Tuesday, March 31, 2015

Oil Glut Doesnt Mean U.S. Running Out of Crude Storage Capacity

Although the U.S. rig count has fallen dramatically, reaching the lowest level since April 2011, domestic crude output continues to soar. At last count, total US crude stocks stood at 468 million barrels, according to the International Energy Agency (IEA) report issued on March 13.

Seizing the theme that petroleum production from conventional and shale deposits has yet to show signs of a slowdown, the collective media narrative portends an apocalyptic future where “U.S. oil glut will fill storage” – leading to a classic Econ 101 supply-demand model where the price of crude collapses to $10 to $20 a barrel.

The IEA says the principal storage hub in Cushing, Ohlahoma held 49.2 million barrels by end-February, equating to 70% of total working storage capacity at the nation’s largest hub.

Given ballooning crude stocks, is America truly running out of places to store all this crude?

Contrary to the vatic utterances by headline seeking “talking heads,” we are not running out of storage capacity – and E&P companies will not be forced to sell crude at give-away prices.

In “The Truth about U.S. Crude Storage,” a percipient Robert Rapier, managing editor at Energy Trends Insider, reminds us that Cushing isn’t the only place crude oil is stored:

“If Cushing continues to fill, oil producers will start looking at some (of those) other areas to store their crude. And with 200 million barrels still available, oil producers could continue to add a million barrels a week for nearly 4 years before crude oil storage is actually full,” says Rapier.

1 comment:

Adam Saucedo said...

Very interesting analysis. I have been avoiding this stock as well as others in the energy sector. In my view, the likelihood that supply dries up is just not very high. A driller who already has a hole in the ground isn’t going to stop producing oil until the marginal costs (which aren’t very high) exceed the price of oil.