US almost out of storage space for Oil

[OnMyWayID 1,489]

Basic gist: Oil producers are trying to hold on to the oil to sell when the price is higher, currently there is around 445 million barrels in storage in the US and they are almost out of room. This story is about them wanting to top off the safety margins at the top of tanks so they can squeeze in another 20 million barrels. Once they run out of storage (which will be very soon) they either have to stop pumping or let it hit the market which would push down the prices even more.

http://www.bloomberg.com/news/articles/2015-03-24/there-s-pure-profit-sitting-at-the-top-of-u-s-crude-oil-tanks

The 20 Million Barrels of Pure Profit Sitting in U.S. Oil Tanks

(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.

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 56.3 million barrels as of March 20, Energy Information Administration data show. Nationwide, stockpiles at 466.7 million are the highest since 1930.

Higher Inventories

Large inventory builds are increasing the risk of prices heading lower if storage capacity is breached, Goldman Sachs said in a March 20 research note. Supplies are likely to continue toward tank tops, Citigroup said Feb. 9.

West Texas Intermediate crude for May delivery was at $47.59 a barrel on the New York Mercantile Exchange at 10:50 a.m. local time Wednesday. The May 2016 contract was at $57.

“We are close to full,” Francisco Blanch, global head of commodities at Bank of America Merrill Lynch, said in a March 19 interview on Bloomberg radio.

The EIA doesn’t quantify the space sitting at the top of tanks. Operators set their own levels of contingency, so there is no single standard, Michael Conner, a statistician at the agency, said by phone from Washington March 18.

Contingency Space

The amount of space is based on an operator’s shutdown procedures, said Ken Erdmann, head of Matrix PDM Engineering, a division of Tulsa, Oklahoma-based Matrix Service Co., which has been building tanks at Cushing since the mid-1990s. When use of contingency space is required, factors including how fast the tank is filled and how closely the liquid level is being monitored can allow the operator to slow down the flow into the tank to create more available space, he said.

“If you reduce fill rates, then the volume you have to set aside for contingency space can also be reduced, although it can’t typically go below 1 percent,” Erdmann said by phone March 20.

Magellan Midstream Partners LP, which owns 12 million barrels of storage in Cushing, can eke out more space by filling one tank with a high-flow pipeline and then transferring that oil to others using slower lines, Bruce Heine, a spokesman for Tulsa, Oklahoma-based tank owner, said by e-mail March 19. Those who fill their tanks to the brim risk damaging their floating rooftops and spilling oil out through vents, he said.

Emergency Space

Enbridge Energy Partners LP, Deeprock Energy Resources LLC, Plains All American LP, SemGroup Corp., Sunoco Logistics Partners LP and TransCanada Corp. declined to comment on the use of their contingencies.

Richard Wheatley, a spokesman at Kinder Morgan Energy Partners, said the Houston-based company doesn’t discuss contingency space because it’s “competitive information.”

Not all companies want to fill every cubic meter of space. Phillips 66 uses its storage tanks to support its refineries, so it uses the contingency space only for operational emergencies, Dennis Nuss, the company’s Houston-based spokesman said by phone March 20.

The trader whom Sapient’s Haq was helping to model storage capacity would have to send people up to physically check on the tanks every four hours if he filled the contingency space, Haq said. When they last spoke, Haq said, the client was still deciding whether it was worth the manual checks.

“There’s physical risk,” Haq said. “But there’s money to be made.”

http://www.bloomberg.com/news/articles/2015-03-24/there-s-pure-profit-sitting-at-the-top-of-u-s-crude-oil-tanks

Edited March 25, 2015 by OnMyWayID

[Sousuke 1,214]

Supposedly refineries are in retooling mode for the summer and oil in storage will start to drop soon.

http://www.energytrendsinsider.com/2015/03/11/is-the-u-s-running-out-of-crude-oil-storage/

[OnMyWayID 1,489]

Supposedly refineries are in retooling mode for the summer and oil in storage will start to drop soon.

http://www.energytrendsinsider.com/2015/03/11/is-the-u-s-running-out-of-crude-oil-storage/

Interesting article.. Looking at the authors and others comments he made mistake when computing it at 1 million barrels extra per week, it has actually been an extra 1 million extra barrels per day. He also shows the total in storage as 300 million barrels while others have it at 445 million barrels.

I think he is right that this will not collapse oil prices, but it may mean prolonging the current depressed prices - unless something happens in the gulf or Venezuela has a very destructive civil war...

Edit: The author of the second article talked about the discrepancy in the inventory numbers in the comments:

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.

Edited March 25, 2015 by OnMyWayID