Demand for Oil So Low, Producers are Running Out of Storage Space

Those poor, poor oil producers. They got really excited last year when oil prices rose to an all-time high of $147 per barrel, and they thought for sure that the prices would just keep on rising as demand continued unabated. But low prices haven’t raised demand, which has dropped dramatically in the past year – and producers are running out of room to store all of the excess.

From Twilight Earth:

Some countries, such as Iran, have filled their tankers with crude, taking it off the market to keep prices from dropping even more. The strategy is to sit on the supply until they can bring it to market for the best price, but oil producers, traders, and processors are unsure where the market is going.

“Nobody expected this. The majority of people out there thought the market would keep rising to $200, even $250, a barrel. They were tripping over each other to pick a higher forecast.” – Antoine Halff, Newedge analyst

The delivery point for oil traded on the New York Mercantile Exchange, Cushing, OK, has storage tanks that hold 10% of the US crude oil, and industry analysts are predicting that those tanks are rapidly nearing capacity. It looks like now is the time for any investor with storage options to stockpile it at a low cost and wait for the demand to catch back up and raise prices.

More than 30 tankers, rented by oil companies, with capacities of 2 million barrels of oil each, are now simply floating storage tanks. The crews are idle, and the companies have them moored all over the world, just waiting. It’s good business for the owners of the tankers, with rental charges up at $75,000 per day.

People are trying to save money, so they’re driving less – and last year’s high oil prices schooled many on the importance of switching to green energy. Demand will likely continue to fall as the economic recession circles the globe.

Does that mean the age of fossil fuels is over? Not quite, as much as we’d like it to be. China, for one, is showing signs that it won’t be moving on to cleaner energy any time soon – they’re stockpiling oil in mass quantities while prices are low.  The world’s number one producer of greenhouse gases went on an oil shopping spree that included deals with oil producers in Russia, Venezuela and Brazil.

Link [Twilight Earth] + [Sustainablog]

Photo credit: Delaware Dept. of Natural Resources

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