The oil-price war between Saudi Arabia and Russia is set to unleash the biggest flood of crude ever seen, perhaps more than the world can even store. As producers ramp up shipments in a battle for dominance of global markets, and the coronavirus crushes demand, more than a billion extra barrels could flow into storage tanks. That could strain the available space and send oil prices crashing further, with brutal consequences for the petroleum industry and producing nations.
“I don’t see how you don’t exhaust global storage capacity, if this goes on until summer at the production numbers being talked about,” said Jeffrey Currie, global head of commodities research at Goldman Sachs Group Inc. The feud between Riyadh and Moscow has already inflicted a heavy toll.
Oil prices have slumped 32%, to about $34 a barrel, since the two exporters fell out over how to deal with the virus, severing the global alliance of producers they’d led for three years and launching a competition to offer customers the steepest discounts. The rout has driven American shale drillers such as Occidental Petroleum Corp. and Apache Corp. to cut dividends and spending.
The looming glut may still be held in check: President Donald Trump promised to take oil off the market on Friday by filling up the U.S. strategic reserve. Producers could take months to fully activate the idle assets they need to flood the market. And as low crude prices batter the two belligerents’ economies, a “truce” will probably be reached, according to Ed Morse, head of commodities research at Citigroup Inc. But if hostilities continue, the tide of oil is likely to become a tsunami.