Globally, issues around the storage of crude oil have provided an interesting landscape for energy investors. Storage costs for oil have increased as U.S. production has continued to ramp up, meaning most land-based storage facilities are full or near capacity; this has resulted in oil tankers being increasingly used to store crude oil, as demand/supply fundamentals continue to calibrate over time.
Oil storage levels are important to observe for investors in the energy space, as these data provide insight into key macroeconomic drivers which help tell the story of the direction in which the price of oil may be headed in the coming years.
As we’ve found out in recent years, timing an energy investment wrong can have lasting impacts for years, and this can be seen in the fact that we’re still recovering from a dip in the price of oil a few years ago. Oil is a commodity, so having a two to five year forecast of where one believes oil is headed is important for any investor considering a Canadian oil play currently.
While oil storage levels are important to monitor, I’d like to point out the importance of also considering storage costs- since we’re now in an environment where storage costs are increasing, there is the potential for negative downstream effects on the demand side, as the price of storage ultimately gets passed onto the consumer, who will inevitably speed up his or her transition to more energy efficient options for anything using oil-based power.
Having one’s pulse on the various market interactions happening behind the scenes is important for energy investors, and I invite all current investors to do some homework on key drivers such as oil storage.
Invest wisely, my friends.
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