Oil storage tank in Cushing, OK. Image from Wikipedia.
Oil production has not eased despite low prices and America’s major storage facility is running out of room, said former Federal Reserve Chairman Alan Greenspan on Bloomberg TV on Friday.
Greenspan expected supply to ease but noted that data shows domestic crude production continues to rise:
If you look at the data, our major domestic facility for storage is in Cushing, OK, which is a delivery point for West Texas Intermediate crude contracts. We’re probably at the point now where at the current rate of fill we are going to run out of room in Cushing by next month. The question then is where does the crude go? Everyone’s forecast was . . . prices collapse and a sharp curtailment of shale oil production. That has not happened. The weekly figures produced by the [energy administration], through March 6, showed a continued rise in domestic crude production, and it’s got no place to go because we can’t legally export the way we could with most products.
Essentially, we are bottling up a huge amount of crude oil in the United States so if the West Texas Intermediate is running $10 a barrel under Brent Crude, which is the global price. That means we are creating great abnormalities in the system and unless we find a way to get out of this dilemma, prices will continue to ease because there is no place for that oil to go.
Greenspan said the large price differences between WTI and Brent will result in a volatile spot price for oil.
Hat tip, Business Insider