Analyst: Massive US oil, gas storage glut to drive prices lower

By RANI MOLLA
Bloomberg

Thanks to the shale revolution, the US has been pumping a lot of oil on the cheap, helping to drive down prices to six-year lows and to fill up storage tanks. Indeed, the nation is running out of places to put it.

The US has 490 million bbl of oil in storage, enough to keep the country running smoothly for nearly a month, without any added oil production or imports.

That inventory doesn’t include the government’s own Strategic Petroleum Reserve, to be used in the now highly unlikely event of an oil shortage. Nor does it include oil waiting at sea for higher prices.

The lower 48 states also boast about 4 trillion cubic feet of natural gas in storage -- a far bigger cushion than Americans have needed so far during a very warm winter.

For their part, OECD countries (including the US) have nearly 3 billion bbl of oil in storage -- or enough to keep factories lit and houses heated in those countries for two months, cumulatively, without added production or imports.

The glut is going to continue worldwide unless some major producers stop pumping. OPEC announced recently that it was abandoning output limits.

So what happens when there’s too much oil to store? Producers will try to rid themselves of it by cutting prices. In that scenario, the price would plummet so far that some producers would shutter their wells altogether -- which is, perhaps, the only way that the oil glut will ease.

• Most Read
• Most Commented