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Oil, Oil Everywhere, but Where to Store It?

Monday, February 15, 2016

The dramatic drop in oil prices continues to cause problems for the industry as a whole, with the latest cause for concern centered on storage.

As Market Watch reports, the storage tanks in Cushing, Oklahoma, which serve as a delivery point for the New York Mercantile Exchange crude contract, are at 88 percent of capacity, according to the most recent numbers.

Cushing’s storage represents about 13 percent of the nation’s oil storage. The facility serves as a blending station where oil from midcontinent is mixed to the specific grades that refineries require, but the surplus is filling tanks that are usually available to do the mixing.

As industry analyst Stephen Schork recently said, “We soon might be in a situation that we have so much oil, that we don’t have enough of the right kind of oil.”

Building more tanks would take time and may not be financially viable beyond the immediate need. There would also be questions over how the cost of tanks would be split amongst those in the supply chain. Oil comes into Cushing from floating storage facilities in the Gulf of Mexico and by train from Canada and the northern United States.

Richard Hastings, a strategist at Seaport Global Securities, told Market Watch that the Cushing tanks will likely not reach storage capacity as other parts in the chain are liable to back up first, in particular elsewhere in the Midwest states as well as along the Gulf Coast.

The surplus is expected to continue until the price of oil rises again. Oil prices have dropped as OPEC flooded the market with oil in an effort to push companies with higher production costs out of business. There were rumors, though, that OPEC members are now unhappy with the drop in prices and are shifting toward ending the oil glut, according to a Reuters story posted by Fortune.

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