Oil storage tanks filled to levels not seen in 80 years
U.S. oil inventories at levels not seen in at least 80 years
North American oil prices could take a hit this fall as there are renewed concerns about a lack of storage capacity.
A recent report by the U.S. Energy Information Agency suggests crude oil inventories "remain near levels not seen for this time of year in at least the last 80 years."
The concern is what will happen this fall and whether oil supplies will hit "tank top." North American refineries are running at near capacity this summer, buying up oil and converting it to gasoline and other products. Several refineries will shut down in a few months for maintenance and there could be more unplanned outages because refineries are operating at such a high level.
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Each fall, it's typical for inventories to begin to build, but "the problem is we are at a much higher starting point," said Jackie Forrest, a vice-president with ARC Financial, who monitors trends in the Canadian oil and gas industry. A lack of storage could impact North American oil prices and in particular West Texas Intermediate (WTI), the benchmark for the continent.
The oilpatch had similar concerns in the spring. At that time, some companies began turning to 'fracklog' as one method of storing oil. Producers continue to drill wells, but stop just short of pumping out the oil. It's a way of storing the oil in the ground. The goal is to hold on to the oil until prices rebound.
Analysts are keeping a close eye on tank farms near Cushing, Okla., which is a major transit point for oil that is exported from Canada and likely destined for refineries on the Gulf Coast. Storage at Cushing reached nearly 80 per cent in the spring. Inventory is currently above 70 per cent, according to Genscape, an energy data analysis firm.
The firm's recent report suggests "Cushing could again reach a maximum level within three weeks if it builds at the same rate it did during the most recent winter."
Additional tanks are under construction, but the majority of them are expected to only be completed and operational by the middle of 2016, according to Genscape, which calls the new storage projects likely "too little, too late."
With current tanks filling up, there are other options to alleviate the storage shortage.
"There is quite a lot of pipeline that connects Cushing to other locations that do have more room to store crude," said Forrest. "There's always the option of moving some crude, like condensates, offshore."
If Cushing fills up, the most likely option would be to look at storage capacity in Texas, she suggests.