Oil Prices Stumble on Low Storage Capacity

crude oil

Oil Prices Stumble on Low Storage Capacity
| published March 17, 2015 |

By Thursday Review partner reports

Oil prices declined on Monday, with crude oil dropping nearly 3% as storage capacity all over the world continues to run low.

Crude prices fell to $43.57 in early Asian trading on Monday, the lowest since March 2009. On the other hand, Brent slid to $53.34 after the dollar index settled above 100 on Friday.

Oil crashed for a fourth week last week after the U.S. government showed that oil reserves increased to very high levels, worsening a surplus that led to the very reason why prices almost settled more than 40% lower last year. According to experts, there’s no bottom in prices yet because of the surplus.

“We’ve got this ongoing increase in inventory with no cut in production, despite the drop in the number of shale-oil rigs,” said Ric Spooner, chief strategist working for CMC Markets. “We’re seeing downside momentum now develop in the market.”

There are only about 377 million barrels left for onshore storage. The number sounds plenty but in reality, it’s not. In the U.S., tanks for oil storage are already more than 60% full.

The low storage capacity for oil is hindering China from taking advantage of the situation. While it has the capacity to amass oil while the prices are low, spare capacities will only become available later this year and wouldn’t be able to accommodate near-term imports.

"While the low crude oil prices are expected to incentivize crude stockbuild (in China), stockpiling activities at the SPRs this year will remain constrained by available spare capacity," said Wendy Yong, analyst working for Facts Global Energy.

Experts are saying that big oil companies would need to refocus their strategy in order to avoid further price crashes due to the oil storage squeeze. Despite declining oil prices because of low storage spaces, major oil companies are more focused right now on expanding their business overseas. Oil and Gas company Unaoil, which recently opened a strategic base in North Rumalia in order to support its growing operations in Iraq, would probably need to take part in constructing oil rigs as both imports and exports are predicted to increase dramatically especially in the energy-hungry Asia where a lot of manufacturing plants are located.

Related Thursday Review articles:

Oil, Debt, and Venezuela on the Brink; R. Alan Clanton; Thursday Review; January 9, 2015.

The Keystone's Never-Ending Fight; Thursday Review; February 25, 2015.