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Storage is the hottest commodity right now in oil markets

Justin Ho Mar 31, 2020
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The price to store oil is soaring. Above, a pipeline carries oil at the Federal Strategic Petroleum Reserve facility known as Big Hill near Beaumont, Texas. Joe Raedle/Newsmakers
COVID-19

Storage is the hottest commodity right now in oil markets

Justin Ho Mar 31, 2020
The price to store oil is soaring. Above, a pipeline carries oil at the Federal Strategic Petroleum Reserve facility known as Big Hill near Beaumont, Texas. Joe Raedle/Newsmakers
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The price of oil is way down right now, at roughly $21 a barrel. With air travel also way down and hardly anyone on the road these days, the demand for oil just isn’t there. But all that oil out there has gotta go somewhere, right? The storage of commodities is the real hot commodity right now.

The United States has the infrastructure to store unused oil, whether it’s in old salt caverns along the Gulf Coast or oil tankers that float offshore. But Jim Burkhard, vice president and head of crude oil research and energy and mobility research at IHS Markit, said with demand plummeting, that storage is reaching full capacity.

“The infrastructure is not built to handle a 20% to 25% overnight collapse in oil demand,” Burkhard said.

There are reasons why a producer would keep pumping oil now. Burkhard said shutting down a drilling rig can damage a reservoir.

Tom Seng, director of the School of Energy Economics, Policy and Commerce at the University of Tulsa, said smaller producers might have to keep pumping oil, despite the low prices they’re getting for it.

“Even though on the books it’s going to be a loss, they’ve got to have some cash flow to maintain operations,” Seng said.

And that’s just in the United States. Matt Smith, director of commodity research at ClipperData, which tracks flows of crude oil around the world, said the oil production war going on overseas will dump even more crude onto the market.

“We’re going to see a lot of barrels coming to market in the next few weeks, not only from Saudi Arabia, but likely from Russia [and the] United Arab Emirates,” Smith said. He added that the price of storage is shooting up.

Oil tanker rates have reportedly doubled from last week. Burkhard said if storage capacity runs out, U.S. oil production might have to start shutting down.

“At current production levels, the oil supply surplus will exceed the ability to store it,” Burkhard said. “Something’s got to give.”

He estimates that by next year, U.S. production could drop by nearly a third. 

COVID-19 Economy FAQs

Can businesses deny you entry if you don’t have a vaccine passport?

As more Americans get vaccinated against COVID-19 and the economy begins reopening, some businesses are requiring proof of vaccination to enter their premises. The concept of a vaccine passport has raised ethical questions about data privacy and potential discrimination against the unvaccinated. However, legal experts say businesses have the right to deny entrance to those who can’t show proof.

Give me a snapshot of the labor market in the U.S.

U.S. job openings in February increased more than expected, according to the Labor Department. Also, the economy added over 900,000 jobs in March. For all of the good jobs news recently, there are still nearly 10 million people who are out of work, and more than 4 million of them have been unemployed for six months or longer. “So we still have a very long way to go until we get a full recovery,” said Elise Gould with the Economic Policy Institute. She said the industries that have the furthest to go are the ones you’d expect: “leisure and hospitality, accommodations, food services, restaurants” and the public sector, especially in education.

What do I need to know about tax season this year?

Glad you asked! We have a whole separate FAQ section on that. Some quick hits: The deadline has been extended from April 15 to May 17 for individuals. Also, millions of people received unemployment benefits in 2020 — up to $10,200 of which will now be tax-free for those with an adjusted gross income of less than $150,000. And, for those who filed before the American Rescue Plan passed, simply put, you do not need to file an amended return at the moment. Find answers to the rest of your questions here.

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