Magical Sleight of Hand
The old shell game of three shells and a pee where the viewer tries to guess under which shell the pee resides is often used to manipulate participants in order to take their money. Well the oil storage market is just about as shady as some guy on the corner trying to steal your money with deceptive sleight of hand in the age old shell game.
Cushing Oklahoma & the Gulf Coast is One Giant Storage PADD
Reporters and analysts focus of the Cushing Oklahoma levels, and noticed a draw in supplies, but this is the wrong metric to look at when analyzing what is taking place with regard to storage levels at Cushing Oklahoma.
Cushing Oklahoma did have a 500,000 barrel drawdown in overall supplies, however the Gulf Coast had a 1.4 Million build in supplies. Cushing oil supplies stand at 61.7 Million Barrels, and the Gulf Coast stands at 243.9 Million Barrels of oil in storage facilities.
Gulf Coast Storage Capacity
Does the Gulf Coast need any more oil for their refinery operations? Hardly, last year at this time the Gulf Coast had 215.3 Million barrels in storage, so the Gulf Coast has more than enough oil in storage to last the entire summer refining season in support of the export gasoline and refined products operations along the Gulf Coast.
Last year the Gulf Coast ended Labor Day the official end of the summer driving season at roughly 190 Million Barrels of oil in storage to give readers an idea of how much extra oil gets drained from Gulf Coast storage facilities during the heavy refinery utilization peak period for demand.
306 Million Barrels in Storage for two Regional Hubs
It is also worth noting that Cushing had 25 Million Barrels in storage this time last year, so in combination the two storage hubs which really should be counted as one storage hub for all intents and purposes has added almost 65 Million barrels of oil to storage during the past year. The combined storage facilities now have 306 Million barrels of oil with no place to go, no refinery needs, just sitting there taking up storage space and costs.
No wonder the last year has brought about the term Fracklog because the number of already drilled oil wells that are waiting for prices to recover before they start pumping totals more than 3,400 for the top three producing shale fields in Bakken, Eagle Ford and the Permian. There are more than 4,000 already drilled wells in total waiting to go online across the United States. One can really think of this metric as another form of storage facilities. When you add up all the Millions of barrels waiting to be pumped from these wells, the SPR, and the 5 storage PADD Regions we literally have become one giant storage facility here in the United States of Oil. And this doesn`t count the number of container ships parked off the coast and in ports waiting for higher prices before it finds a home.
The oil market is a long oriented market, many participants have a vested interest in keeping it as high as possible by whatever means are necessary, and if that means moving the oil around from one storage PADD to another, having an armada of ships filled to the gills guarding our coasts, or being in Fracklog denial by golly they are going to make those oil prices rise. Build it and they will come mentality is prevalent in the oil industry.
Peak Demand in 10 Years
The problem is that the oil industry is a dying technology and all these nations are filled to the gills with a dying resource. The future is alternative Industry like solar, advanced battery storage, and electric modes of transportation all fueled with a form of energy better and more efficient than fossil fuels. Forget about Peak Oil, the new buzzword is Peak Demand, and in 50 years the oil industry will be another carcass on the side of the road of human advancement and evolutionary progress. Oil companies better not wait too long storing oil trying to manipulate the market for higher prices, as the world is going to need less and less of this stuff in the developed world every year, and the third world will be the next to replace fossil fuels and that demand curve will start declining as well. In short the oil market is a declining business over the next 50 years, and will ultimately go the way of the horse carriage.