Wednesday, March 11, 2009

Crude Oil

Supertankers that once raced around the world to satisfy an unquenchable thirst for oil are now parked offshore, fully loaded, anchors down, their crews killing time. In US, vast storage farms for oil are almost out of room. As demand for crude has plummeted, the world suddenly finds itself awash in oil that has nowhere to go.

It has been less than a year since oil prices hit record highs. But now producers and traders are struggling with the new reality: The world wants less oil, not more.
Oil-producing countries have pumped millions of barrels of their own crude into idle tankers, effectively taking crude off the market to halt declining prices that are devastating their economies. Traders have always played a game of store and sell, bringing oil to market when it can fetch the best price.

We thought the market would keep rising to $200, even $250, a barrel. Now the strategy is storage. Anyone who can buy cheap oil and store it might be able to sell it at a premium later, when the global economy ramps up again.

The oil tanks that surround Cushing, Oklahoma, in a sprawling network that holds 10 percent of the nation's oil, have been swelling for months. It is approaching capacity. There are other storage tanks in the country with plenty of extra room to take on oil, but Cushing is the delivery point for the oil traded on the New York Mercantile Exchange. So the closer Cushing gets to full, the lower the price of oil goes.

On these supertankers, rented by oil companies such as Shell, there is little for crews to do but paint and repaint the decks to pass time. More than 30 tankers, each with the ability to move 2 million barrels of oil from port to port, now serve as little more than floating storage tanks.

On the other hand, as storage units on land have filled up, the companies that own the tankers have profited. Tanker companies charge an average of $75,000 a day, three times as much as last summer, to hold crude.

Demand for oil began to increase steadily in the early 1980s, and it went into overdrive in recent years as the Chinese economy surged and as producers pumped lakes of oil out of the ground to take advantage of a spike in prices. Then recession gripped the globe, frozen credit markets made things worse, and inventories swelled. Refineries in the U.S. have cut way back on production of gas as the economy weakens and millions of Americans, many of them laid off, keep their cars in the garage.

The latest records show U.S. inventories are bloated with a virtual sea of surplus crude, enough to fuel 15 million cars for a year. Inventories have grown by 26 million barrels since the beginning of the year alone. Oil from Saudi Arabia, the United Arab Emirates and Nigeria is finding few takers, even though much of it is used to make gasoline in the United States.

One fear is that with oil prices so low, companies will slash drilling and production, setting the world up for an energy crunch that would send prices soaring. Others say prices would plummet if companies forced millions of barrels onto the market at once.

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