The U.S. Gulf Coast is bloated with record crude inventories, and signs of tightening storage are starting to show in Louisiana.
Bloomberg reports a futures contract reflecting the cost of storage at the Louisiana Offshore Oil Port climbed to a record 90 cents a barrel this week on the New York Mercantile Exchange. The contract, which began trading 10 months ago, has more than doubled in the past two weeks and now exceeds typical long-term costs in the Gulf.
“You can expect to see some record high storage rates as the need for more storage grows,” John Auers, executive vice president of Turner Mason & Co. in Dallas, tells Bloomberg. Demand will be especially high in areas with good pipeline connections. The supplies are piling up thanks to a combination of increasing U.S. oil production and shipping capacity intended to feed Gulf Coast refineries. Now that crude may need to go elsewhere.
Stockpiles in PADD 3, the Gulf Coast region, reached 252.9 million barrels last week, the most since the Energy Information Administration began releasing the data weekly in 1990. The region’s working storage capacity, which doesn’t include oil in pipelines or field storage, is 302.3 million.
The Gulf Coast is getting oil from land and sea. Imports have averaged 3.18 million barrels a day for 10 weeks, the most since July. Near-full inventory levels in Cushing, Oklahoma, have also pushed oil south to Texas and Louisiana.
One sign of the tightening is in the 10-month-old LOOP sour crude storage futures contract. After reaching a record 90 cents Monday, it settled at 88 cents Thursday. Typical long-term storage goes for 65 cents in the Gulf and 35 cents in Cushing, says Vikas Dwivedi, an oil and gas economist at Macquarie Capital in Houston.
“Total storage is going to build worldwide for at least the first half of 2016,” Dwivedi says. “That would apply disproportionately to the U.S. Gulf because it’s an area commercially focused on storage.”
