Crude Oil Storage Facilities Running Out. Prices May Turn Negative for Producers
Oil rigs around the world keep pulling crude oil out of the ground, but the global pandemic has sent shockwaves into the market. The supply is up, but demand has plummeted now that industry has ground to a halt, highways are empty, and airplanes are parked in hangars.
It means that storage space for crude is starting to run out, both onshore and offshore, according to CNBC.
As CNN reported, the supply glut has driven the price of oil to 18-year-lows. The need to get rid of it has grown so bad that some producers are paying customers to take it off their hands, according to Yahoo! Finance. In fact, in Canada, an entire barrel of crude oil is less expensive than a $5 pint of beer, according to another story from CNBC. A barrel of Western Canada Select oil was listed as $4.18 earlier this week.
That precipitous drop in the price may make it more economical for producers to shutdown operations than to see the prices dip into negative territory, according to The Guardian.
Meanwhile, Saudi Arabia and Russia are preparing to pump record levels of oil into the global market as part of a oil price war to win control of the market, despite drastically reduced demand for energy during the COVID-19 crisis, as The Guardian reported.
Today, a three-year truce between OPEC and non-OPEC countries expired, paving the way for an increase in production. Saudi Arabia has pledged to raise output to record highs, according to CNBC.
"The market is starting to signal that not only is there no demand for this crude, eventually there could be nowhere for it to go," Jeff Wyll, senior energy analyst at Neuberger Berman, said as CNN reported.
In a letter from Goldman Sachs earlier this week, the banking giant said producers, especially in landlocked pipelines like those in the U.S., Canada and Russia, will face mounting problems as there is no place to get rid of their oversupply.
"Given the cost of shutting down a well, a producer would be willing to pay someone to dispose of a barrel, implying negative pricing in landlocked areas," the bank said in an investor note on Monday, as The Guardian reported.
"The cost to store the crude oil is now higher than the price they can get for it," Bob Iaccino, Path Trading Partners Co-Founder & Chief Market Strategist, explained to Yahoo! Finance. "You can't flow away stored crude oil."
Since it is more expensive to store than to sell, that could make the price go negative.
"Refineries in many places are now losing money for every barrel they process, or they have no place to store their output of oil products," Bjarne Schieldrop, chief commodities analyst at SEB, told CNBC. "For land-based or land-locked oil producers, this means only one thing: the local oil price or well-head price they receive very quickly goes to zero or even negative, because if they have too much oil, they must pay someone to transport it away until they have managed to shut down their production."
Analysts predict that global storage limits will max out by mid-year. Already, ports around the world are starting to turn away oil tankers, according to CNBC.
The oversupply means oil companies will start to shutdown refineries with older, less productive oil wells likely to stop production first. Goldman Sachs predicts the industry will lose as much as 5 million barrels per day of oil supply capacity, according to Reuters.
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By Katherine Kornei
Clear-cutting a forest is relatively easy—just pick a tree and start chopping. But there are benefits to more sophisticated forest management. One technique—which involves repeatedly harvesting smaller trees every 30 or so years but leaving an upper story of larger trees for longer periods (60, 90, or 120 years)—ensures a steady supply of both firewood and construction timber.
A Pattern in the Rings<p>The <a href="https://www.encyclopedia.com/science/dictionaries-thesauruses-pictures-and-press-releases/coppice-standards-0" target="_blank">coppice-with-standards</a> management practice produces a two-story forest, said <a href="https://www.researchgate.net/profile/Bernhard_Muigg" target="_blank">Bernhard Muigg</a>, a dendrochronologist at the University of Freiburg in Germany. "You have an upper story of single trees that are allowed to grow for several understory generations."</p><p>That arrangement imprints a characteristic tree ring pattern in a forest's upper story trees (the "standards"): thick rings indicative of heavy growth, which show up at regular intervals as the surrounding smaller trees are cut down. "The trees are growing faster," said Muigg. "You can really see it with your naked eye."</p><p>Muigg and his collaborators characterized that <a href="https://ltrr.arizona.edu/about/treerings" target="_blank">dendrochronological pattern</a> in 161 oak trees growing in central Germany, one of the few remaining sites in Europe with actively managed coppice-with-standards forests. They found up to nine cycles of heavy growth in the trees, the oldest of which was planted in 1761. The researchers then turned to a historical data set — more than 2,000 oak <a href="https://eos.org/articles/podcast-discovering-europes-history-through-its-timbers" target="_blank" rel="noopener noreferrer">timbers from buildings and archaeological sites</a> in Germany and France dating from between 300 and 2015 — to look for a similar pattern.</p>
A Gap of 500 Years<p>The team found wood with the characteristic coppice-with-standards tree ring pattern dating to as early as the 6th century. That was a surprise, Muigg and his colleagues concluded, because the first mention of this forest management practice in historical documents occurred only roughly 500 years later, in the 13th century.</p><p>It's probable that forest management practices were not well documented prior to the High Middle Ages (1000–1250), the researchers suggested. "Forests are mainly mentioned in the context of royal hunting interests or donations," said Muigg. Dendrochronological studies are particularly important because they can reveal information not captured by a sparse historical record, he added.</p><p>These results were <a href="https://www.nature.com/articles/s41598-020-78933-8" target="_blank">published in December in <em>Scientific Reports</em></a>.</p><p>"It's nice to see the longevity and the history of coppice-with-standards," said <a href="https://www.teagasc.ie/contact/staff-directory/s/ian-short/" target="_blank">Ian Short</a>, a forestry researcher at Teagasc, the Agriculture and Food Development Authority in Ireland, not involved in the research. This technique is valuable because it promotes conservation and habitat biodiversity, Short said. "In the next 10 or 20 years, I think we'll see more coppice-with-standards coming back into production."</p><p>In the future, Muigg and his collaborators hope to analyze a larger sample of historic timbers to trace how the coppice-with-standards practice spread throughout Europe. It will be interesting to understand where this technique originated and how it propagated, said Muigg, and there are plenty of old pieces of wood waiting to be analyzed. "There [are] tons of dendrochronological data."</p><p><em><a href="mailto:firstname.lastname@example.org" target="_blank" rel="noopener noreferrer">Katherine Kornei</a> is a freelance science journalist covering Earth and space science. Her bylines frequently appear in Eos, Science, and The New York Times. Katherine holds a Ph.D. in astronomy from the University of California, Los Angeles.</em></p><p><em>This story originally appeared in <a href="https://eos.org/articles/tree-rings-reveal-how-ancient-forests-were-managed" target="_blank">Eos</a></em> <em>and is republished here as part of Covering Climate Now, a global journalism collaboration strengthening coverage of the climate story.</em></p>
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Noreen Nunez lives in a middle-class neighborhood that rises up a hillside in Trinidad's Tunapuna-Piarco region.