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US Oil Storage Capacity Filling Up, Raising Fears Of Further Price Drop

Crude oil production is still rising, even as hundreds of drilling rigs go offline.

oil barrels graphic

The country is running out of room to store all the crude oil it’s producing. A new study by the U.S. Energy Information Administration finds the nation’s storage capacity for crude oil is roughly 60 percent full. That number reflects what’s building up in tanks and underground caverns spread all over the country. The glut is raising fears of a fresh plunge in oil prices.

“Oil is very much a commodity,” says Bill Arnold, a professor of energy management at Rice University’s Jones Graduate School of Business. “When there’s more in the market than [there’s] demand for — no place to store it — then you can have a precipitous drop until the market corrects itself.”

While the number of active drilling rigs is tumbling in response to $50/barrel oil, U.S. crude production continues to grow.

“There’s almost like a game of chicken at very high stakes taking place,” Arnold says. “You may have companies that are actually producing at a loss currently in the expectation that prices will rise and with a hope that their competitors will drop out or be forced to drop out.”

If traders are convinced oil prices will decline because of a lack of storage space, Arnold says they will bet accordingly. That, in turn, would drive prices lower still.

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Andrew Schneider

Politics and Government Reporter

Andrew heads Houston Public Media’s coverage of national, state, and local elections. He also reports on major policy issues before the Texas Legislature and county and city governments across Greater Houston. Before taking up his current post, Andrew spent five years as Houston Public Media’s business reporter, covering the oil...

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