In just a few months, the coronavirus pandemic has destroyed so much fuel demand as billions of people curtail travel that it has done what financial crashes, recessions and wars had failed to ever do – leave the United States with so much oil there was nowhere to put it.
While the unusual circumstance of negative oil prices may not be repeated, many in the industry say it is a harbinger for more bleak days ahead, and that years of overinvestment will not correct in a period of weeks or even months.
“What happened in the futures contract the other day indicated things are starting to get bad earlier than expected,” said Frederick Lawrence, vice president of economics and international affairs at the Independent Petroleum Association of America.
“People are getting notices from pipeline companies that say they can’t take their crude anymore. That means you’re shutting down the well yesterday.”
Evidence of the erosion of value for a product that has been a mainstay of global society since the late 19th century abounded across the world last week.
In Russia, one of the world’s top producers, the industry is considering resorting to burning its oil to take it off the market. Norwegian oil giant Equinor slashed its quarterly dividend by two-thirds.
U.S. billionaire Harold Hamm’s Continental Resources Inc sent servicers out into fields in Oklahoma and North Dakota in the middle of the week to abruptly shut wells.
That accommodation can no longer be made with the world running out of space to put oil. As of Thursday, energy researcher Kpler said onshore storage worldwide is now roughly 85% full.
Demand is expected to fall by 29 million bpd in April, the International Energy Agency estimated.