This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Oil Storage Capacity and Safety Remain the Industry's Achilles Heel

NEW YORK (TheStreet) -- Everyone knows that the coal business is a disaster. U.S. mines are still being closed. Mine owners are pointing their supporters to social media in a move to maintain employment.

Could such a thing happen in the oil patch? It did happen in the 1980s, when the price of a barrel of oil plunged to a low of $20.

Could it happen again? A lot depends on whether the industry can effectively store the product when times are good, as they are now.

Right now the U.S. is consuming about 19 million barrels of oil per day and producing about 12 million, according to the Energy Information Administration, which expects production to rise to 14 million barrels per day next year. The U.S. should by then be the world's largest oil producer.

Moving and storing that oil, a business called the "midstream," is becoming an increasingly important business, which is why Kinder Morgan (KMI) decided to fold its limited partnerships into the main company and begin investing in new infrastructure again.

New investment should solve the problems of oil transportation and storage over the course of several years. But current prices are based on short-term estimates for supply and demand, and those are on a knife edge. Crude prices have been falling for a month, and the U.S. benchmark, West Texas Intermediate, opened for trade Tuesday at $96.41 a barrel. 

The supply situation sounds great, but each move toward international peace -- whether in Iraq, Ukraine, or North Africa -- sends prices down because there is a limit to storage. (If there were no limit, producers could store oil when prices fall and then bring it to market when prices surge.)

The U.S. Strategic Petroleum Reserve, for instance, which has a capacity of 727 million barrels, mostly in salt domes under Texas and Louisiana, currently holds 691 million barrels, meaning it's 96% full. There's another 609 million barrels of private storage capacity, 55% full at the end of March, according to the EIA. 

The next EIA report on storage, due in November, should show more oil in storage. But how secure is that storage? Not as secure as you may think. Oil "banked" as money in storage can leak.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $112.03 2.30%
FB $93.25 0.84%
GOOG $643.48 0.68%
TSLA $220.67 -2.70%
YHOO $32.52 0.46%


Chart of I:DJI
DOW 17,084.49 +33.74 0.20%
S&P 500 2,013.43 +15.91 0.80%
NASDAQ 4,830.47 +19.6820 0.41%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs