US crude storage still in play despite WTI price slump: Kpler

London — Onshore storage tanks in the US still are able to absorb some 130 million barrels of crude but logistical constraints mean the growing oil glut in the world's biggest producer will continue to build, according to energy data tracker Kpler.

With global oil demand crippled due to coronavirus-related lockdowns and OPEC+ supply cuts not due to start until next month, US commercial crude stocks have been building at a rate of 1.3 million b/d since the start of the month, Kpler estimates. As a result, the country's key, landlocked Cushing storage hub in Oklahoma will be full within a matter of weeks.

More than half of the US' remaining 130 million barrels of crude storage are located in the Gulf Coast region, according to Kpler, which compiles its estimates based on data from satellite feeds, port authorities, ship agents and other sources.

"This does not mean that, due to logistical issues, it will be easy to fill all of these tanks or that they are held by those that need them the most," Kpler said in a note. "The outlook is set to worsen as more (imported) crude is expected to discharge in the coming weeks."

The estimate comes a day after the NYMEX May WTI crude futures contract collapsed into negative territory, the first time ever for a front month, as traders faced with scarce storage options scrambled to clear their positions.

With storage capacity running out, most physical oil prices in the US are now being offered at negative values, meaning further pressure on benchmark WTI crude prices is likely.

GLOBAL CAPACITY

Despite modern data streams and satellite monitoring, considerable uncertainty remains over both the world's physical and available storage capacity, with a wide range of estimates by market watchers.

As of April 16, S&P Global Platts Analytics estimates that global commercial onshore crude in storage stood at 2.97 billion barrels, up 270 million barrels this year and the highest since October 2017.

Kpler pegs global onshore commercial crude storage at just below 3.5 billion barrels and estimates 902 million barrels of spare capacity remain across the globe. Platts Analytics believes 446 million barrels of global onshore crude storage remain before pushing up against operational capacity constraints. Hitting effective tank-tops is expected to accelerate field shut-ins.

Rystad Energy estimates that, in addition to 9.7 million b/d of OPEC+ cuts from May, the market needs to see upstream shut-ins of 6-7 million b/d by the end of June to balance the market. In the US, shale output is expected to end the year 4% lower year on year in 2020 at 9.5 million b/d, but lower prices would deepen the damage to producers.

Outside the US, China has the most spare crude storage capacity at 181 million barrels, Kpler estimates, with Japan coming in third place with 58 million barrels.

But the market focus is likely to remain on the US supply congestion in the coming weeks where price-sensitive onshore shale producers are faced with major shut-ins.

"The stark price move is a function of a weak physical market ravaged by the unprecedented degree of refinery run cuts," the Royal Bank of Canada's Michael Tran said in a note. "As refiners have been rejecting physical barrels, physical storage has been piling up. To be clear, this is a North American storage congestion story."