Orbiting hundreds of miles above the Earth, the Sentinel-1 satellites are the eyes in the sky that show why U.S. oil prices dropped below zero and why much of the world is likely to follow. The satellite bounces radar signals off the massive metal tanks that store oil and that data is used to calculate how much crude is inside. It’s coming back with an alarming message: oil storage is running out.
It’s something that’s never happened before, and the market is only beginning to guess at what it’ll mean. Experts say it could be a matter of weeks before there’s no more room to store crude, an event called in industry parlance the “tank tops.” The result would be oil prices near zero in many parts of the world, and in some cases they could go negative.
“We are on a path to global tank tops in late May or early June,” said Florian Thaler at Oilx, a research firm which uses the satellite data.The chaos in the American oil market on Monday could foreshadow what happens globally, if other tanks start to fill up. It also shows the market will likely anticipate peak storage, rather than wait to plunge when the limit is breached. Some oil producers have now re-drafted their contracts to stop their prices from going negative.
On Tuesday, the selling frenzy continued. Brent futures for June delivery lost 15% to trade near $16 a barrel, the lowest in almost 21 years. Key European and African crude streams, which trade at a discount to the Brent benchmark, will sell under $10 and even below $5 in some cases.