July 16, 2015 [OPIS] - The unpredictable forward WTI crude price curve has played a major role in the volatile U.S. crude storage economics in the past year.
Crude-storage economics have deteriorated, and inventory has been falling in the past six months as the forward crude prices have lost the steep price premium over the prompt barrels.
However, crude storage tank availability has remained tight, and many players are sitting on empty tanks and losing money on storage fees for now.
Only six months ago, the crude tanks were in demand, and many players were enjoying a wider intermonth crude contango price spread of a few dollars per barrel. It is noted that U.S. crude storage economics were weak prior to the strengthening of the crude price contango at the end of last year.
The current contango forward price curve for crude is significantly flatter. This led to a falling inventory as seen in Cushing, Okla., in the past few months. The prompt contango price spread for both Brent and WTI crudes has narrowed to about 40cts/bbl in July compared with a few dollars earlier this year.
Despite the lack of financial incentives to store oil and falling inventory levels, the U.S. crude tank availability remains relatively tight.
Earlier this year, the market saw a rush to sign up storage tank leases for one to three years, shrinking the supply of available tanks.
Against a backdrop of tight tank supply and falling inventory, some oil players are now paying for the tank leases, but they may not be keeping their tanks wet.
Some players are looking to sublease their tanks, but the offers are seeing few takers so far due to the weak storage economics.
The impact of the bearish crude storage market is reflected in the lower tank rates in the past few months.
Gulf Coast crude tank rates have fallen by 10-15cts/bbl to 40-80cts/bbl, with the average rate at about 60cts/bbl. The actual tank rates will vary according to volumes, oil grades, terminal location, accessibility and duration.
In the longer run, the U.S. crude tank availability is expected to increase at the end of this year after some one-year term storage contracts expire.
However, the crude storage economics will depend on the production, oversupply potential crude exports, and Asian and South American demand.
Also, the Brent/WTI crude price relations, crude flat price and the contango price spread.
