U.S. To Rent Out Federal Storage Space To Oil Industry
04.06.2020 - NEWS

April 6, 2020 [OilPrice.com – Published on April 1, 2020] – U.S. oil producers may soon have access to federal oil storage space to alleviate the glut that is threatening to overwhelm existing private storage capacity.

 
Bloomberg reports, quoting three unnamed sources, that the Energy Department is considering the option, and an official announcement could come later.

The combination of the demand-crippling coronavirus outbreak and the oil price war between Saudi Arabia and Russia has pressured the U.S. oil industry significantly, leading to growing excess supply that now pipeline operators are warning needs curbing before the tanks fill up.

The storage problem is becoming critical on a global scale. According to the chief analyst of data analytics firm Kayrros, if storage continues to fill up, oil prices could fall close to zero. This zero space available could happen in months, if not weeks.

U.S. West Texas Intermediate has been trading around $20 a barrel, but some regional grades have been faring a lot worse, with Wyoming asphalt sour even turning into negative territory.

“Large-scale production interruptions appear inevitable and imminent,” Pioneer Natural Resources and Parsley Energy executives wrote in a letter to the Texas Railroad Commission. Pioneer also asked the industry body to order a production cut in what would be an unprecedented move to stem the price decline and the excess supply.

The U.S. strategic petroleum reserve (SPR) has a maximum capacity of over 713 million barrels of crude. The U.S. created the SPR in the wake of the Arab oil embargo following the 1973 Arab-Israeli war, as the U.S. sought to avoid a repeat of the fuel shortages that the embargo caused at the time. There U.S. has some 635 million barrels in storage across the SPR facilities.

If the White House opens the SPR to private producers, it would come as a much-needed relief for the troubled industry, although it wouldn’t be enough to arrest the price decline. Production cuts seem increasingly inevitable.

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