Hurry Up and Use More Oil: They’re Running Out of Room to Store It All!

The demand for crude oil has dropped dramatically, and now oil producers are sitting on a glut of it, waiting for prices to rise. The storage facilities are running out of room, supertankers are parked offshore with full loads, and investors are left hanging.

Oil prices were at an all-time high last year, $147 a barrel, and now the companies that made the most from it are struggling to cope with the decreased global demand for their product.

Some countries, such as Iran, have filled their tankers with crude, taking it off the market to keep prices from dropping even more. The strategy is to sit on the supply until they can bring it to market for the best price, but oil producers, traders, and processors are unsure where the market is going.

“Nobody expected this. The majority of people out there thought the market would keep rising to $200, even $250, a barrel. They were tripping over each other to pick a higher forecast.” – Antoine Halff, Newedge analyst

The delivery point for oil traded on the New York Mercantile Exchange, Cushing, OK, has storage tanks that hold 10% of the US crude oil, and industry analysts are predicting that those tanks are rapidly nearing capacity. It looks like now is the time for any investor with storage options to stockpile it at a low cost and wait for the demand to catch back up and raise prices.

More than 30 tankers, rented by oil companies, with capacities of 2 million barrels of oil each, are now simply floating storage tanks. The crews are idle, and the companies have them moored all over the world, just waiting. It’s good business for the owners of the tankers, with rental charges up at $75,000 per day.

“It gets expensive to do this. If you’re sitting on a bunch of oil and you’re stuck paying storage and insurance, and you can’t find a buyer, you may have to sell it at a discount just to get rid of it.” -  Phil Flynn  analyst at Alaron Trading Corp

With the recession in the US and the push to go green, many Americans are driving less, keeping the backstock of oil high, leaving enough surplus for fueling 15 million cars for a year. That’s not good news for oil producers.

Those poor oil producers. I’m gonna throw a pity party for them… Right after I give thanks for my bicycle.

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Image: Håkan Dahlström at Flickr

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