Hundreds of steel tanks several stories tall rise like giant bales of hay from the plains. They make up the largest private oil storage site in the United States, and, after six months of war, they are close to the emptiest they have been in recent years.
Companies drew down the oil stashed here in central Oklahoma as energy prices surged in recent months.
The world is getting by on other buffers, but those will last only so long.
That timeline depends on the how the war between the United States and Iran evolves, but one thing is clear: Policymakers and oil companies the world over are eager to build or expand stockpiles to insulate themselves from the next energy shock.
Among them are Persian Gulf oil producers, such as Saudi Arabia, that want to stockpile more oil overseas, far from maritime choke points like the Strait of Hormuz. “Producers need to invest in storage that is not necessarily in their country,” said Amos Hochstein, a senior adviser on energy and foreign policy in the Biden administration.
The challenge is different in the United States, which has ample oil storage capacity but dwindling inventory. The federal government has been steadily depleting its Strategic Petroleum Reserve, which recently fell to its lowest levels since 1982.
Most private companies have little incentive to hold on to oil. That is because oil is worth more today than traders believe it will be several months from now. As a result, many of the storage tanks here, outside the small town of Cushing, Okla., contain little more than what is needed to keep systems running.
A recent tour of these tank farms showed how these private stockpiles work.
Cushing was one of America’s early oil boomtowns. The area’s first commercial oil well was drilled in 1912, and dozens of refineries were built to process that oil into fuels. New pipelines connected Cushing to markets as far as Indiana in the 1920s.
Production, however, collapsed almost as quickly as it had started. But Cushing was not completely forlorn. The town’s central location and network of pipelines made it an increasingly attractive place to store and trade oil.
The New York Mercantile Exchange chose the town as the trading hub for a new oil contract, West Texas Intermediate, which debuted in 1983 and became the most important price for oil produced in the United States.
“It provided the best access to the refining base in the United States at the time,” said Peter Keavey, global head of energy for CME Group, which operates that exchange.
Today, dozens of pipelines meet in Cushing, connecting oil fields in Canada and Wyoming to refineries in the Midwest and Texas, according to Novi Labs, an energy research firm.
“Without it, getting where you wanted to go would take so much more planning and time and cost,” said Sarah Harris, a director of operations for Oneok, which is based in nearby Tulsa and operates one of the biggest local storage systems.
Some of Oneok’s tanks are so big that they can hold enough oil to power tens of thousands of cars and trucks for a year. When prices are such that oil is worth more in the future, companies use that space to store oil. Early in the Covid-19 pandemic, Cushing’s storage tanks filled up as demand for fuel collapsed during lockdowns, sending U.S. oil prices briefly below zero.
The opposite dynamic has been playing out this year. Oil is scarce and in relatively high demand, but most traders expect that those conditions will eventually end. Regardless of what happens to the Strait of Hormuz, the global oil industry will increase the supply of fuel, the world will learn to live with less, or some combination of the two will happen, the thinking goes.
Cushing’s tank farms held 22 million barrels as of late August, just above minimum operating levels, according to the Energy Information Administration. Removing much more oil could damage equipment, like the steel roofs that float atop the oil or the mixers that blend it the way a KitchenAid machine might a batch of cookie dough.
The oil continues to flow, however, with Cushing acting like a brief rest stop on the way to refineries and ports.
Similar concepts apply to the federal oil stockpile. Analysts disagree about how low U.S. reserves can safely fall, but the government cannot remove all of the oil without risking damage to the underground salt caverns that hold it in Texas and Louisiana.
For now, the world has access to enough oil that prices remain well below the highs seen early in the war. The bigger constraint is that there are not enough refineries to turn the oil into gasoline and other fuels. On Thursday, average U.S. diesel prices were just 7 cents below this year’s peak, according to the AAA motor club.
The longer the war drags on, the more fragile the market is becoming.
