Bloomberg is reporting that oil companies may be looking for tank cars to store an excess of crude oil in the U.S.
Companies are running out of convenient places to store crude oil while prices hover just over $22 a barrel in national markets and domestic supplies remain high amid a demand slowdown during the coronavirus pandemic.
Bloomberg reports that the situation is acute in Alberta, where local crude oil prices are at less than $10 a barrel.
The last time tank cars were used for storage in this way was back in 2016. The news organization says there are safety concerns and specific Federal Railroad Administration rules to follow. Bloomberg cites anonymous sources saying companies are asking to lease tank cars for 3 months to a year.
Alan Jones wrote :
“Why not fill the strategic oil reserve?. At present prices it can be filled to capacity ?”
The SPR is almost literally a drop in the bucket of all the oil looking for a place to be stored. I’m wondering why it wouldn’t make sense simply not to pump it out of the ground in the first place. Store it where it lies until the market justifies pumping it again.
Mr Petit. You can’t just turn off the pump. When you shut down an oil well, you have to cap it. Then when you want to restart you have to redrill the well.
Why not fill the strategic oil reserve?. At present prices it can be filled to capacity ?
I would think it would be quicker to fabricate large storage tanks than to wait for a bunch of tank cars to be not only built, but to find an existing yard that meets the safety requirements.
There are lots of regional storage facilities on major pipelines already that could be expanded.
Not just the one in Cushing, Oklahoma, but the one in Vernon, Illinois as an example.
If tanks can’t be fabbed quick enough, then perhaps Buckeye, Williams or Continental could install a large rail yard adjacent to their tank farms, since they already meet many of the storage safety requirements.
Oil is like any other commodity: stocks, bonds, pork bellies. Smart guys buy low, sell high or hedge.
Here’s a radical idea: turn off your pumps!
Mr. Rice, no need in building cars, plans to use the 1000’s in storage right now. Building tanks would be a long undertaking as well.
In reference to the comments on the SPR. No money was set aside for buying crude to fill it. Last I read the gov was considering leasing space to companies to use the available storage. Seems like a good idea to me.
Typically it’s not the production companies, but traders that buy the volume and store it for higher prices. Different geological and engineering things come into play, but a production company would simply sit on their reserves as opposed to produce and store.
The logic is that current oil prices are lower than future prices, so someone could buy oil now while selling that same amount in the futures market, store it for a year or so and then deliver it against the sold futures contract. There is (was?) a boom in the oil tanker ship marker as big tankers can store a million barrels (45 million gallons) until delivery is required in the future. Of course the owners have to pay to charter a tanker with rates getting over $ 100,000 a day. With tank car capacities only about 800 barrels it would take over 1,200 cars to equal one tanker, so the strategy seems dependent on paying almost nothing for the car lease.
Interesting, I thought the Bakken *was* our strategic oil reserve. (just joking)
I wonder if they really want to sell it at these low prices? Or do they want to store it in tank cars an wait for the price to go back up?
WASHINGTON, D.C. – At the direction of the President of the United States, Donald J. Trump, the Department of Energy (DOE) will fill the Strategic Petroleum Reserve (SPR) to its maximum capacity by purchasing 77 million barrels of American-made crude oil. Today, DOE announced a solicitation for the purchase of an initial 30 million barrels to begin filling the SPR. Solicitations for additional purchases will follow.