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.

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