to secure vessels to ship more crude. That has increased the cost of loading barrels from Arabian Gulf producers.
The contango market structure has also prompted China to boost the capacity of its strategic petroleum reserves (SPR) to 503 million barrels by the end of this year, an indicator of the maximum amount the government can store. The US currently holds about 635 million barrels in its SPR.
The US took advantage of the low oil price to fill up its own SPR, despite Washington previously seeking to sell it off. Structural change in market dynamics has changed US energy policy: Instead of reducing its SPR, the federal government decided to purchase up to 92 million barrels, enough to buy the entire output of Texas in approximately 18 days.


Faisal Faeq is an energy and oil marketing adviser. He was formerly with OPEC and Saudi Aramco. Twitter:@faisalfaeq


G20 trade ministers highlight importance of transparency in current environment

Saudi Arabia has introduced several security and economic measures in its fight against coronavirus. (SPA)
Updated 30 min 53 sec ago

G20 trade ministers highlight importance of transparency in current environment

  • Extraordinary video conference explores ways to tackle coronavirus disruptions

RIYADH: Trade and investment ministers from the Group of 20 major economies convened an extraordinary video conference on Monday to come to grips with the blow to global trade from the coronavirus pandemic and weigh how to overcome supply chain disruptions.

They voiced concern about the daunting challenges facing workers and businesses, particularly the most vulnerable ones.
“We will ensure our collective response is supportive of micro, small and medium-sized enterprises, and recognize the importance of strengthening international investment,” said a ministerial statement.
It added: “We are profoundly saddened by the devastating human tragedy caused by the spread of COVID-19. The pandemic is a global challenge and requires a coordinated global response.”
The statement added that G20 leaders, following their extraordinary meeting conducted on March 26, committed “to presenting a united front against this common threat.”
“Now more than ever is the time for the international community to step up cooperation and coordination to protect human life and lay the foundations for a strong economic recovery and a sustainable, balanced, and inclusive growth after this crisis,” the ministerial statement added.
The ministers also said they had started monitoring and assessing the impact of the pandemic on trade as per the task entrusted to us by G20 leaders.
“We are actively working to ensure the continued flow of vital medical supplies and equipment, critical agricultural products, and other essential goods and services across borders, for supporting the health of our citizens. Consistent with national requirements, we will take immediate necessary measures to facilitate trade in those essential goods,” the statement added.
“We will support the availability and accessibility of essential medical supplies and pharmaceuticals at affordable prices, on an equitable basis, where they are most needed, and as quickly as possible, including by encouraging additional production through incentives and targeted investment, according to national circumstances. We will guard against profiteering and unjustified price increases,” the ministers said.
“We are concerned about the impact of COVID-19 on vulnerable developing and least developed countries, and notably in Africa and small island states.
“We agree that emergency measures designed to tackle COVID-19, if deemed necessary, must be targeted, proportionate, transparent, and temporary, and that they do not create unnecessary barriers to trade or disruption to global supply chains, and are consistent with WTO rules.
“We will implement those measures upholding the principle of international solidarity, considering the evolving needs of other countries for emergency supplies and humanitarian assistance.
“We emphasize the importance of transparency in the current environment and our commitment to notify the WTO of any trade related measures taken, all of which will enable global supply chains to continue to function in this crisis, while expediting the recovery that will follow.
“As we fight the pandemic both individually and collectively and seek to mitigate its impacts on international trade and investment, we will continue to work together to deliver a free, fair, non- discriminatory, transparent, predictable and stable trade and investment environment, and to keep our markets open,” the statement added.
“We will ensure smooth and continued operation of the logistics networks that serve as the backbone of global supply chains. We will explore ways for logistics networks via air, sea and land freight to remain open, as well as ways to facilitate essential movement of health personnel and businesspeople across borders, without undermining the efforts to prevent the spread of the virus.
“We will continue monitoring and assessing the impact of the pandemic on trade. We call on the international organizations to provide an in-depth analysis of the impact of COVID-19 on world trade, investment and global value chains,” the ministers said.
We will continue working with them to establish coordinated approaches and collect and share good practices to facilitate flows of essential goods and services.
We will convene again as necessary, and we task the G20 Trade and Investment Working Group to address these issues closely and to identify additional proposed actions that could help alleviate the wide-range impact of COVID-19, as well as longer-term actions that should be taken to support the multilateral trading system and expedite economic recovery.
The next Italian G20 2021 Presidency is committed to continue paying the highest attention to the international trade climate in the discussion of long-term actions.