Crude Prices Could Fall Again

Crude Prices Could Fall Again
Crude Prices Could Fall Again

Crude oil prices could drop sharply lower as refined product storage sites come close to maximum capacity, further adding to a glut that has already seen crude prices fall by more than half since June 2014, Goldman Sachs said.

Although “tank tops” –a term referring to storage capacities hitting their maximum– were unlikely, Goldman said that inventories were already “too close for comfort”, bearing the potential for a sharp fall in crude prices, Reuters reported.

“Distillate storage utilization in the US and Europe is nearing historically high levels, following near record refinery utilization, only modest demand growth (especially relative to gasoline), and increased imports from the East on refinery expansion and Chinese exports,” Goldman Sachs said.

“This raises the specter of 1998 and 2009 when distillate storage hit capacity, pushing runs and crude oil prices sharply lower,” it added in its note to clients.

Crude oil prices have fallen by almost 60% since June last year, with production from producers in the Middle East, Russia and North America consistently above global demand.

As a result, Goldman said it did not expect oil markets to re-balance next year, a term used to describe a market in which supplies and demand are at similar levels.