IS ANOTHER crude price rout around the corner? If the market signals are portraying a correct picture, it could not be ruled out. The price of the current oil futures contract could go to zero again, even faster than the May contract, in a historic plunge, says CNBC’s Jim Cramer.

Crude markets are faced with contradictory push and pull. 28 tankers with Saudi oil, including 14 VLCCs, carrying a total of 43 million barrels, were set to arrive on the US Gulf and West coasts until 24 May, Rystad Energy reported. This carries an impact.

“The total volumes booked to arrive are four times higher than the previous four-week average of imports from Saudi Arabia. Given the current storage situation and the level of congestion on US coasts, we find it unlikely that all tankers will be able to unload upon arrival,” says Paola Rodriguez-Masiu of Rystad Energy.

The Saudi fleet was to join existing congestion of 76 tankers, waiting to unload in US ports.

Most of these tankers are on the West Coast, where 34 tankers were reportedly already waiting last week to offload about 25 million barrels of crude. In addition, about 31 tankers, carrying a similar load, were waiting for a slot to unload on the US Gulf Coast.

The tanker congestion has spiked in recent days because refiners are cancelling or deferring their purchases due to the steep fall in demand for road and jet fuels. If all the tankers unload the cargo they carry, it will offset during May, almost all of the production reductions from March levels.

The pressure on WTI is set to continue. Brent could not be far off.

In the meantime, oil producers continue to reduce output. But the job is far from done. In a gesture of solidarity with major global crude producers, Norway announced cutting its output by 250,000 barrels per day (bpd) in June and by 134,000 bpd in the second half of 2020. The start-up of the production of several fields will also be delayed until 2021, the announcement added. The US output is also down by more than 600,000 bpd, while the Canadian output is down by 300,000 bpd and the Brazilian by 200,000 bpd.

But all this is barely above one million bpd outside the cuts announced by the Organisation of the Petroleum Exporting countries and Russia (Opec+), far from enough to balance the markets. To restore calm, supply needs to come down sharply.

Questions about the state of the energy industry and the scale of demand destruction are only growing. “There remains an exceptional level of uncertainty regarding the near-term outlook for prices and product demand,” Brian Gilvary, BP CFO told analysts last week.

Fatih Birol, executive director of the International Energy Agency (IEA) underlined last Thursday: “It is still too early to determine the longer-term impacts, but the energy industry that emerges from this crisis will be significantly different from the one that came before.”

As per the IEA estimates, “Energy demand will fall six per cent in 2020 – seven times the decline after the 2008 global financial crisis.”

A sense of urgency is creeping in. With tens of thousands of energy jobs in Republican-controlled states at risk, President Trump says he would look into a proposal by Senator Cramer, calling on the White House to block Saudi Arabian oil shipments to the US.

“We cannot allow Saudi Arabia to flood the market, especially given our storage capacity dwindling. Right now, the highest number of Saudi oil tankers in years is on its way to our shores,” Cramer said.

Russia is treading a cautious path. “You should not expect a jump in oil prices in the near term, due to the current oversupply on the market,” Minister Alexander Novak said in an opinion piece.

The market could begin to balance in the second half of this year, as demand is expected to recover with the easing of travel restrictions and supply to be reduced due to the new Opec+ production cut deal, Novak added.

Opec is a bit more optimistic. Oil prices are set to recover with the production cuts and the gradual lifting of lockdowns around the world in the second half of 2020, when oil prices “will be $40 starting from the third quarter,”

Opec President Mohamed Arkab insisted last week.

To say the least, this is ambitious. A stable crude market is still far away.

Published in Dawn, May 3rd, 2020