Oil Storage: Are We Running Out of Space to Store Oil?


We are living in unprecedented times and the times have certainly had an impact on oil supply, demand, and production.  Airlines have limited flights and are not buying or using jet fuel like they were before COVID-19 changed the way we live.  Consumers are not filling up their gas tanks as often as about half Americans are under stay at home orders due to the pandemic, as is the case around the world.  Meanwhile, the price war between Russia and Saudi Arabia continues; the world simply has more oil than it can use right now.

oil storage tanks

Price War Production Creating an Oil Glut

Not only has the need for oil evaporated with the pandemic, but the price war has also created an overabundance of oil.  This means that eventually if this trend continues, the world could temporarily run out of storage space for oil.  Jeff Wyll, Senior Energy Enalyst at Neuberger Berman said, “The market is starting to signal that not only is there no demand for this crude, eventually there could be nowhere for it to go.”

What Mr. Wyll is referring to is the fact that the existing storage facilities, refineries, terminals, pipelines, and ships could reach capacity. Looking back over history, Goldman Sachs has reported that the last time oil storage was in such limited supply was in 1998.

Barrels of Oil with Nowhere to Go

The result of all the oil and limited consumption is that prices continue to trend downward.  West Texas Intermediate and Brent are still trading just above the $20 a barrel price point, yet other regions have not been as lucky.  Producers are at a point where they aren’t worried about an operating profit, but rather, they are worried about finding a market for their crude.

Loading the excess crude onto ships is a viable option, but does not take care of the larger issue: a growing excess of crude.  JBC Energy said, “About 20% of the global fleet of very large crude carriers could become floating storage, but even that would not absorb the surplus.”  If current production continues, we are looking at 6 million barrels a day of crude without storage in May.  Shockingly, if nothing changes, the excess could rise to 7 million homeless barrels of oil per day in May.

Negative Oil Prices?

It could happen.  In fact, some lesser-known grades of oil are already dipping into negative territory.  Wyoming crude was bid at a shocking negative 19 cents a barrel, according to Bloomberg News.

Will negative prices continue?  If oil production continues at the current rates and airlines are not buying jet fuel and consumers are not headed to the gas stations, it very well could.  At some point, producers are going to have to pay people to take the oil off their hands.  We know that eventually airplanes will take to the air again and people will go back to work and need gas, but how low will the cost of oil dip before then?

Continued Support Amid Crisis

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