Latest update March 26th, 2026 7:55 AM
World’s oil storage capacity will be tested to its limits – Wood MacKenzie
– gloomy forecast for second quarter of 2020
With the declining demand on the world market, companies will be forced to keep more and more of their oil in storage, but for how long? And what new pressures will this bring in these times?
Lending much consideration to these two questions recently was Wood MacKenzie, a global energy, chemicals, research and consultancy group.
According to the group, the world’s oil storage space is running thin and this quarter, it will be tested to its limits. 
Wood MacKenzie predicts that companies will have an unprecedented surplus of 12 million barrels of oil per day for the second quarter of 2020.
“We think there’s sufficient storage capacity in the market to absorb the oversupply for two to three months. But it depends how supply and demand play out: at times when demand is weakest, the oversupply could be much higher.”
It said that at the end of the day, countries will have to cut production and shut off well heads whether on or offshore. It said that this is likely to happen when storage maxes out, including on floating storage vessels.
Expounding on its outlook for the oil sector, Wood Mackenzie said it has done a product-by-product, week-by-week forecast and assuming the containment shut-ins are in place most severely during April, then ease slowly in the following several months- it expects world oil demand to fall over eight million barrels of oil year-on-year for 2020.
It said, too, that April will see the sharpest drop, with a year-on-year decline of over 15 million barrels of oil per day as the coronavirus containment measures are at their steepest.
As for the second half of 2020, Wood MacKenzie said the market will see a gradual easing of the extreme oversupply seen in the first half of this year as the fundamentals begin shifting towards demand stabilization.
Further to this, the consultancy said that demand will still be down, year-on-year, but the decline will not be as steep as in the second quarter as supply will start to weaken.
To show the extent of the trend, for 2021, Wood Mackenzie is forecasting total global supply, including OPEC, non-OPEC, and natural gas liquids, to show no growth for the year.
It said, too, that demand, while weak, is projected to rise in 2021 – a sharp reversal from 2020 when demand falls and supply rises.
“The crisis is extreme for the oil market but low oil prices have already had an effect on supply and the steep falls in demand will have a limited duration,” Wood MacKenzie said.
With respect to the outlook for price, the company said that this is expected to be poor in the very short term.
“We expect Brent crude price to average US$20 a barrel in April and possibly, at times, to dip lower. Thereafter, much depends on how long demand is suppressed by the effects of Covid-19. We forecast demand bounces back in the second half of 2020, and the savage cuts in upstream investment in the last few weeks will lead to a progressively lower outlook for supply into 2021.”
Further to this, Wood MacKenzie said that a degree of market rebalancing beginning in the third quarter of 2020 could push Brent up towards US$40 a barrel by the end of 2020.
Wood Mackenzie said that this may seem a remote possibility given today’s difficult realities. “But it’s dependent on many things coming back into place,” Wood Mac said.
In addition to this, the consultancy group said that many producers today – and their financiers – would give their right arm for US$40 per barrel.
Wood Mackenzie was keen to note, however, that this is still a very modest price, while adding that few producers, international oil companies or national oil companies make any money at that rate.
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