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Supply may exceed demand by 12.4 million barrels a day in the second quarter, with other traders, banks and consultants also forecasting bumper surpluses, IHS said. Vitol said on Wednesday that demand has fallen as much as 20 million barrels a day from last year.

“Production is going to have to be reduced or even shut in,” said Jim Burkhard, head of oil markets at IHS. “It is now a matter of where and by how much.”

U.S. Concerns

There are already signs in prices about a potential scarcity of storage space. In the U.S, the so-called WTI cash roll traded down at the lowest level since December 2008 on expectations that inventories at the delivery point for U.S. futures would balloon in coming weeks and months.

Brent futures are trading deep in a contango structure where spot prices are at discount to those in later months as the market tries to create the necessary financial incentives to store by pressuring near-term prices.

Measures of the physical market for actual barrels of crude are also pointing to weakness globally.

Of the world’s three largest oil producers, Russia has the least amount of available storage capacity at about eight days, IHS said. Those figures are based on the amount of production that could be stored if exports dried up. Saudi Arabia has 18 days, and the U.S. has 30.

Nigeria, the biggest producer in Africa, is the most vulnerable among the areas measured by IHS. Estimated first-quarter 2020 daily production of 1.9 million barrels a day would fill up available local storage in 1 1/2 to two days, the firm said.

Consultant Energy Aspects Ltd. also sees storage tanks filling in the coming months.

“With OPEC pushing output to record highs, inventories will quickly get out of hand,” the firm said in a note. “We will run out of crude storage capacity by early Q3 20, with product containment arriving earlier.”

Bloomberg.com