The price of oil has risen from its lowest level in 18 years as Middle East producers show signs of strain and the US gears up to fill its emergency reserves.
Prices rose in New York but were still down over 40% since a failed meeting of Opec and its allies early this month, after which major producers pledged to pump more in a battle for market share just as the coronavirus crisis crushes demand.
The price of the global benchmark Brent crude added over $2 to just under $27 a barrel in London.
Now, signs of pain from the fallout are beginning to show. Saudi Arabia and Iraq slashed their freight rebates for refining customers starting next month in the first signal the price crash and a spike in transportation costs is starting to worry Middle East producers.
In the US, the Department of Energy is seeking to buy 30m barrels of oil for the strategic petroleum reserve.
Signs of stress are being revealed in other parts of the world, with Canadian oil at a record low and some North Sea fields uneconomic.
“We are heading into the most oversupplied market in the history of the oil market,” said DNB Bank analyst Helge Andre Martinsen.
We might hit full utilisation of global oil inventories in the months to come.
The Saudis ordered state-run Aramco to keep output at a record high of 12.3m barrels a day over the coming months. But in a surprise move, both the kingdom and Iraq cut the rebates on freight costs they give to customers, effectively lifting prices.
With crude’s price weakness getting more entrenched, traders are increasingly trying to assess the impact on US production this year.
The US Department of Energy said it will buy stocks for the reserve as a first step in fulfilling president Donald Trump’s order to fill the emergency stockpile for domestic producers.
The reserve, in caverns on the Texas and Louisiana coasts, has 77m barrels of available capacity. The first 30m-barrel purchase will be for both sweet and sour crude oil and is focused on buying from small and midsize producers.
The department “appears to be setting up multiple pathways to fulfill President Donald Trump’s request to fill the SPR, contingent upon future funding,” said analysts at ClearView Energy Partners.