Empty oil tanks in Cushing show rapid rebound in demand


(Bloomberg) – Crude storage tanks that overflowed a year ago when the pandemic brought flights to a standstill and kept drivers at home are starting to empty at America’s main distribution center, the latest sign of strengthening the demand in the world’s largest oil-consuming country.

For the first time since before the pandemic, empty tanks are being offered for lease in Cushing, Oklahoma, the delivery point for West Texas Intermediate oil futures. At least 1.4 million barrels of storage are available for rental starting in July, for about 12 cents a barrel per month, said Steven Barsamian, chief operating officer of storage brokerage firm Tank Tiger. That’s a stark contrast to at least 60 cents billed when there was little space about a year ago.

Americans are taking to the roads and the skies in increasing numbers as summer approaches and the country emerges from shutdown months, with oil refiners ramping up fuel manufacture to meet growing demand. This week California, America’s most populous state, reopened its economy, while New York City lifted most of its restrictions.

This is a dramatic turnaround after a stock market crash that saw traders store junk crude in offshore tankers and US producers at one point had to pay for customers to take their oil last year.

Meanwhile, shale producers are keeping their promises to focus on balancing their books and increasing returns for shareholders, rather than increasing production. American production is 15% below its peak last year, limiting flows to the storage center.

So traders quickly drain their storage tanks to provide refineries with every barrel of raw material they need.

Empty tanks are typical of a market where demand exceeds supply and traders get a premium on the nearest deliveries, making it uneconomic to store oil – a pattern known as offsetting.

A year ago, when traders stocked as much oil as possible to wait for better prices, the closest deliveries to WTI were selling at a discount to the older ones. This structure is known as contango.

These patterns particularly affect commercial storages used in speculative trading, such as Cushing’s.

“Typically, in a lagging market, it is storage that is not being used for operational purposes like that in Cushing, Oklahoma that is emptied first,” Barsamian said. “Storage in most other locations, such as Houston and Midland, Texas, is used for operational purposes and is emptied later. “

Traders could see more of the bottom of reservoirs across America in the coming months. Global oil demand is expected to return to pre-pandemic levels at the end of next year, according to the International Energy Agency. The agency sees a supply shortage from the second half of this year, with OPEC and its allies still keeping some of their production capacity offline.

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