Pipeline companies running out of storage capacity to take new oil production
A new problem attributed to the coronavirus pandemic is slowly brewing out in the oil patch.If the stay at home order is partially lifted in some areas it could produce more movement especially in rural areas of the country. That is the only way the glut is going to be reduced in the short-term.
Pipeline operators with full storage tanks are asking some Texas oil companies to stop production as the ongoing price war between Russia and Saudi Arabia has exacerbated a global supply while the pandemic has dramatically cut global demand.
In a Saturday morning tweet, Texas Railroad Commissioner Ryan Sitton, one of three officials elected to oversee the state agency that regulates the oil and gas industry, reported that some oil companies are getting letters from shippers asking for production cuts because they are out of storage.
"You're facing a situation where there's so much demand destruction from people staying home because of COVID-19 and there's so much oil flowing right now with no place to go," Sitton told the Houston Chronicle. "The supply chain is facing a problem and it backs up all the way to the gas stations."
The storage problem, Sitton said, appears to be most impacting pipeline companies with contracts to buy crude oil directly from producers in the field. Those pipeline companies, he said, move that purchased oil to storage tanks for future sale.
But with falling gasoline demand due to pandemic-related shutdowns and the price war resulting in unattractive, 18-year low crude prices of $21 per barrel, that oil is just sitting in storage tanks that are getting more full each day.