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The massive reduction in demand for oil over the last few months brings up many questions. How could the price of oil be negative … will companies be forced to shut down their wells … and where will all the excess oil go?

The storage options of the oil will be telling for the near future of the industry. The supply/demand balance has tilted, leaving massive quantities of oil not to be used but to be stored. We are seeing storage tanks being filled up around the country and the world like no other time in recent memory.

The capacity of storage could be nearing quickly.

In recent months everything from oil tankers to pipelines and rail cars are being used as makeshift storage tanks, as storage tanks couldn’t be built quickly enough. A large tanker can hold as much as two million barrels, but this space is running out. The rate for these tankers have risen with the demand, and prices have reached nearly $300,000 a day, up from under $30,000 a day back in February.

Having oil stored on ships out at sea rather than on land in storage tanks indicate diminishing storage on land. Analysts have suggested on-land storage and safety nets are being pushed to a capacity that we haven’t seen before. With a potential continuation for a high supply and low demand for oil, the need for cheaper on-land storage facilities is becoming more and more critical.

While the return to a normal supply and demand for oil is imminent, it doesn’t mean this won’t happen again. Having the necessary storage facilities in the future will prevent a scramble for short term storage and provide a smoother transition to and from volatile changes in demand.

Sources:
https://www.worldoil.com/news/2020/5/12/oil-storage-crisis-fading-on-global-production-cuts-and-recovering-demand
https://www.nytimes.com/2020/04/23/business/oil-markets-tankers.html
https://www.bloomberg.com/news/articles/2020-04-21/world-s-biggest-oil-storage-firm-says-almost-all-space-is-sold

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