Hunt for storage space turns urgent as oil glut grows

NEW YORK/HOUSTON: The telephone lines have been ringing at Adler Tank Rentals in Texas as oil companies found a new use for steel tanks that had been left idle when shale producers stopped drilling - they want to use the tanks to store some of an oil glut that has overwhelmed the market and flipped US crude prices negative for the first time.

Hundreds of millions of barrels of crude have gushed into storage worldwide in the past two months as the coronavirus-related lockdowns wiped out around a third of global oil demand. With oil depots that normally store crude oil onshore filling to the brim and supertankers mostly taken, energy companies are desperate for more space. The alternative is to pay buyers to take their US crude after futures plummeted to a negative $37 a barrel on Monday. A topsy-turvy market that has oil prices for October delivery at $31 a barrel has oil firms anxious to sock away millions of barrels now to sell at a profit later.

Tank farms are full

In Cushing, Oklahoma, home to dozens of large tank farms with combined space for about 76 million barrels, operators are fully booked, said traders. Storage there jumped by 5.7 million barrels the week before last, according to the latest U.S. Energy Information Administration (EIA). While the government estimated there is available space, traders said Monday’s market drop indicated any unfilled tanks are under lease, and not available to new renters.

“The industry is really scrambling to source viable storage options,” said Stuart Porter, a manager at Adler Tank Rentals in Texas, which has shale companies lining up to potentially lease dozens of its 500-barrel steel frac tanks. The tanks can be lined up like dominos and filled at the well site by producers without a home for their oil. Converge Midstream LLC with millions of barrels of storage available in underground salt caverns outside Houston has gone from few takers to requiring one- to two-year contracts.

“Quite honestly we were struggling for business. Now that the market has changed, everyone is our friend,” said Dana Grams, chief executive of Converge Midstream.

The hunt for storage points to the magnitude of the collapse in demand for US shale and the huge volume of unsold oil to refiners who are cutting purchases. Last month, the Organization of the Petroleum Exporting Countries (OPEC) and other producers including Russia threw in the towel on four years of self-imposed output curbs that gave US shale a price umbrella. The result was a drop in US oil prices to about $20 a barrel as Saudi Arabia and Russia pledged to pump full bore. For a time, it looked like prices would stabilize after the pair and other nations this month agreed to deepen cuts. — AFP