Oil storage tanks that were full a year ago, when the COVID-19 pandemic halted flights and kept drivers at home, are now emptying at the main distribution hub in the United States, marking the latest sign of increasing demand in the world's largest oil-consuming country. For the first time since the pre-pandemic period, empty tanks are available for rent in Cushing, Oklahoma, a delivery point for West Texas Intermediate crude oil futures. Stephen Barsamian, Chief Operating Officer at Tank Tiger storage brokerage, stated that at least 1.4 million barrels of storage space became available for rental starting in July, at nearly 12 cents per barrel monthly. This is a stark contrast to the minimum of 60 cents for storage when space was nearly exhausted about a year ago.
**Accelerating Fuel Production to Meet Rising Demand**
Americans are increasingly traveling by road and air as summer approaches and the country emerges from months of lockdown, prompting oil refineries to accelerate fuel production to meet rising demands. This week, California, the most populous state in the U.S., reopened its economy, while New York ended most of its restrictions. This marks a dramatic turnaround from the market collapse that saw traders storing unwanted crude oil on ships at sea, forcing American producers at one point to pay customers to take their oil last year.
At the same time, shale oil producers are adhering to their commitments to focus on budget discipline and enhance returns for shareholders, rather than increasing production. U.S. production has declined by 15% from last year's peak, which has limited flows to storage hubs. Therefore, traders are quickly emptying their storage tanks to supply refineries with every barrel of crude they require.
**Empty Tanks as a Market Indicator**
The empty tanks reflect the market's state, where demand exceeds supply and traders gain a premium on the nearest deliveries, making it unprofitable to keep oil in storage—a pattern known as backwardation (where spot prices are higher than future contract prices).
Storage for price elevation has changed since last year, when traders aimed to store as much oil as possible in hopes of better prices; at that time, the nearest West Texas Intermediate deliveries were selling at lower prices than older contracts, a phenomenon called contango (where the current price is expected to be lower than future prices, prompting expedited delivery).
These patterns notably affect commercial warehouses used for speculative trading, such as those in Cushing. Barsamian noted, "Typically, in a backwardated market, storage is not used for operational purposes like in Cushing, Oklahoma, which gets emptied first," adding, "Storage at most other locations like Houston and Midland in Texas is used for operational purposes and emptied later."
Traders may see more empty tanks across the United States in the coming months. Global oil demand is expected to recover to pre-pandemic levels by late next year, according to the International Energy Agency. The agency predicts a supply shortfall starting in the second half of this year as OPEC and its allies continue to keep a portion of their production capacity offline.
