May 18, 2020 [Albuquerque Journal] – As global energy demands shrunk around the world, a glut in production threatened to max out U.S. storage capacity, with many experts warning it could be full by summer.
The coronavirus pandemic led to massive declines in the need for fuel, as stay-at-home orders across U.S. states, intended to stop the spread of the virus, led Americans to travel less and use less fuel.
Before the pandemic, the world was consuming up to 100 million barrels per day of oil, per data from the U.S. Energy Information Administration.
Amid the crisis, analysts worried that number could be cut almost in half, as low as 60 million barrels per day.
In response to the oversupply of crude oil resulting from historic production levels in recent years but a downward spike in demand, oil and gas service companies like Gravity Oilfield Services announced sought to increase storage capacity by offering such inventory to operators throughout the Permian Basin.
Gravity’s network of more than 1,000 tanks could help store oil until the market recovered and it could be sold, said Mike Sledge, Gravity’s vice president of sales.
He said Gravity could also deploy up to 4,000 storage tanks as needed.
“In this unprecedented environment, we would like to help operators in any way we can,” Sledge said. “We have successfully navigated distressed markets before, and we are committed to leveraging our best-in-class safety record and our fleet of tanks to help operators navigate this challenging market.”
Recently, as some states began lifting the public health orders and travel restrictions, the EIA reported the glut of oil supply began to decrease slightly, with the U.S. inventory dropping by up to 700,000 barrels in the last week.
That could mean oil prices are on the mend and the problem of storage could fade, said Robert McEntyre, a spokesperson for the New Mexico Oil and Gas Association, as economies re-open and demands return to pre-pandemic levels.
“We’re going to continue to have some supply to work through,” he said. “But ultimately, as we see things open up and Americans begin to travel more, we should see supply begin to decrease and consumption and demand begin in increase.”
He pointed to gradually decreasing oil supplies at major hubs in Cushing, Oklahoma – which experts warned could be as full as 70 percent earlier this spring.
McEntyre said other refineries that store New Mexico’s crude in Corpus Christi, Houston and El Paso could also see a decline in supplies as the industry begins to return to a “healthy” demand.
That could drive up the price per barrel, which fell below $0 per barrel for the first time in history last month but had recovered to about $25 per barrel this week, per data from Nasdaq.
“We’re cautiously optimistic given some of the initial data,” McEntyre said. “We’ve said all along that the industry will closely follow the COVID crisis. As we begin to ease up restrictions and move past this, the industry will begin to recover.”
But $25 is still far beneath the pre-pandemic prices between $50 and $60 per barrel, and the industry still has a long road ahead of it, he said.
“A lot of this really depends on getting back to a healthy economy with healthy demand,” McEntyre said. “Prices are beginning to move in the right direction. New Mexico benefits when prices are healthy.”
Despite some industry optimism, oil and gas continued to struggle this week as rig counts throughout the Permian and across the U.S. fell significantly.
New Mexico averaged 68 rigs for the first eight days of May, per the latest data from Baker Hughes, showing a slight uptick of four rigs from May 1’s total of 66 to 68 on May 8.
But those numbers were well below New Mexico’s rig counts a year ago with May 2019 averaging 102 rigs as oil prices were in the $50 to $60 range and the state’s production was booming.
Texas also continued to lose rigs in the last week, down to 173 rigs as of May 8 from 201 at the start of the month.
In May 2019, Texas average 482 rigs, more than double its most recent rig count, records show.
Overall, the U.S. lost 34 rigs in the last week from 408 on May 1 to 374 a week later.
A year ago, the U.S. averaged 986 rigs in May 2019.
“The oil price crisis and the impact of Covid-19 has resulted in the most dramatic collapse of the US land rig market in history,” said Artem Abramov, head of shale research at Rystad Energy, an energy industry research firm.
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