Storage Space Scarcity Drives Down Crude Prices
April 22nd, 2020
The inventory report from the private firm API was released yesterday and it did show another round of big builds to inventory. Crude oil stocks were up 13.2 million barrels and the stocks of crude oil at Cushing, Oklahoma the NYMEX WTI crude oil futures contract deliver point were up 5.4 million barrels. Stocks of gasoline were up 3.4 million barrels and distillate stocks were up 7.6 million barrels. The average estimates for today’s DOE inventory report from the Reuters survey are for crude stocks to be up 13.1 million barrels, gasoline stocks up 2.2 million barrels, and distillates up 5.6 million barrels.
President Trump said Monday that he would consider halting Saudi crude oil imports as a measure to support the US drilling industry. He described the fall as short-term and stemming from a “financial squeeze” but said the oil industry was hurting from a lack of demand, as states have imposed stay-in-place restriction to curb the spread of the virus. He also said that his administration plans to fill the SPR. The Energy Department is in the process of leasing some of the 77 million barrels of available space in the SPR to US oil companies to help them deal with the lack of commercial storage as the coronavirus outbreak cuts domestic energy demand.
While the official US government data shows the storage at Cushing, Oklahoma is 70% full as of mid-April, traders say that the leftover space is spoken for by firms sending oil the hub. Traders said new tank leases at Cushing have been halted, blocking anyone trying to buy up last minute space. Even if there is physical space, when there is no more leasing available, barrels can get rejected.
Goldman Sachs stated that the massively oversupplied oil market will likely exert downward pressure on the June WTI contract. It stated that with a finite amount of storage capacity left to fill, production will need to fall sizable to bring the market into balance.
The Railroad Commission of Texas after forming a task force to consider cutting 20% of Texas crude oil production, decided yesterday not to make a motion for oil cuts. The chairman stated that the commission needs to make sure any motion for oil production cuts must fit legal requirements and doesn’t get stuck in court.