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US’ Lack of Storage Facilities Could Hurt Oil Prices
World Economy

US’ Lack of Storage Facilities Could Hurt Oil Prices

The US has so much crude that it is running out of places to put it, and that could drive oil and gasoline prices even lower in the coming months.
For the past seven weeks, the United States has been producing and importing an average of 1 million more barrels of oil every day than it is consuming. That extra crude is flowing into storage tanks, especially at the country’s main trading hub in Cushing, Oklahoma, pushing US supplies to their highest point in at least 80 years, the Energy Department reported last week, AP said.
If this keeps up, storage tanks could approach their operational limits, known in the industry as “tank tops,” by mid-April and send the price of crude – and probably gasoline, too – plummeting.
“The fact of the matter is we are running out of storage capacity in the US,” Ed Morse, head of commodities research at Citibank, said at a recent symposium at the Council on Foreign Relations in New York.
Morse has suggested oil could fall all the way to $20 a barrel from the current $50. At that rock-bottom price, oil companies, faced with mounting losses, would stop pumping oil until the glut eased. Gasoline prices would fall along with crude, though lower refinery production, because of seasonal factors and unexpected outages, could prevent a sharp decline.
The national average price of gasoline is $2.44 a gallon. That’s $1.02 cheaper than last year at this time, but up 37 cents over the past month.
Other analysts agree that crude is poised to fall sharply – if not all the way to $20 – because it continues to flood into storage for a number of reasons:
- US oil production continues to rise. Companies are cutting back on new drilling, but that won’t reduce supplies until later this year.
- The new oil being produced is light, sweet crude, which is a type many US refineries are not designed to process.
- Foreign oil continues to flow into the US, both because of economic weakness in other countries and to feed refineries designed to process heavy, sour crude.
- This is the slowest time of year for gasoline demand, so refiners typically reduce or stop production to perform maintenance. As refiners process less crude, supplies build up.
- Oil investors are making money buying and storing oil because of the difference between the current price of oil and the price for delivery in far-off months.

 

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