True North_

It's the Oil Price, Stupid!

High oil prices were a factor in the economic debacle of 2008 - but only one of several. There was a confluence of events that drove what occurred - I doubt that the extra $1.2 trillion in cost was sufficient, of itself, to cause the collapse that did occur. It contributed, but was not the sole or even most important issue.

It's also not clear to me that the oil price run-up in 2008 was related to supply / demand issues (the quote from the article: "...the price run-up of 2007-08 was caused by strong demand confronting stagnating world production"): in fact, if anything, the collapse in price suggested the opposite (which is that it was largely driven by financial investment in the commodity and the price collapsed when other factors drove the financial players out of the market in August/ September/ October last year). Demand in the US (the bellweather for the oil market) started to drop in late 2007 - as Americans increasingly parked their cars.

As for the cancellation / delay of oil projects, Mmmark's comment above (that $50 oil isn't sufficient to justify investment in replacement supplies, also needs careful consideration. First, most the projects were delayed or "cancelled" when prices hit the $35 mark, and seemed poised potentially to drop lower. Expanding your investment in an environment where oil prices are dropping is tough to justify to shareholders. Second, the credit markets were frozen. The small to medium players had no access to capital (indeed, entirely worthwhile projects collapsed because alternative funding could not be found - for example, Oilexco's North Sea project). Investment was impossible (and continues to be difficult). The larger players also saw their cost of capital rise, and saw no rush to develop or aggressively pursue their projects.

Things appear to be loosening a bit now, as credit markets become more accessible and oil prices stabilize - Imperial Oil just announced that it is proceeding with its major oil sands development in Alberta (the Kearl project - projected to produce about 100,000 bbls/day). Ironically, it was the downturn in the investment environment that helped push the decision - the overheated Alberta labour market has essentially collapsed, and Imperial Oil has managed to reduce its overall costs on the project by at least C$1 billion. I expect other projects will similarly be brought back online over the next few months.

There's Still Plenty of Crude

Just a quick follow up on Cushing's capacity: apparently they leave about 15-20% empty for safety/operational reasons.

From: www.reuters.com/articl...

"Cushing's nominal storage capacity is 46.3 million barrels, according to public company filings and industry sources consulted by Reuters.

Only 80 percent to 85 percent of that is operable -- as little as 37 million barrels -- as some tank space is left empty for safety reasons or crude blending."

There's Still Plenty of Crude

Conan asks a good question about the total storage available in the US for crude oil. The answer may be out there - but it doesn't seem to be in any one place. This is, perhaps, a start.

The EIA does not seem to list the total non-SPR storage capacity (just for fun, I’ve sent them an email and asked). They do, however, note both the shell & working capacities of US refiners (the latter is the more relevant). Based on January 2009 data, the total working storage capacities at US refiners was about 152 million barrels (versus a shell capacity of about 180 million barrels). See: tonto.eia.doe.gov/dnav... As at the end of January 2009, the EIA reported a total stock of 352,896,000 barrels of oil, of which there were 95.5 million barrels in storage at refineries (leaving about 57 million barrels of working storage capacity at refineries at that time) See: tonto.eia.doe.gov/dnav... amount in storage at refineries does not appear at all high, based on the historical figures from the EIA. (As an aside, working storage space at refineries has dropped from a high of nearly 190 million barrels in the 1980s to the current figure of about 152 million barrels.)

The interesting figure is the amount in storage at tankfarms and pipelines. Again, using the EIA’s January figures (which are all that are available - the weekly reports don't seem to break this information out in the same detail), there were 234,723,000 barrels of oil in storage at tankfarms & pipelines, the second highest figure on record in EIA data going back to about 1981/82. See: tonto.eia.doe.gov/dnav... .
The balance of the oil was either “in leases” or “in transit” from Alaska.

With respect to Cushing itself, the storage capacity there has been variously quoted – a report on Reuters, however, suggests a capacity of 46.3 million barrels (see: uk.reuters.com/article...). Whether there is a difference between “working” and “maximum” capacity, I simply don’t know. The December 2008 & January 2009 EIA figures for Cushing are the highest shown since 2004 (when the separate data set was broken out by the EIA), at something more than 32 million barrels in storage. See: tonto.eia.doe.gov/dnav...

The weekly reports show that total oil stock have climbed since the end of January, from 352 million barrels to about 361 million on 3 April (around 55th out of about 1380 entries, on the all-time list since the early 1980s). We’ll have to wait to see whether it’s being put into the tank farms, or picked up by the refineries.