The interesting thing about the global price of oil is that as far as the US West Texas Intermediate oil price is concerned, there is a large gap between the current spot price of oil and the futures price of oil. Futures prices, of course, involve delivery on the future. In the case of the WTI, its current spot price is at around $51, while its December delivery is $59. There’s a nice spread between the two.
Based on the current rate at which petroleum storage tanks in the United States are filling up, there will be a tremendous amount of market pressure for this gap to adjust itself. Simply put, the United States is running out of space to store all the oil that it’s producing. In the case of the mid-western United States, its storage tanks are operating at 67% capacity. Storage tanks in the north-eastern part of the United States are 85% full already. In the Gulf Coast, where a large number of refineries are, storage infrastructure is 56% full. Even the West Coast, which usually has a high demand for oil, has storage tanks operating at 55% full capacity.
It doesn’t take a genius to figure out that the current oil production and refining dynamics in the United States can only operate for so long until storage facilities are full. If demand doesn’t pick up, this can put a huge amount of pressure on both the spot price of oil and the price of oil futures. This can all lead to further long term erosion in the price of petroleum. Keep in mind that these are US prices. If US prices get so low, a lot of American supply may enter the international market, and this can help drag down the global benchmark for oil, which is Brent crude.