At beginning of this year, oil in the United States was selling for around $60 a barrel. Now you can barely get rid of the stuff; at $12 a barrel on April 29, a latte-sized cup of crude would cost less than five cents. Last week, oil futures prices went below zero for the first time ever—you’d have to pay someone to take it off your hands.
As the Covid-19 pandemic vaporizes global oil demand, producers are running out of places to keep their oil. About 60% of the world’s oil storage is occupied, and it’s filling quickly: According to Goldman Sachs, remaining capacity is likely to max out by mid-May.
In the US, the problem is about to get worse: Import deals signed before the crisis are moving forward. A fleet of 28 tanker ships carrying Saudi oil is due to join a queue of at least 76 tankers waiting to unload at US ports, according to Rystad Energy.
That leaves producers with a tough choice: Get creative (and pay through the nose) for storage, or turn off the pumps. “It’s a big jigsaw puzzle to alleviate the pressure,” said Sarah Ladislaw, a senior oil analyst at the Center for Strategic and International Studies. “But there’s just not enough space.”
So what can you do with a barrel of oil these days?
Don’t send it to Cushing
In the US, the main oil storage hub is in Cushing, Oklahoma. It’s a sprawling campus with hundreds of squat, circular tanks that together can hold around 80 million barrels. In normal times, oil is delivered to Cushing via trucks, trains, and pipelines, and travels from there to refineries, mostly on the Gulf Coast.
When producers have a bit too much oil on hand, or want to wait for prices to improve, they often lease space in a Cushing tank. Because of its central role in the US oil distribution system, the storage level in Cushing is closely watched by traders worldwide and can be a proxy for the market: When prices are high, storage volumes tend to be low. In February, Cushing was less than half full. Now, it’s completely sold out. If you don’t already have space leased there, you’re out of luck.
Lease space in the Strategic Petroleum Reserve
Last week, President Trump said he wants to take advantage of low oil prices to get the SPR “filled up pretty soon.” A network of massive salt caverns on the Texas and Louisiana coasts, the SPR has open space equal to about the total volume of Cushing; the Department of Energy touts it as the world’s largest emergency oil supply.
So far, Trump has been unable to get the appropriation he needs from Congress to buy the oil outright. Instead, the administration is allowing US companies to lease about a quarter of the open space in the SPR, which several companies have taken advantage of in the last week. But while the SPR might help a few individual companies, even filling it completely would be a drop in the bucket compared to the total volume of oversupply, Ladislaw said.
Shell out for a tanker
One of the winners of the oil glut has been the tanker ship industry. Usually these massive ships haul oil between ports, but they’re just as happy to park offshore—for the right price. Charter rates in the neighborhood of $125,000 per day before the crisis are now well above $200,000. Even at that price, the amount of oil idling in ships offshore globally has jumped 40% since the beginning of April. Satellite images show tankers piling up off of beaches around the world.
Still, it’s not a solution that is affordable for many smaller oil producers—and it assumes that you’ll even be able to move your product from a well to a port, which may be impossible if pipelines are also filled up.
“It would be great if they could somehow teleport it,” said David Livingston, a senior oil analyst at Eurasia Group, “but if the pipeline is shut there’s nothing you can do.”
Cram it into barges, trains, pipelines, caves, wherever
With all the usual spots filling up, some producers are turning to unconventional solutions, including parked trucks, train cars, tiny river barges, pipelines themselves, off-brand depots in places like Chicago, and even Swedish salt caverns. “People are really desperate to fill whatever they can,” Ladislaw said. All of these options have costs that are unlikely to be offset with oil prices as low as they are.
Leave it in the ground (gasp!)
The most obvious solution might be to do what climate activists have long dreamed of: not extract the oil in the first place. That’s a worst-case option for producers, because the cost of turning off a well is usually more than foregone production. Shut-off wells (known as shut-ins) are easily damaged, and may never produce the same volume, or anything at all, once they’re re-opened.
There are hundreds of mom-and-pop oil companies that each operate a handful of so-called “stripper wells,” low-producing sites where “if they stop producing, they’re done,” Ladislaw said. “There’s no going back into business.” Meanwhile, many oil leases contain a production mandate, essentially a “use it or lose it” requirement that puts the producer at risk of forfeiting their drilling rights if they shut down.
In the US, another last-ditch solution could be for the administration to buy producers’ underground reserves, essentially writing them off as remote extensions of the SPR. But that, again, would require money the president doesn’t yet have.
Ultimately, as the cost of storage continues to rise, space fills up, and pipelines shut down, many producers, especially smaller ones, will inevitably be forced out of business.
“The most severe shut-in activity is yet to come,” Livingston said.