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Oil’s Rebound Is Draining Storage Tanks Across the Americas

Texas, Louisiana, among areas where storage demand has ebbed Caribbean tank levels are declining from October peak

February 12, 2021 Stu Turley Commodities, Crude Oil News, Fossil, Top News

Oils Rebound Is Draining Storage Tanks Across the Americas

Oil storage locations across the Americas are emptying as the remarkable rally in crude prices undermines the need to buy and stockpile barrels.

Tank owners were one of the few benefactors from last year’s collapse that spurred traders to buy crude cheap, store it, and then sell into a rally. Now that the market and shifted into backwardation, where oil for prompt delivery is priced higher than later-dated contracts, it’s making storage unprofitable. Gulf Coast terminal operators are offering to lease tanks at less than half the rate at the height of the storage boom in 2020.

The rapid draining of the tanks underscores the remarkable turnaround in oil prices less than a year after West Texas Intermediate futures settled below zero for the first time. The rebound can be attributed to aggressive supply cuts from OPEC and its partners, falling output in the U.S. and resilient demand in Asia.

This year, about 1.9 million barrels of crude storage become available at St. James and Gibson in Louisiana and Beaumont in Texas, said Steven Barsamian, chief operating officer at The Tank Tiger, an independent storage brokerage. “This is the most amount of storage we’ve seen up for rental in at least a year,” he said.

Incentive to store oil has diminished with crude futures in backwardation

Crude inventories in Cushing, Oklahoma, and on the U.S. Gulf Coast have sunk to the lowest levels in more than six months. Some terminal operators aren’t seeing leases getting renewed once the users clear out supplies.

“So far, leases aren’t getting renewed mainly in Texas and Louisiana, but it might start to happen soon at the Cushing hub,” Barsamian said.

When traders locked in storage deals a year ago, the oil market was in contango, a bearish structure where prices for near term oil supply traded at a discount for future delivery, meaning traders could hold on to crude to sell it at a later date for higher prices. Now, West Texas Intermediate futures have climbed 20% so far this year to settle at $58.24 a barrel on Thursday and the front-month March contract has traded as high as 16 cents premium April futures last week.

Storage tanks in the Caribbean and Canada are also draining:

More than 1 million barrels of storage has become available in Alberta, according to Barsamian, even as Canada’s oil production has recovered to record levels
Stockpiles in the Caribbean have fallen more than 6 million barrels from the peak in October, according to data from Ursa Space Systems
Cul de Sac in St. Lucia saw stored volumes drained about a third to about 6 million barrels

Bloomberg

US Energy News

About Stu Turley 4818 Articles

Stuart Turley is President and CEO of Sandstone Group, a top energy data, and finance consultancy working with companies all throughout the energy value chain. Sandstone helps both small and large-cap energy companies to develop customized applications and manage data workflows/integration throughout the entire business. With experience implementing enterprise networks, supercomputers, and cellular tower solutions, Sandstone has become a trusted source and advisor. He is also the Executive Publisher of www.energynewsbeat.com, the best source for 24/7 energy news coverage, and is the Co-Host of the energy news video and Podcast Energy News Beat. Energy should be used to elevate humanity out of poverty. Let's use all forms of energy with the least impact on the environment while being sustainable without printing money. Stu is also a co-host on the 3 Podcasters Walk into A Bar podcast with David Blackmon, and Rey Trevino. Stuart is guided by over 30 years of business management experience, having successfully built and help sell multiple small and medium businesses while consulting for numerous Fortune 500 companies. He holds a B.A in Business Administration from Oklahoma State and an MBA from Oklahoma City University.

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