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By Robert Rapier on Mar 11, 2015 with 35 responses

Is the U.S. Running Out of Crude Oil Storage?

Update: See my latest article Crude Oil Inventories Should Peak Soon for an understanding of how important refinery utilization is in this picture.

No, despite the popular narrative that we keep hearing, the U.S is not running out of crude oil storage. Yet there are those who are predicting that oil prices are going to fall to $20 or $30 a barrel, pointing to the crude oil storage numbers and suggesting that we are near maximum capacity and therefore a price collapse is imminent. (Although Goldman Sachs did some backpedaling on their forecast this week).

The argument goes something like this: US running out of room to store oil; price collapse next?

“The U.S. has so much crude that it is running out of places to put it, and that could drive oil and gasoline prices even lower in the coming months. For the past seven weeks, the United States has been producing and importing an average of 1 million more barrels of oil every day than it is consuming. That extra crude is flowing into storage tanks, especially at the country’s main trading hub in Cushing, Oklahoma, pushing U.S. supplies to their highest point in at least 80 years, the Energy Department reported last week.”

At first glance, the argument seems to be pretty straightforward. But let’s dig into the data a bit. Admittedly, if you look at the storage numbers in the nation’s most important oil storage hub (and the price settlement point for West Texas Intermediate on the New York Mercantile Exchange) in Cushing, Oklahoma, it’s easy to form the impression that storage is filling up and an oil price crash is inevitable:

150310TELcushingstocks

Since early October, crude oil inventories in Cushing have increased each week by an average of 1.4 million barrels (and as noted above, over the past 7 weeks crude inventories have increased at 1 million barrels every day across the entire U.S.). But there is some important context missing from the graphic (and that’s not even considering that some are storing oil in anticipation of higher prices later this year).

Any time someone claims that we are nearly full on crude oil storage, I ask them to quantify that. “Highest levels in 80 years” isn’t quantified. You could be at the highest levels in 80 years and only 10% full. And in the graphic above, one thing that is missing is how much storage volume is actually available at Cushing. The answer is 71 million barrels (with more storage under construction). So even if inventories there continued to build at the recent pace, it would be nearly four months before Cushing would actually be full. But, there are several mitigating factors that minimize this possibility.

We are currently in the season when refinery utilization is lowest. Refiners take equipment offline in fall and spring to do maintenance, so they use less crude oil at this time of year. This maintenance usually peaks in March, and then crude oil demand picks back up as refiners gear up for the summer driving season. The difference in refinery demand between this time of year and summer is generally around a million barrels per day, so even if nothing else changes that storage build should start to flatten.

Further, two other variables are also changing that will impact the storage build. The first is that the budget cuts and cost saving measures that oil drillers are instituting in response to lower prices will start to dampen oil production growth relatively soon. In the Energy Information Administration’s latest Short Term Energy Outlook, the EIA forecasts crude oil production to peak in the second quarter of this year and then decline by 180,000 barrels per day in the third quarter.

Last but not least, demand is picking back up. Automakers have been reporting higher sales of SUVs and pickups as gasoline prices have fallen. In turn, the average fuel economy of the U.S. fleet has recently declined. As a result, seasonal demand for gasoline has risen to its highest level in four years:
150310TELgasolinedemand

These factors will all slow and eventually reverse the buildup of crude oil in Cushing. And of course Cushing isn’t the only place crude oil is stored. The EIA recently reported that across the nation, crude oil inventories are only at 60% of capacity:

150310TELuscrudestoragecapacity

The EIA reports that across the U.S., total crude oil working storage capacity was 521 million barrels as of last September, and as of March 6, approximately 320 million barrels of that volume was being used. (While the Weekly Petroleum Status Report currently lists crude oil inventories at 444 million barrels, the EIA states that about 120 million barrels of this is in pipelines, on ships, or oil that is locally stored and has not entered the supply chain.)

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 (which is about the average over the past year) for nearly 4 years before crude oil storage is actually full.

So in summary, the narrative being pushed that the U.S. is running out of crude oil storage is false, most likely repeated by those who haven’t bothered to actually check available crude oil storage.

It may also be pushed by those who have a vested interest in seeing oil prices fall, and some who have predicted $20/bbl oil seem to be pushing this notion the hardest. Not going to happen. That isn’t to say that the price is headed back above $80/bbl any time soon. The price is likely to be soft for a while as the inventory build continues. But it isn’t going to collapse to $20.

Link to Original Article: Is the U.S. Running Out of Crude Oil Storage?

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  1. By CarbonBridge on March 11, 2015 at 10:35 pm

    “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.”

    RR: Thank you for this succinct bit of information.

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  2. By Seeking fair on March 12, 2015 at 3:31 am

    The author did not calculate correctly.1 million barrels increase per week is just for one storage spots, so the 4 year should be divided by the total number of storage spots.

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    • By Robert Rapier on March 12, 2015 at 11:42 am

      Cushing is 1.4 million barrels per week since October. The author of the piece I quoted said across the entire U.S. the number is 1 million barrels per week. However, that can only be recent, as I just looked and we are 80 million barrels higher on storage than we were a year ago.

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      • By D Coyne on March 13, 2015 at 3:12 pm

        Hi Robert,
        The author of that article said 1 million barrels every day, or 7 million barrels per week for the entire US. Over the entire year (which I agree is a better way to estimate) it is about 1.5 million barrels per week or 214 kb/d.

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  3. By SIDFEINBERG on March 12, 2015 at 10:50 am

    the bottom line is nobody knows sh#t

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  4. By Pedro de Almeida on March 12, 2015 at 2:05 pm

    Nice discussion of discussion of this subject, but:
    1.
    The record stocks are not a record only for the last 80 years, they are, obviously, an all time record!
    And it is not only an all time record for crude stocks, it is also an all time record for all liquid fuels combined (including refined products, etc.).
    2.
    The effective working capacity in Cushing is not 71 Mb.
    According to the EIA it is 71 Mb, LESS AN UNKNOWN VALUE:
    http://www.eia.gov/todayinenergy/detail.cfm?id=20212

    To cite the relevant bit:
    “Operation of crude oil storage and transportation systems requires some amount of working storage to be available to be filled at all times in order to receive deliveries by pipeline, tanker, barge, and rail. Therefore, it is not possible to completely fill all the working storage capacity reported by EIA for the United States and PADD regions. The exact amount of storage capacity that must be available to maintain operation of crude oil storage and transportation systems is unknown.”
    Likewise for the overall national storage capacity.
    3.
    I suggest you read the article that started the flood of articles discussing stocks and storage availability in the US:
    http://seekingalpha.com/article/2916756-why-crude-oil-prices-will-have-to-fall-hard
    Maybe you will find some additional facts that point in opposite direction from your conclusions…

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    • By Robert Rapier on March 12, 2015 at 2:33 pm

      I am having to run out to a meeting, but I will address a couple of points quickly.

      “The effective working capacity in Cushing is not 71 Mb. According to the EIA it is 71 Mb, LESS AN UNKNOWN VALUE:”

      No, you have misinterpreted that. The 71 million barrels is after those things have been subtracted. See this report: http://www.eia.gov/petroleum/storagecapacity/storagecapacity.pdf

      Look at Table 1 and Table 2. Table 2 shows the overall available capacity at Cushing for crude oil at 85 million barrels. Once you subtract out line fill, etc. you get to 71 million barrels of working capacity. So I am correct.

      Further, it doesn’t matter if stocks are at an 80 year high or an 800 year high. What matters is why stocks are rising (the market is in contango, leading to incentive to store) and how much capacity is available. Those are issues I addressed.

      As far as finished product stocks, that volume isn’t part of the crude oil storage space. That’s an entirely different matter altogether, but this is the time of year that refineries stockpile products as they go into turnarounds. So product inventories aren’t a huge concern either.

      I would also suggest you read a few of the articles at Seeking Alpha that popped up last week arguing exactly the point I am making: We are not running out of storage. See recent articles by Michael Fitzsimmons and Richard Zeits. My point stands. Those who are arguing that we are running out of space are either misinterpreting the data or just repeating something they heard from someone else. Cushing is going to be tight, but producers can direct to other locations.

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      • By Pedro de Almeida on March 12, 2015 at 4:29 pm

        No, that is simply wrong.
        In the document you linked, Table 1 lists “working storage capacity” and Table 2 lists “shell storage capacity”.
        For a definition of Working Capacity, and Shell Capacity see my link to the EIA article. It even has nice drawings to explain it…
        THEN, from the value of the WORKING Capacity, you have to subtract the said unknown part.
        (Again, read the EIA paper I linked. It is only 2 pages long, and half of it are drawings.)
        As to the rest, I don’t want to waste our time discussing semantics or straw man details.
        If you want, read my paper, that I also linked.
        Regards.

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        • By Robert Rapier on March 12, 2015 at 5:48 pm

          I used to work in a refinery and we sent these inventory numbers to the DOE every week. So I am not just speculating here. On the drawing they show contingency space. That is the space that one would use as the excess required capacity to receive a delivery if you were full. The way they define is “You can’t fill it all the way up, because then you might want to put more in there.” Yet they show the contingency space, and even define it “This contingency space allows flexibility to exceed working storage capacity without creating safety hazards or operational disruptions.”

          If they are talking about just what is required for line fill, that’s an insignificant amount.

          If you are banking on there actually being a lot less than the 71 million barrels, you are going to be disappointed because what they have defined as this “unknown value” is either insignificant (i.e., line fill) or inconsistent (i.e., there is already contingency space available not counted in the working storage number). In fact, look at that “contingency space” and it’s pretty clear that they can go beyond 71 million barrels in a pinch.

          I have seen inconsistent EIA definitions before and I have contacted them about them in the past. They have acknowledged some of them to me. So don’t think the EIA is infallible. Otherwise you may build an argument on a shaky foundation.

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          • By Pedro de Almeida on March 12, 2015 at 7:06 pm

            Ok, I will not dispute that. Those conclusions are on the basis of the EIA definitions and statements. If they are wrong, those conclusions may also be wrong..
            Apart from that, I have my own judgment about effective crude storage capacity in Cushing, based on historic storage levels, historic storage prices (including the most recent, reaching above $1 per month), and direct statements by Enbridge and such. I will be very surprised if crude stocks in Cushing go above 60 Mb, but lets wait and see.

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            • By Robert Rapier on March 12, 2015 at 7:17 pm

              I think they will keep rising for a few weeks, and we will revisit the mid to low $40′s on price. But I still don’t think we break below $40/bbl. The current price has the storage information factored in. We aren’t going to hit max levels in a few weeks and the price will have to come crashing down. There are many other variables that will come into play.

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  5. By biologist on March 13, 2015 at 1:06 pm

    “on average 1 M barrels per week added to storage” – there’s a flaw in this statement: since the crude oil prices hit the low, storage addition has been between 4.5 and 10.3 M barrels added to storage per week. At 5 M barrels per week, 200 M storage would still need 40 weeks to fill up, but at 10 M barrels per week, it’s only 20 weeks, or end of August.

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    • By Robert Rapier on March 13, 2015 at 2:31 pm

      You can’t take half a season — covering the lowest demand period — and extrapolate it through summer driving season. Even if we take just the period since the end of September, when this current rise started, it’s 4 million bpd. From 9/26/14 through 3/6/15 crude oil inventories rose by 92 million barrels in 23 weeks. That 4 million bpd. But there are many caveats. That period covers the lowest demand season of the year. Right now, refinery maintenance is peaking, but demand will increase by about a million bpd over the next 2-3 months. Maybe more given the reports of strong growth in SUV sales.

      But, we also have to consider that the market is in deep contango. So there is a big financial incentive to store crude at the moment. That’s been the case for several months. So where many people interpret this as entirely “We have too much crude and nowhere to put it”, a lot of it is “Hey, if we store this for a while we might make some money.” Now it is entirely possible that people doing this might get burned, and by storing so much oil they cause the price to fall when they are betting on it remaining high.

      In any case, no doubt inventories are higher than normal, and that’s going to pressure the market for a while. My point is that it isn’t as dire as some are making it out to be, because there are a lot of variables being overlooked.

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      • By D Coyne on March 13, 2015 at 2:58 pm

        Hi Robert,
        I think you mean 4 Mb per week rather than per day. Didn’t you say

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        • By Robert Rapier on March 13, 2015 at 3:30 pm

          Thanks, I fixed it. On the 1 million barrels per week — that was a quote from an AP article.

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          • By patz123 on March 14, 2015 at 6:38 pm

            Nice article, Robert. However, is it true that only 31% of storage is available for lease in the Gulf which limits the amount of storage?

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          • By D Coyne on March 15, 2015 at 3:54 pm

            Hi Robert,

            Did you link to the AP article? The link in your post points to an article that says:

            “For the past seven weeks, the United States has been producing and importing an average of 1 million more barrels of oil every day than it is consuming.

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            • By Robert Rapier on March 15, 2015 at 4:18 pm

              Yeah, I just realized that discrepancy. Took me a minute to piece this together, but here is what I think happened. I read several articles before I wrote this. I was sure one said that oil in storage had increased by a million barrels a week. And in fact if we go back a year it has increased by a bit more than a million barrels a week. When I was working on the story I went back to find that quote, and I thought that was the one, but didn’t notice “per day”.

              So I am pretty sure the story I meant to reference had “per week”, but was obviously looking at a longer time frame. So I am going to fix this one. A couple of people had mentioned that, I should have gone back and looked more carefully. Thank you for being diligent. I am going to fix that right now.

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  6. By Justin S Vietor on March 13, 2015 at 1:06 pm

    great article. I concur.

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  7. By D Coyne on March 13, 2015 at 2:53 pm

    Hi Robert,
    Looking at the EIA crude storage data it looks like about 92 million barrels have been added from Oct to March 6, this is 23 weeks or about 4 million barrels per week. In your article you said 1 million barrels per week, so you may want to check this.

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    • By Robert Rapier on March 15, 2015 at 3:06 pm

      The 1 million barrels was a quote from an AP story — not “my” number.

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      • By Steve Rodo on March 24, 2015 at 4:59 pm

        So why not do a little research if your going to be a writer that is trying to come up with a prediction.. besides cushings is the main hub for WTI its the most IDEAL place to store because its the main selling point what will happen when that is full companies will be paying a premium beacuse they will not have the access to storing at the easiest point of sale for oil.. so what WILL happen when/ if Cushing hit max capacity is the break even point will essential increase depending on how far its stored and the pipeline infurstucture available. But their are more global factors to consider what if Iran makes a deal for the nuclear sanction.. or if everyone s
        just keeps saying fuck it lets pump more oil.. look at what the usa companies are doing with the incomplete well log that will play a rolling effect over the next year. Also what r
        are all the american companies going to do in a few months when they get the tax break the break even point will decrease due to less taxes for these companies.. it could potentially trigger the companies increase production? The real driver for this commodity is stupidity and greed and its always surprising how business is conducted with a very narrow view.

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  8. By Doggydogworld on March 13, 2015 at 6:23 pm

    Crude inventories rose 60m bbl from 1/09 to 3/06. That’s more than 1m bbl PER DAY, not 1m per week. At that rate we’d max out in September. In reality we’d max out much sooner due to local and regional transport bottlenecks.

    I agree there’s no real danger of running out of storage – summer driving and refineries coming back online (from turnaround and the strike) will take care of things. But it’s easy to see where the concern originates – 1m bpd is a much faster fill rate than normal and we were already well above the historical range when the rapid fill started.

    I also think it’s backward to say contango causes oil storage. The contango exists because we’re pumping more oil than we need. This necessarily depresses the near term price until storage becomes economically viable.

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  9. By Chris Cook on March 14, 2015 at 4:53 pm

    You have cause and effect wrong, in my view. The contango is a result of market participants paying traders to store oil. Traders who are storing oil are not betting on anything: they are arbitrageurs taking a risk free profit provided by the market.

    What is being overlooked – once again – is the presence of financial demand in the market from ETF investors. This time around it is speculative buyers of ETFs who are being shafted on roll overs by the markets: in 2009 it was ‘inflation hedgers’. The point being that the losses of these investors when rolling over their long positions are what fund the trader profits.

    https://theconversation.com/oil-crash-is-this-the-end-of-a-long-period-of-inflated-prices-36088

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    • By pamz on March 15, 2015 at 2:01 pm

      Point taken, Chris. However, ” rolling over their long position” is incorrect as the inverse ETFs are “Short” positions which are short time durations(1 mo – 3 mos).

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  10. By nwberger on March 14, 2015 at 7:42 pm

    Crude storage smorage, in the futures market, where real money is put down not words, the April 2016 contract is going for $56.70 or +26% over the spot price. Who to believe the risk takers or the academics? $20 oil? Please.

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  11. By CT on March 16, 2015 at 5:55 am

    HI Robert, Thanks for the article and your analysis, thinking it through there is probably a tipping point – overused phrase, like 80 or 90 percent of storage, where just the physical location starts effecting the supplier chain and pricing ? – not an expert on that, just an economic principle, so maybe something to consider – plus the question I have is why the American over importing? Will those imports come down? How does that play out in the scenario – maybe an expanded look at Total North American(NA) production, net NA imports and storage is required to get a better picture of things… All the best, CT

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  12. By M Welch on March 16, 2015 at 7:40 pm

    The EIA has estimated that oil stocks (storage) will reach 476.7 million barrels. That accounts for 91.4% of the total estimated storage… At which point if the production to demand remains the same we would be two months away from maxing capacity. You dont think that would put fear in the market?

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    • By Robert Rapier on March 16, 2015 at 7:56 pm

      I would have to see exactly what they said, but I suspect we are talking apples and oranges. Crude oil inventories as of the time I wrote this article were 444 million barrels, but 120 million barrels of that is not in tanks. I suspect that’s the case with the number you are talking about above, in which case it isn’t 91.4% of total estimated storage.

      The fear is in the market right now, and the fear of extremely tight inventories is priced in. But they aren’t as tight as some imagine. And there are more handles influencing inventories that some imagine. The single biggest will be in about 60 days when refineries really start cranking up for summer.

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  13. By Sergio Fajardo on March 24, 2015 at 10:31 am

    if there is literally no storage left why we keep importing 9M barrels of oil per day?

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    • By Steve Rodo on March 24, 2015 at 5:09 pm

      Could be a variety of reasons.. but most likely its either still cheaper to import it or the more likely reason im my mined are contracts that obligate them to do it. Also its companies who decide what oil they use not yhe government companies could also be bringing there supplies here to refine at there own refineries because then the company can dip their finger in more profits in the overall process

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    • By Steve Rodo on March 24, 2015 at 5:15 pm

      Also refinaires need to retrofitted and set up to process certain types of oil… canadian heavy crude is at a cerian higher degree in demand at the refinaires because with the whole oil sand boom alot of refinaires began retrofitting to process this oil and its an expensive thing to do so essentially if they can’t produce enough of certian types of oils in the usa no matter what imported oil is needed to keep businees going as usual

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    • By Robert Rapier on March 25, 2015 at 8:59 pm

      Steve is correct; we have retrofitted our refineries over the years to be more geared to refine heavy oil. Shale oil is much lighter, so we have too much of it and not enough heavy oil. Hence, we import. We use a lot more oil than we produce in any case, so the storage picture could only impact the import/export equation for a short period.

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  14. By Jack on March 25, 2015 at 9:50 am

    Why can’t our government start buying oil at these low prices
    and store it underground for future use; but wait, this makes too much sense!
    We have stupid people running the government; they’ll wait til oil hits $148/barrel
    and then they’ll borrow a few more trillion dollars from chines to buy oil and
    other stuff ….. If you are dumb, stupid, unemployable, basically a
    retard; run for the office, you’re well qualifies!

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    • By Geckko on May 6, 2015 at 3:09 am

      Are you suggest the government takes taxpayers’ money to take oil out of the ground, only to pump it back under the ground again?

      Yes indeed. there are stupid people around.

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