First up, FT Alphaville:
L’embarras de richesses, crude oil edition
At what point does running out of space to keep all the stuff you want to hold on to stop being prudent risk management and become a compulsive hoarding disorder instead?
It’s a question worth asking in the context of oil surpluses because, according to Citi’s commodity research team, US capacity to store excess crude oil may be about to run out of space.
As Citi’s analysts noted on Friday (our emphasis),
EIA reports US crude inventory levels of 425.6-m bbls as of Feb 13. This is up +7.7-m bbls w/w and +63-m bbls y/y, and is 55-m bbls above the five-year average. But not all of this is in tank farms.Though, to be fair, it’s not really until you see the charts that you appreciate the dramatic nature of the stock upsurge...MUCH MORE
Crude oil pouring into Cushing, Oklahoma
Billions of dollars worth of oil is arriving for storage at the Oklahoma town dubbed “Pipeline Crossroads of the World.”
The global energy industry again is focused on Cushing.
In some ways the attention is good for the community in north-central Oklahoma, but the result could be painful for oil companies throughout the country, if not the world.
Known as the “Pipeline Crossroads of the World,” Cushing is home to the nation’s largest oil storage facility, a massive complex of tanks and pipes capable of holding more than 80 million barrels of crude.
Cushing also is the price point for domestic benchmark West Texas Intermediate crude.
As the price of oil has plummeted over the past seven months, companies have stockpiled as much as 2.2 million barrels a week at Cushing, rapidly filling it to more than half capacity. As of Feb. 13, Cushing’s storage tanks held nearly 46.3 million barrels of crude, according to the U.S. Energy Information Administration.
The stored oil is worth almost $2.4 billion even at today’s depressed prices, and the companies that own the crude hope it will be worth much more.
The oil market is in contango, which means oil delivered in the future is worth significantly more than oil delivered today. The price of oil for March delivery slipped 98 cents Thursday to $51.16. Oil to be delivered in March 2016, however, settled at $60.26. The more than $9 premium means companies make more money storing their oil at Cushing or another storage facility and waiting to deliver it into the market.
While the contango market is driving some of the storage increase, another issue is that producers continue to flood the market with more oil than consumers can handle.
Fill ’er up
At the current fill rate, Cushing could reach operational capacity by April, said Brian Busch, director of oil markets and business development at Genscape.
“I don’t think we’ll continue to fill at that rate. We saw some drop-off this week,” Busch said. “But I think Cushing will be filled sometime in May.”...MORE
