The current production of oil cannot be sustained in the second quarter of this year, due to the lack of global storage, London-based analysis firm IHS Markit has warned.
The company analysed the world’s supply and demand for oil and said there will be a glut of 1.8 billion barrels in the first half of this year, which exceeds the current crude oil storage capacity of 1.6 billion.
IHS Markit said the storage capacity varies greatly across different countries, with Nigeria in the direst situation for how long it would have until its domestic crude oil production filled the country’s available storage. The firm estimated the country’s daily production of 1.9 million barrels per day would fill its available local storage in just 1.5–2 days if its production of oil isn’t sold on.
China is in the most favourable position for storage, with a more than 52-day window until its storage would reach capacity, while the US and Europe would both fill its storage facilities in around 30 days.
Storage availability will lead to determining where in the world production will be reduced or even shutdown altogether. However, for some production facilities, there are added risks to shutting down production for purely economic reasons, such as the potential to cause reservoir damage, said IHS Markit.
Aaron Brady, Vice President of IHS Markit, says: “Those with better access to storage options may fare better than others. Creative storage solutions are likely to emerge, but they are unlikely to make up for the sheer pace and scale of the supply surplus.”