Crude oil storage capacities
Record supplies in the global market lead to the need for more storage because of the normal demand. We covered how lower oil prices influence the gasoline market in the last part of the series. Lower demand for refined products leads to a fall in the refinery demand. So, it leads to a fall in the crude oil demand. It also leads to a rise in the crude oil inventory due to rising US production despite lower oil prices. As production rises and demand is normal or less, oil markets need large oil storage hubs or increased storage hub capacity.
Crude oil storage capacities in Cushing and the Gulf Coast
Cushing, Oklahoma, is the largest crude oil storage hub in the US. It’s also the futures delivery point for NYMEX-traded crude oil futures contracts. Cushing contains 13% of the total US crude oil inventory capacity. The US Gulf Coast region contains 55% of the US storage capacity. The long-term oil oversupply and record production from the US led to the rise in Cushing and Gulf Coast’s storage capacities by 56 MMbbls (million barrels) and 25 MMbbls, respectively, since 2011. The current US crude oil inventory is at record levels.
The record US crude oil inventory benefits oil tankers like Nordic American Tankers (NAT), DHT Holdings (DHT), and Euronav (EURN). To learn more, read How the Fed Influences Contango Crude Oil Market Traders. However, lower oil prices impact oil producers like ConocoPhillips (COP), Anadarko Petroleum (APC), and Whiting Petroleum (WLL).
The roller coaster ride in energy market impacts ETFs like the Vanguard Energy ETF (VDE) and the ProShares UltraShort Bloomberg Crude Oil ETF (SCO). The collateral damage in the energy market continues to weigh on broader indexes like the S&P 500 Index (SPY). Read the next part of the series to learn more about the impact of lower oil prices.