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"Peak" Oil?
Where Do We Stash All Our Oil?

The crash in the price of oil over the past eight months came about because of a global oversupply and weak demand. But that glut is now posing a real, physical problem in addition to the anxiety it’s causing producers: we’re running out of space to store the crude not being consumed. The WSJ reports:

U.S. crude-oil supplies are at their highest level in more than 80 years, according to data from the Energy Information Administration, equal to nearly 70% of the nation’s storage capacity. A U.S. storage hub in Cushing, Okla., is expected to hit maximum capacity this spring. While estimates are rough, Citigroup Inc. believes European commercial crude storage could be more than 90% full, and inventories in South Korea, South Africa and Japan could be at more than 80% of capacity. […]

[P]roducers are pumping nearly 1.5 million barrels a day more crude than the world needs, due to a combination of slowing demand and rising production in the U.S. That means oil put in storage today could be there for years, analysts say. Should the glut worsen, more producers could be forced to shut their wells, effectively storing the oil in the ground.

Price signals are already squeezing out high-cost oil plays, but many producers have invested too much in expensive fields to cut production by any great extent. Combine that with shale producers inventing techniques that allow them to make money on smaller margins and the Saudis’ unwillingness to make OPEC output cuts as they have in the past, and you’ve got a recipe for a persistent glut.

Onshore storage facilities look to be full soon, which will force producers to store crude in cargo ships offshore. So much for peak oil…

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  • FriendlyGoat

    T. Boone Pickens recently suggested that it stores itself in the ground, pointing out the millions of years it has been there, not deteriorating.

    • Andrew Allison

      You’re right, but keep in mind that the producers get paid for the oil before it goes into storage, and need the money to finance their operations (or economies). The producers will keep on pumping until there’s nowhere to store the surplus or the well-head price falls to the point where the oil is not worth pumping. Meanwhile, oil storage companies need to get at least the price they paid for the oil plus the cost of storage for it. Speaking of storage, I wonder how many “retired” oil tankers there are avaialble.

  • Kevin

    Sounds like an excellent economic situation in which to begin applying the screws to the Iranian regime.

  • Jacksonian_Libertarian

    The problem seems to be a lack of refineries that can process the light sweet crude that comes from shale. As a stop gap America should make the foreign sale of crude oil legal, while building new refineries to process this wonderful light sweet crude. Too bad Obama sucks and is blocking it all.

  • Frank Natoli

    How can there be so much oil that there’s no place to store it AND prices at the pump rising 20% in the last few weeks?

    • FriendlyGoat

      People in the oil/gasoline distribution business are knocking themselves out trying to find ways to sell it at higher prices. We will probably find that they hatch all sorts of ideas to constrict this or that..

      • Andrew Allison

        The only parties who can constrict supply are the producers and, as argued below, they won’t until production becomes uneconomic. The rest of the chain is driven by the need to keep inventories manageable. Adam rules :<)}

        • FriendlyGoat

          Refineries have a way of shutting down a lot. I know there are some good technical reasons. We also can assume that every company seeks to get the highest price for every drop. Any shortage of anything at any time will impact that. We have to assume that any possible game which can be played will be played. We’ll just watch our local pumps and see what happens.

          • Frank Natoli

            And governments, federal, state and local, have ways of making it impossible to build a new refinery. Some people want to reduce man’s footprint on nature to zero, and that is only possible in the absence of man.

    • Andrew Allison

      My guess: the price of the oil going into the distribution network is closely related to the world price of crude, the price of the oil being delivered to refineries includes a markup reflecting distribution/storage costs (which are rising) and profit, the price of the refined product (e.g. gasoline) depends on demand, and the recent lower prices increased it. At the end of the day, everybody in the chain except,at the moment, the US producers, is trying to maximize their net. This, depending upon your political affiliation, is either the invisible hand or criminal [grin].

      • Frank Natoli

        Price of refined product depends on demand makes sense, but would appear, at least in the short term, to be contradicted by the near 50% drop in refined product prices while gasoline demand was [winter] constant and, if anything, fuel oil demand was [winter] rising.

        There are [at least] two ways to “maximize their net”. One is to expand supply, which has been almost entirely stymied by Democrats beholden to implacable environmental single issue voters. Hydraulic fracturing on private land has upset that apple cart big time. Two is to control supply, which OPEC did for some forty years, thanks in part to the uniquely U.S decision to NOT exploit its own oil reserves. One can argue about the invisible hand or criminal [grin], but what is not arguable is that oil companies would explore, extract, transport and refine a lot more than they presently do if and only if Democrats beholden to implacable environmental single issue voters lost their power to declare areas, onshore and offshore, oil exploration free.

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