Where Do We Put All This Oil? by Attain Capital

For the first time in forever, our nation is presented with a problem we wish we had in the past… where do we put all the oil? Think about it, some might argue that wars have been started over how much oil we have. Bloomberg is out with a chart showing Cushing Oklahoma could run out of storage in a just a couple of months if projected growth in supplies continues. Projected growth is a little bit like saying, if everything goes as planned and nothing out of the ordinary happens, this is what could happen. Which we all know, rarely happens… but we digress.

Oil

Storage has become such a hot commodity, that the CME is actually launching a Crude Oil Storage contract. So now traders can just buy the futures, in theory, instead of the complicated trade of leasing an oil tanker and storing your Oil in the Gulf of Mexico. This makes sense if you consider that analysts are saying producers are pumping 1.5 million barrels a day more than the word needs. Which in turn means that once the oil gets to Cushing it could be there for years…. Which is promoting some concerns over how to get rid of it all… Now, we don’t want to step into a political quagmire. But one proposal to get rid of it has been the creation of a certain pipeline…. Another is the removal of the Energy Policy and Conservation Act which prohibits exporting crude oil. And while all that debate is going on, the oil producers are moving full steam ahead (literally), putting millions of gallons of oil on trains to get out of the oversupplied shale area. What could go wrong hurtling flammable liquids around the country on antiquated infrastructure… oh, I don’t know – maybe something like this in Galena, Illinois yesterday:

Picture from @scandbq of most recent explosion from the @BNSFRailway derailment fire south of Galena pic.twitter.com/KJWoPb2jow

— KCRG (@KCRG) March 5, 2015

According to the Associated Press, the train was carrying 103 car loads of crude oil, luckily only 6 derailed, two of those bursting into flames, like seen above. Only one family had to evacuate their home and no one was injured. At 70,000 gallons per tank [er] car, that’s 140,000 gallons, and since there’s 31.5 gallons in a barrel, that comes out to 4,444.44 barrels. That’s just over 4 contracts (1,000 barrels). Needless to say, this isn’t going to make a dent in the plethora of supply. But there is a side effect to all this supply that’s worth noting from the Associated Press:

“According to the Association of American Railroads, oil shipments by rail jumped from 9,500 carloads in 2008 to 500,000 in 2014, driven by a boom in the Bakken oil patch of North Dakota and Montana, where pipeline limitations force 70 percent of the crude to move by rail.”

We’ll leave the politics of how to solve this issue to the politicians…