From Bloomberg:
Just as Wall Street says the U.S. is running out of room to store oil, it turns out there’s another 20 million barrels of empty space.In our March 5 post "The Newest Commodity: Oil Storage Space" the EIA drew us a handy picture:
Where? Right at the top of the tanks.
A supply glut has dragged U.S. crude for May delivery almost $10 a barrel below contracts a year out. This market structure, known as contango, has encouraged traders to shove the most oil in 80 years into storage so they can sell it for more in the future. The problem is, tanks are filling up, according to banks from Bank of America Corp. to Citigroup Inc. and Goldman Sachs Group Inc.
That’s where the extra space comes in. There’s the normal “working” capacity. And then there’s “contingency” space, a buffer between the working storage and the tank tops that typically sits empty to keep oil from spilling out. The company that built most of the tanks at Cushing, Oklahoma, the biggest U.S. oil hub, says the buffer is about 3 to 5 percent of storage space. That’s equivalent to about 20 million barrels of room in tanks across the country.
“Their sole orientation is capturing the contango, and they’re pushing it as much as possible,” Rashed Haq, vice president at consultant Sapient Global Markets, who worked with a trader in November to model the use of his contingency space, said by phone March 17. “The difference between the working capacity and the tank top could be 1 percent, but that’s 1 percent of margin. That’s pure profit. That’s in the millions.”
Traders’ attempts to use every cubic inch of storage underscores how desperate the market has become to stow oil. Supplies at Cushing reached a record 54.4 million barrels as of March 13, Energy Information Administration data show. Nationwide, stockpiles at 458.5 million are the highest since 1930....MORE
