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U.S. oil storage crunch might cut crude prices

U.S. oil storage crunch might cut crude prices

The U.S. is running out of places to stash its overflowing oil supplies, threatening to further drive down crude prices that rebounded in recent days. Supply — including oil produced in the U.S. and imported — has been outpacing U.S. refiners’ demand by about 1 million barrels a day on average since early January, according to the Energy Information Administration.635628198793220431-AP-Oil-Glut-Full-Tanks

Advanced drilling techniques that extract crude from shale rock have made the U.S. the world’s No. 1 producer of oil and natural gas liquids. The surge has outpaced a less dramatic rise in U.S. consumption, and exports of gasoline and diesel. Also, many refiners have shut down some operations for a maintenance season likely to run another month or so.

The surplus oil goes into storage, with 8.2 million barrels stocked away last week, EIA figures released Wednesday show. Oil inventories are the highest in at least 80 years. The industry is using about 67% of the 520 million barrels of working storage capacity across the nation, up from 48% in early 2014. Much of the tanks are filled by traders who buy oil at today’s contract price of about $48 a barrel, store it, and sell futures contracts to deliver the crude in a year at higher price, turning a profit after paying storage costs.

In Cushing, Okla., the nation’s delivery point for such swaps, 80% of the region’s 71 million barrels of storage space is occupied, up from 24% in October. That means it’s close to effective capacity because a portion of the tanks is earmarked for moving oil in and out each day, while some is set aside for grades of crude that may not match customer needs. “More oil is being stored (in Cushing) than ever before,” says Hillary Stevenson, manager of supply chain networks for Genscape, a research firm that surveys oil inventories. “They are getting very full.”

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