Cheap petrol: enjoy it while it lasts. The new danger for fuel supply

A massive oversupply of oil globally – as roads are empty during the lockdowns – has caused the price of petrol to plummet to record lows.

In some extreme cases – reported widely on the nightly news – some oil companies are even paying others to take their fuel supply because they have nowhere to store it.

However, experts say we should enjoy cheap petrol prices while we can because there could be a sharp rise around the corner.

A report by the Bloomberg news agency in the US claims that if global demand for fuel drops any further, some oil companies may need to shut some refineries or risk going bust.

The knock-on effect of this: once the world returns to normal, the price of petrol would rise dramatically if there are fewer refineries to produce fuel.

In a special report, the Bloomberg news agency said the coronavirus “has ripped through the oil industry in dramatic phases”. 

“First it destroyed demand as lockdowns shut factories and kept drivers at home,” Bloomberg reported. “Then storage started filling up and traders resorted to … tankers to store crude in the hope of better prices ahead”.

But that was just the start of the problem, the news agency reported.

“Now shipping prices are surging to stratospheric levels as the industry runs out of tankers,” wrote Bloomberg.

After world leaders and oil companies were unable to stop prices falling “below zero” last week, “shut downs (of refineries) are now a reality”, Bloomberg wrote.

Using the US market as a guide, Bloomberg cited figures that showed about 650 oil rigs were in operation there before the coronavirus crisis hit, but about 40 per cent of them (270 or so) had temporarily stopped production.

The plan now is for an industry-wide slowdown of production so all refineries can ramp back up again when the world returns to normal. By sharing the burden of weakening demand globally, there is a better chance most refiners will be able to stay in business after the crisis, the report said.

The major oil-producing nations – Saudi Arabia, Russia and the rest of the OPEC alliance – agreed to cut oil production by at least 20 per cent as of late last week, or by 9.7 million barrels a day. 

Before the global pandemic, the world was consuming about 100 million barrels of oil a day.

However, “every week, 50 million barrels of crude are going into storage, enough to fuel Germany, France, Italy, Spain, and the UK combined,” Bloomberg reported. 

“At that rate, the world will run out of (oil) storage by June,” the report said.

So, petrol might be cheap for the next few weeks, but oil companies are already trying to find ways to slow down supply so they can maintain or raise their prices.

If the world recovers too quickly from global lockdowns, prices could rise sharply once the pandemic is over.

But if the world returns to normal slowly, price increases at the bowser will likely be gradual. Either way, unfortunately the price of petrol won’t stay this low forever.