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Big Oil Is Running Out Of Space

April 22, 2020
big oil

Big oil, among other massive industries, has taken a large hit. Due to low gas prices as well as a massive decrease in sales, big oil companies are having a hard time storing it all.

Big Oil Sells Off

Prior to the events of COVID-19, two of the largest oil producing countries: Russia and Saudi Arabia, decided that it would be a good idea to start an arms race for lowering their gas prices. This meant that there were no restrictions as to how much oil could be produced at a given time. For the companies who have been producing larger quantities, due to this “race”, they can’t sell it off fast enough. This was before the current global pandemic took a large foothold for all economies.

Store it Or Sell It: Big Oil’s Dilemma

This follows the basic routine of “supply and demand”. Where gas prices for consumers were high, the influx of high supply mixed with low demand has sent companies into panic mode.

For starters, if there are a high supply and low demand, companies are left sitting on the oil that they already had in storage. Now, with relaxed restrictions on production, that quantity has skyrocketed.

This means that large companies have two choices. The first is to store it until a later date. This requires a large storage facility (which most oil companies have). Until recently, they have begun to run out of space. This means that they must pay to have someone keep it in storage or sell it for an extremely low cost. For the companies that have run out of space, the extra cost for storage can be another deficit added to the already massive hit they are currently taking.

The other option is to sell at an extremely low price point. This would require buyers looking to stock up. Unfortunately, due to supply and demand, not many are willing to make the large scale purchases. Speculation is what drives fuel prices (like anything else). The current global crisis hasn’t given much in terms of a positive outlook.

With many commuters either unemployed or working from home, this means the need to fill gas tanks has drastically declined. Without the demand for oil. Big oil has been put between a “rock and a hard place”.

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