How companies are storing surplus oil : The Indicator from Planet Money Because of the global economic slowdown, there's a glut of oil on the market right now. And companies are coming up with creative ways to store it.

Oil Storage Wars

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UNIDENTIFIED PERSON: NPR.

(SOUNDBITE OF DROP ELECTRIC SONG, "WAKING UP TO THE FIRE")

STACEY VANEK SMITH, HOST:

Oil has been on a wild ride in the last few months. West Texas crude started off the year costing about $60 a barrel. Then coronavirus hit, and the oil industry got hammered.

CARDIFF GARCIA, HOST:

Yeah. People were not driving or flying, and so demand for gas was way down.

VANEK SMITH: By April, the price of oil had dropped to $15 a barrel. And then in late April something crazy happened.

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MELISSA LEE: We begin with an historic collapse in energy prices - oil falling below zero dollars a barrel for the first time ever.

UNIDENTIFIED REPORTER: How low did it get? Well, it hit an all-time low on Monday.

CHRIS HAYES: Oil prices plunged into negative territory. The price settled at - get this - negative $37 per barrel.

VANEK SMITH: Negative $37 a barrel - it's kind of mind-blowing. How can something be worth negative money, especially something that we use every day that makes our cars and airplanes go, that makes plastic bottles and fleece jackets and air conditioners and refrigerators? How could that be worth nothing?

GARCIA: The reason was storage. This is THE INDICATOR FROM PLANET MONEY. I'm Cardiff Garcia.

VANEK SMITH: And I'm Stacey Vanek Smith. Today on the show, the oil storage boom. As demand for oil fell, demand for oil storage has gone crazy. And right now it's having a huge domino effect on the industry.

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VANEK SMITH: As COVID-19 wreaked havoc on the U.S. economy, nobody wanted to buy oil. Oil companies had pumped all of this oil out of the ground, and they couldn't sell it. They had all this extra oil on their hands.

GARCIA: And oil is a hazardous substance. You have to take care of it and store it properly once you've pumped it out of the ground. And in April nobody could sell oil, and everybody needed to store it. David Deckelbaum is an oil analyst with Cowen, an investment bank.

DAVID DECKELBAUM: It's not something that you can just keep sitting around, like, in someone's backyard. Companies - they were looking out and basically saying, hey; in a month, I'm not sure that I'm going to have a place to put this. And I think there was just a fear that we would run out of storage space.

GARCIA: Oil is normally stored in these giant tanks, tanks that hold more than half a million barrels of oil each. But all those tanks, they started filling up.

VANEK SMITH: And so the people who owned the tanks started raising their prices. Prices to store oil doubled, tripled, went up by 600% in some cases. So for one day of oil storage, instead of paying, like, $150,000 a day - which is usually what it costs to store oil - oil companies were paying practically a million dollars per tank per day to store their oil.

DECKELBAUM: It would be like if, all of a sudden, your internet bill was, like, $700 a month. And you're like, wait. Like, that was just something I thought was going to stay, like, $70 dollars a month, and now it's 700.

GARCIA: At the same time, profits were drying up, and debt collectors were knocking. And oil companies literally could not afford to have oil. They could not afford to store it, but they couldn't sell it either. So they started getting creative.

VANEK SMITH: Some companies, like Hess, bought enormous oil tankers and filled them to the brim with oil and pushed them out to sea. Other companies just went bankrupt. They couldn't sell their oil, and they couldn't afford to store it.

GARCIA: But, of course, this was an opportunity, too. If you could store oil, you could make a lot of money. And people did start seeing opportunities - people like Sean Lovelace, president of Well Water Solutions and Rentals.

SEAN LOVELACE: We're headquartered, actually, out of Evansville, Wyo., right in the middle of Wyoming.

GARCIA: Sean's company builds big storage tanks for water.

LOVELACE: You know, have you seen, like, those above-ground swimming pools? Just, I mean, take that out, and make it 200 foot, and then make those side walls 12 feet. And that's what it is.

VANEK SMITH: Sean saw the price of oil storage going crazy, and he thought, wait. We could store oil in our water tanks, and we could charge a lot for that. Sean realized he could make $40,000 a month storing oil in one of his tanks and still be really competitive price-wise. So he placed a couple ads online, thought he'd get a few calls.

LOVELACE: Boy, it was crazy there at the beginning (laughter). The amount of calls and things - it was absolutely bonkers, just getting flooded with calls. And we had some people saying, we want a hundred tanks. It's like, dang.

VANEK SMITH: All kinds of companies jumped into the oil storage business. Companies that normally store wine, laundry detergent, shampoo - they were all jumping into oil storage.

GARCIA: And this is how the free market is supposed to work, right? When there's big demand for something, the price of that thing goes up. And when the price gets really high, people get excited and think, hey; I should get into that business. And so before you know it, the supply increases. And eventually, there's not a shortage anymore, so the price goes down again.

VANEK SMITH: Yep - supply and demand, economics 101.

GARCIA: Yep.

VANEK SMITH: And in fact, oil analyst David Deckelbaum thinks that is going to happen here. He thinks the oil storage boom is not long for this world.

DECKELBAUM: I don't know what kind of jeans you wear, but whatever your jeans company is - like, making face masks. Like, they're probably stopping to do that now, you know?

VANEK SMITH: OK. So, like, the sort of - the Jerry-rigged oil storage is like the face masks of the oil industry.

DECKELBAUM: Yeah, exactly. Someone's at, like, a barbecue at your house, and they're like, hey; you should let people store oil. And you're like, oh, yeah - never thought about that.

VANEK SMITH: David says as soon as the economy gets going again and demand for oil goes up, companies will not want to store their oil. They will want to sell it and make money off of it. So demand for storage will go down, and the price of storage will go down.

GARCIA: In fact, we're already seeing that. As cities across the U.S. started to reopen, oil prices started rising again, and demand for storage started to flag. Sean Lovelace of Well Water Solutions, he noticed.

LOVELACE: Where we were getting probably three, four, five big calls a day - I mean, like, big calls - I mean, we might get one a week now. So yeah, it's died down quite a bit with the oil prices hopping back up.

VANEK SMITH: And that could continue in a big way. There's even been speculation that oil prices could spike as countries reopen and the demand for oil goes back up.

GARCIA: Because with so many oil wells switched off and so many oil companies going out of business, there might end up being less oil available than there usually is. So if oil demand does come roaring back, there could be a shortage of oil available, and that would end up pushing the oil price back up.

VANEK SMITH: Still, David Deckelbaum, the oil analyst, does not see that happening anytime soon. He does not think the U.S. economy or the global economy will bounce back. He thinks it will probably be more of a shuffle.

DECKELBAUM: If you've seen the airlines commenting that, like, they think air travel is going to get back to normal by 2025 - like, that's in five years, you know?

GARCIA: And even when the economy does recover, David does not think oil will ever be the powerhouse industry that it used to be because, for example, there's the rise of alternative energy and also more fuel-efficient vehicles and a move away from plastic. And so far this week, oil prices have been edging down on news that coronavirus cases are rising in the U.S. And if that keeps happening, it could just mean that the U.S. economy will be growing really slowly for a while, which could further mean that oil prices themselves will also stay low for a long time. And that might mean that oil companies could need more storage soon.

VANEK SMITH: And if that's the case, Sean Lovelace of Well Water Solutions will be ready. Until then, he says, he's just going to focus on his regular business, on storing water in his big above-ground tanks. They actually store a lot of water - 60,000 gallons, which is about the size of six backyard swimming pools.

LOVELACE: You know, if we can - we could have a big party with some big freshwater tanks somewhere if we wanted to - big, big pools (laughter).

VANEK SMITH: Pool party at Sean's (laughter).

GARCIA: Yeah.

VANEK SMITH: Be there. Bring your mask (laughter).

GARCIA: Bring your jugs if you want to get into this, like, oil storage business yourself, you know?

VANEK SMITH: (Laughter).

GARCIA: By the way, don't do that, in all seriousness.

VANEK SMITH: Don't do that. Don't do that, yeah.

GARCIA: It doesn't work.

VANEK SMITH: This episode of THE INDICATOR was produced by Camille Petersen and Brittany Cronin. THE INDICATOR is edited by Paddy Hirsch and is a production of NPR.

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