The oil market, rocked by crisis this week as prices plunged below zero on rampant oversupply and demand-destroying coronavirus, faces the critical problem of where to store surplus crude.

“To put it simply, there is too much oil with too little space to store it,” said TS Lombard economist Konstantinos Venetis.

In recent weeks and months, prices crashed as the COVID-19 pandemic brings the global economy to its knees — and sends crude demand falling off a cliff, with the world on lockdown and oil-dependent sectors paralysed.

That has left the world awash with plentiful supplies of so-called black gold.

“Storage demand accelerated from the second week of March onwards,” said Ernie Barsamian, head of specialist brokerage The Tank Tiger.

– Sub-zero oil –

In a fresh twist this week, New York’s light sweet crude turned negative on Monday for the first time in history.

West Texas Intermediate (WTI) for May delivery collapsed to an unprecedented low of minus $40.32 per barrel as traders scrambled to sell before the contract expired Tuesday.

The negative price means that traders were actually forced to pay to have the crude taken off their hands — yet few could locate buyers with somewhere to store it.

With a futures contract expiring traders didn’t want to take delivery of oil they would have to pay dearly to store and the price went into negative territory (Pic: AFP)

“With available storage in short supply, nobody wanted to hold a contract about to come due,” added Venetis.

This week’s meltdown also saw European benchmark Brent North Sea oil touch a two-decade low of $15.98 on Wednesday, before rocketing higher on threats by US Donald Trump to shoot at Iranian boats in a key waterway for crude shipments.

Oil movers and shakers are now desperate for storage in part of the industry which operates with very limited spare capacity.

“Global storage capacity is modest in relation to actual production,” explained Frederic Rollin, investment adviser at Pictet Asset Management.

– On land or at sea –

Oil companies are racing to locate adequate storage facilities — either on land in refineries and other facilities, or at sea on tankers.

The enormous storage terminal in Cushing, Oklahoma — where WTI is delivered — is nearly full given ample US production levels.

Oil tankers are also used for storage (Pic: AFP)

Some cargo ships are meanwhile being requisitioned as tankers.

In the United States, there is still room to store another 130 million barrels of crude oil — excluding the nation’s strategic reserves, according to analysis from consultancy Kpler.

However, smaller storage sites are often not connected to a pipeline, while many are rented and therefore unavailable.

Yet the situation is less of a concern for Europe’s Brent oil, which is “easier to store on ships than on land”, according to Rollin.

The 2020 oil crisis has meanwhile been worsened by a price war between key producers Russia and Saudi Arabia. While that conflict has been halted and further cuts agreed, they have been deemed insufficient to curb chronic oversupply.