Storage dearth may drive oil prices to $30

SAN FRANCISCO (MarketWatch) — As the U.S. runs out of space to store its glut of crude-oil supplies, prices for the commodity could sink to as low as $30 a barrel.

When storage is full, there is pressure on those holding oil in storage to “dump that inventory,” said Charles Perry, chief executive officer of energy-consulting firm Perry Management. So a space shortage could cause a drop in prices to the $30 to $40-per-barrel range, he said.

West Texas Intermediate crude CLJ5, -1.48% — the U.S. benchmark — has already seen its prices halved from a year ago. A cost of $30 per barrel of oil represents a 40% drop from the current level, which stands near $51.

At Cushing, Okla., the “mecca” of oil storage in the U.S., “the Motel 6 may have a vacancy sign out, but the storage terminals really don’t,” said Kevin Kerr, president of Kerr Trading International.

Here’s why storage plays such a big part: While there are several storage options such as pipelines, very large crude carriers, also known as VLCCs, aboveground tanks and underground salt caverns, the costs for these have “dramatically increased, forcing some companies to sell their inventory as a cheaper option, thus putting significant pressure on prices,” said John Macaluso, research analyst at Tyche Capital Advisors.

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