Companies Are Getting Creative To Find Ways To Store Crude Oil Surplus
ARI SHAPIRO, HOST:
When the pandemic hit, the global economy screeched to a halt. But oil suppliers didn't stop pumping immediately, and the result was a massive glut of crude on the market. Stacey Vanek Smith and Cardiff Garcia from our daily economics podcast The Indicator from Planet Money uncover how some companies have found innovative ways to store that oil.
CARDIFF GARCIA, BYLINE: Oil is normally stored in giant tanks - tanks that hold more than half a million barrels of oil each. And in April, as demand for oil dried up, all those tanks started filling up.
STACEY VANEK SMITH, BYLINE: Prices to store oil doubled, tripled, went up by 600% in some cases.
DAVID DECKELBAUM: It would be like if all of a sudden, your Internet bill was, like, $700 a month. And you're like, wait. Like, that was just something I thought was going to stay, like, $70 a month, and now it's 700.
GARCIA: David Deckelbaum is an oil analyst with Cowen, an investment bank. He says oil companies were running out of space to store their oil, but they couldn't sell the oil either. So they started getting creative.
VANEK SMITH: Some companies, like Hess, bought enormous oil tankers and filled them to the brim with oil and pushed them out to sea. Other companies just went bankrupt. They couldn't sell their oil, and they couldn't afford to store it.
GARCIA: But of course, this was an opportunity, too. If you could store oil, you could make a lot of money. And people did start seeing opportunities - people like Sean Lovelace, president of Well Water Solutions and Rentals. Sean's company builds big storage tanks for water.
SEAN LOVELACE: You know, have you seen, like, those above-ground swimming pools? Just take that out and make it 200 foot, and then make those side walls 12 feet. And that's what it is.
VANEK SMITH: Sean saw the price of oil storage going crazy. And he thought, wait; we could store oil in our water tanks, and we could charge a lot for that. Sean realized he could make $40,000 a month storing oil in one of his tanks and still be really competitive pricewise. So he placed a couple ads online, thought it'd get a few calls.
LOVELACE: Boy, it was crazy there at the beginning, the amount of calls and things. It was absolutely bonkers - just getting flooded with calls. And we had some people saying, we want a hundred tanks. Like, dang.
VANEK SMITH: All kinds of companies jumped into the oil storage business. Companies that normally store wine, laundry detergent, shampoo - they were all jumping into oil storage.
GARCIA: But oil analyst David Deckelbaum does not think the oil storage boom is going to last.
VANEK SMITH: David says as soon as the economy gets going again and demand for oil goes up, companies will not want to store their oil. They will want to sell it and make money off of it. So demand for storage will go down, and the price of storage will go down.
GARCIA: In fact, we're already seeing that. As cities across the U.S. started to reopen, oil prices started rising again, and demand for storage started to flag. Sean Lovelace of Well Water Solutions - he noticed.
LOVELACE: Where we were getting probably three, four, five big calls a day, I mean, we might get one a week now. So yeah, it's died down quite a bit with the oil prices hopping back up.
GARCIA: But with recent news that coronavirus cases are rising, oil prices are edging down, which could mean that the oil storage boom may not be over quite yet.
VANEK SMITH: Stacey Vanek Smith.
GARCIA: Cardiff Garcia, NPR News. Transcript provided by NPR, Copyright NPR.