The oil sector is quickly running out of storage for its unprecedented surplus

March 27, 2020, 1:00 PM UTC

The world already has too much oil. But now it’s running out of room to store it.

As the oil sector faces down decimated demand resulting from the coronavirus as well as the oil price war between Saudi Arabia and Russia, which has unleashed still more oil, prices have plunged more than 50% from their recent high in late February. That price drop now threatens untold numbers of jobs, and even the financial fate of whole companies and regions reliant on revenue from the sector.

But it also presents a looming logistical challenge. As drills keep drilling and refineries keep refining, the world is potentially only weeks away from running out of places to put it. According to energy analysts, this lack of space could result in production slowing and even stopping before low prices have had time to work their way through the system.

“Sometime very soon, we may have the global oil storage capacity be completely full,” said Fatih Birol, executive director of the International Energy Agency, speaking on Thursday at an Atlantic Council event on the oil sector.

On Friday morning in London, Brent crude was down 1.4% on the day at $25.97 a barrel, and WTI was down 0.18% on the day at $22.56 a barrel.

Analysts at Rystad Energy, an oil consultancy based in Oslo, estimate that the world is likely to run out of storage at current production rates by April, estimating earlier this week that 76% of the world’s storage is already full. In some regions, like Western Canada, storage could be full by the end of this month, they estimate—in other words, by Monday.

IHS Markit forecasts that by the end of June—the first half of the year—surplus oil will have already reached 1.8 billion barrels of crude, exceeding their estimate of current available storage: just 1.6 billion barrels.

That forecast reflects a wide divergence among countries, the consultancy said. On one end is Nigeria, which has an estimated additional storage capacity of just one and a half days, the shortest of all major oil producers. On the other end is China, which, after significant investments in oil storage, is estimated to have more than 52 days.

The U.S. as a whole is also on the upper end of storage estimates, with about 30 days, according to IHS Markit.

The pressure on storage marks a reversal of oil market orthodoxy: Contingency plans for countries historically involve making sure there’s enough oil stockpiled to withstand a supply shock—rather than making sure there is enough storage itself.

All countries that are members of the International Energy Agency have to hold a minimum 90 days’ worth of oil in storage, while the U.S. Strategic Petroleum Reserve already held nearly 635 billion barrels’ worth of crude in storage by December of last year.

A plan to fill that reserve “to the top,” according to President Donald Trump, by purchasing 77 million barrels of oil with $3 billion in government funding, as part of the U.S. government’s $2 trillion coronavirus relief fund, was blocked earlier this week and didn’t pass. But even filling up the reserve wouldn’t prevent oil supplies from globally exceeding places to put it.

Even the more creative, backup storage options—for example, “floating storage,” or using oil tankers as offshore storage for oil when space is tight—are also not viable options at the moment, points out Rystad Energy. With Saudi Arabia increasing its oil production by a million barrels per day, the cost of freight to ship it has skyrocketed.

And the consultancy estimates there are only 57 empty, available oil tankers that could be diverted to sit off coasts full of surplus oil—not nearly enough.

While the oil crash suddenly made many oil producers and refiners unprofitable, in the shale sector, for example—the lowest end of the breakeven price is $40 per barrel—the lack of storage could hit even faster. When it does, the decline in production could actually help oil prices rise.

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

More coronavirus coverage from Fortune:

—Will ‘The Great Cessation’ be worse than the Great Recession?
—Everything you need to know about the coronavirus stimulus checks
—Why Mark Cuban is focusing his time—and money—on coronavirus relief
—The world’s largest coronavirus lockdown is off to a rocky start
—The coronavirus has shattered the drug development status quo. We should build on that
—The $2 trillion coronavirus stimulus package isn’t green, but it helps
—Listen to Leadership Next, a Fortune podcast examining the evolving role of CEOs
—WATCH: World leaders and health experts on how to stop the spread of COVID-19

Subscribe to Outbreak, a daily roundup of stories on the coronavirus pandemic and its impact on global business, delivered free to your inbox.