If you want to invest in oil, storage seem to be the only option while the oil glut persists

The surge in shale oil production concurrent to a global slowdown in manufacturing caused a glut that the oil industry is struggling to absorb. During the years of the fracking boom in the US, oil fields sprang-up faster than oil pipelines and many oil companies started relying on railcars to transport large quantities of oil. Soon oil companies discovered that actually using railcars enabled them to be more flexible and send oil to the highest bidder. Today that the US is awash with oil, companies discovered another positive aspect of railcars, they can also be used as storage for oil. The demand for oil is very low these days and oil producers are literally running out of places to store oil. Oil inventories rose above 500 million barrels in late January, a level not seen since the 1930s. As a consequence, today there are at least 20,000 tank cars filled with oil parked in storage yards or in rural areas. But, as the glut worsens also the length of storage time is increasing. This, has some drawbacks for railroads and users because they face responsibility for leaks and collisions, and longer storage times means also higher risks of incurring in liabilities. As a consequence, rates for storage are also increasing, and it seems that whoever invested in oil storage in the past, today reaps the benefits of the glut.

Oil Storage Prices:

Type of Storage                Montly Cost $

Underground Salt Cavern                           0.25$

Railcars                                                    0.50$

Floating Storage                                        0.75$

Things are not too rosy also from the natural gas front. Winter is usually considered a “withdrawal season” as the Northern Hemisphere uses gas for heating. A mild winter this year curbed gas consumption and with production at record high, gas inventories are increasing. The current gas reserves stand at 2.536 Trillion cubic feet, 50% higher than the norm. Considering that there is only 1 month left of the “withdrawal season”, producers will need to lower their prices if they want to get rid of some gas and they are running out of time because summer is considered “injection season”. Many gas producers are sitting on a high number of completed wells waiting for prices to move up to start selling. It seems that for a while the only direction for gas prices is down. Summer is coming.

Filed in: Blog, Featured, Oil Tags: , , , , ,

You might like:

Is the stock rally already over? Is the stock rally already over?

Leave a Reply

Submit Comment
© 2017 How to trade for a living. All rights reserved. XHTML / CSS Valid.
Disclaimer: The content on this site is provided as general information only and should not be taken as investment advice. All site content, including advertisements, shall not be construed as a recommendation to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy. The ideas expressed on this site are solely the opinions of the author(s) and do not necessarily represent the opinions of sponsors or firms affiliated with the author(s). The author may or may not have a position in any company or advertiser referenced above. Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions..