Oil Boom Needs Room

Manufacturing.net Wed, 03/25/2015 – 1:16pm. Andy Szal, Digital Reporter

Reports that the nation’s largest oil storage facility reached its highest level ever this month drew widely varying reactions among economists and industry observers.

For some, the news triggered speculation that declining storage space in the U.S. — at a time when the market already has too much oil — could further erode crude prices.

Others, however, believed the nation’s oil capacity is already at or near its peak with millions of gallons of potential space to spare.

The U.S. Energy Information Administration said as of March 6, the massive storage facility in Cushing, Oklahoma contained more than 51.5 million barrels of oil, a number that neared the complex’s operational capacity.

The EIA also reported that as of late February, overall oil inventories grew for eight consecutive weeks at an average of 7.7 million barrels per week–the largest increase in more than 30 years. Facilities in the Midwest reported capacities at 70 percent, while East Coast facilities had capacity of about 85 percent.

And despite the rapidly declining price of oil leading U.S. producers to shut down more and more oil rigs, overall domestic production continued to increase.

Although observers conceded Cushing’s overall inventory reached a historic high, they split on what that could mean for the U.S. oil market.

Houston energy consultant Andrew Lipow said he expects Cushing’s supply to increase to 65 million barrels in mid-April, a level that would be “operationally full” and reverberate throughout the industry. Producers on the Bakken shale formation in North Dakota, for example, can’t simply divert crude to other facilities if Cushing reaches its capacity.

Skeptics noted the EIA’s report that Cushing was only 77 percent full despite its record overall inventory. Although it has filled up rapidly since October–in the midst of the oil price collapse–Cushing’s level exceeded 90 percent just four years ago, prior to capacity increases at the facility.

At the current pace, one report said Cushing would instead run out of room for more oil in four months, but that rising demand from refiners during the summer months would likely erode its built-up supply.

Moreover, energy traders don’t seem particularly concerned about rising capacity, while some forecasts expect cost-cutting by U.S. fracking operators to finally begin impacting production in the second quarter of 2015.

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