Oil storage tanks that were full a year ago, when the coronavirus outbreak halted flights and kept motorists at home, are beginning to empty at the main distribution center in the United States, the latest sign of boosting demand in the world’s largest oil consumer.
For the first time since before the pandemic, empty tanks are being offered for rent in Cushing, Oklahoma, the delivery point for West Texas Intermediate crude futures contracts.At least 1.4 million barrels of storage capacity are ready for leasing as of July, for about 12 cents a barrel per month, said Stephen Barsamian, chief operating officer of storage brokerage Tank Tiger. That’s a stark contrast to the at least 60-cent storage cost when it had little space left about a year ago.
Accelerate fuel production to meet growing demand
Americans are taking road and sky travels in increasing numbers as summer approaches and the country emerges from months of lockdown, as oil refineries speed up production of fuel to meet rising demand. This week, California, the most populous US state, reopened its economy, while New York ended most of its restrictions.It’s a dramatic turnaround from a market crash that saw traders store unwanted crude in tankers at sea, and US producers at one point having to pay customers for their oil last year.
At the same time, shale oil producers are sticking to their pledges to focus on budgeting and boosting returns for shareholders, rather than increasing production. US production is down 15 percent from its peak last year, limiting flows to the storage hub.
So merchants quickly empty their storage tanks to supply the refineries with every barrel of raw materials they need.
Empty tanks are a telling model of the state of the market, where demand exceeds supplies and traders get a higher return on the earliest deliveries, making it unprofitable to keep oil in storage, a pattern known as a backsliding (the price of spot contracts is higher than futures).
Storage to raise prices
A year ago, when traders were hoarding as much oil as possible to wait for better prices, the earliest deliveries of WTI were selling at a lower price than the old ones, a pattern known as contango. future expedited delivery).
These patterns particularly affect commercial warehouses used for speculative trading, such as those in Cushing.
“Usually, in a market that tends to defer, storage is not used for operational purposes like the one in Cushing, Oklahoma, which is emptied first,” Barsamian noted. Later”.
Traders may see more empty tanks across the US in the coming months. Global oil demand is expected to recover to pre-pandemic levels late next year, according to the International Energy Agency. The agency expects a supply shortage starting in the second half of this year, as the Organization of the Petroleum Exporting Countries (OPEC) and its allies continue to keep part of their production capacity out of service.