The United States has nearly 503 MMbbls of commercial crude oil stockpiled, the Energy Information Administration said last month. It’s the highest level of supply for this time of the year in at least 80 years. The inventories are the latest sign that the oil boom is still alive and kicking. U.S. oil production is near all-time highs despite the epic crash in oil prices from $107 a barrel in June 2014 to just $30 a barrel now.
Oil stockpiles are so high that certain key storage locations are now “bumping up against storage and logistical constraints,’ according to Goldman Sachs analysts. In other words, these facilities are nearly overflowing. Cushing, OK is the delivery point for most of the oil produced in the U.S. and it is swelling with 64 MMbbls of oil. That represents a near-record 87% of the facility’s total storage capacity as of November, according to the EIA.
“There is a fear of tank topping in Cushing. We’re seeing it get to its brims,” said Matthew Smith, director of commodity research at ClipperData. Cushing has had to ramp up its storage capabilities in recent years just to deal with all this oil. If this key hub ran out of room to stockpile oil, that crude would have to be diverted elsewhere – and that would hurt oil prices.
“There would be a ripple effect across the U.S. that would impact prices everywhere,” said Smith.
Wall Street is nervously watching supply constraints since they can have dramatic repercussions on prices. More so than other commodities, oil is vulnerable to so-called “operational stress” due to the expensive and sophisticated infrastructure that is needed for storage.
“Each time the market brushes up against infrastructure constraints, oil prices will likely spike to the downside to make oil supplies back off,” Goldman wrote.
OPEC continues to pump oil at full throttle as it seeks to avoid losing further market share to higher cost producers in the U.S. and elsewhere. The latest EIA figures show that the U.S. pumped 9.32 Bbbls in November. That’s actually up 1% from the year before and not far below (4%) the April 2015 numbers.