Additional Oil Storage Capacity Found Near Houston -- February 6, 2016

Reuters/Rigzone is reporting:

Early construction of Fairway Energy Partners' Pierce Junction underground crude storage caverns in south Houston has yielded something of an unexpected geologic surprise: an additional 1 million barrels of capacity.

The added space, which will bring storage capabilities at the site to 11 million barrels, is a windfall at a time when oil traders around the world are scrambling to secure a place to hold crude and wait for higher prices as a global supply glut fills available tanks to the brim.

Fairway found the extra space at salt domes previously used for brine production, which over time had prompted the cavern to grow, chief executive officer Chris Hilgert said in an interview.

Salty water, or brine, is widely used to push hydrocarbons from underground storage facilities.

Oil prices have fallen by more than 70 percent in the past 18 months and remain stubbornly around $30 a barrel.

But the current contango structure of the market, where future barrels are worth more than those delivered today, makes storage profitable.

At today's prices an oil trader can fetch nearly $10 more a barrel for crude by holding it in storage for a year , with fairly modest storage costs.

Rigzone is reporting:

Oil producers around the world are continuing to operate many lossmaking oilfields, according to new research by Wood Mackenzie. Less than 0.1 percent of global production has been halted to date even though 3.5 percent of global supply is currently cash negative.

Wood Mac's survey indicates that 3.4 million barrels per day of oil production is cash negative at a Brent oil price of $35 per barrel, however just 100,000 bpd has been shut-in globally to date. The areas with the largest volumes shut-in so far have been Canada onshore and oil sands, conventional US onshore projects and aging UK North Sea fields.

Rigzone is reporting:

Northwest Europe-focused junior explorer Faroe Petroleum confirmed Friday that it will be involved in three exploration wells offshore Norway in spite of the low oil price.

The firm also expects to see progress with a number of North Sea field development projects this year. In an operational update, Faroe said that the Barents Sea-located Kvalross well, where drilling started on January 11, is progressing according to plan. Results from the Wintershall-operated well are expected by the end of this quarter. In the Norwegian North Sea, an exploration well on the Brasse prospect (where Faroe is the operator with a 50-percent interest) is planned for the summer of 2016. Faroe has secured the Transocean Arctic (mid-water semisub) rig for this operation.

From The Wall Street Journal:

With oil hovering at $30 a barrel and gasoline below $2 a gallon, the pleasure of lower fuel prices is turning painful for more of the U.S. economy.

The problem isn’t just the layoffs and investment cutbacks in the oil patch, two effects that have been expected since crude oil began sliding in 2014. Worries about energy-related bankruptcies and loan defaults also are helping to tighten financial conditions, weighing on a broader swath of the economy.

Can the U.S. have too much of a good thing? Few economists expect the crude slump will tip the economy into recession. But the fallout could grow harder to contain if the oil-price declines are instead a symptom of broader weaknesses in the global economy, including soft demand and an oversupply of raw material, productive capacity and labor.
Cheap oil reflects a strengthening dollar, which has already crimped U.S. exports. And consumer sentiment could take a hit if the early-year stock-market declines are sustained.

The bottom line: Even if cheap gas is still good for consumers, the forces behind it could be more corrosive than initially imagined. This past month’s declines in oil “are less a sign that things are about to get a lot better, and more a sign that things are in danger of getting a lot worse,” said HSBC senior economist Stephen King.

Typically, markets treat higher energy prices as tax increases and lower prices as tax cuts. Indeed, cheap gasoline has been a boon to American households, which saved around $140 billion last year as a result, roughly double the savings in 2014. Gas prices averaged $1.82 a gallon last week, down from $3.68 in June 2014.

And last year’s fuel-price drop contributed around 0.5 percentage point in consumption growth, according to Jason Thomas, research director at private-equity firm Carlyle Group.

But the overall boost was weaker than expected, suggesting high household debt levels along with rising housing, health-care and college-education costs have American consumers refraining from bigger purchases.

Finally someone mentions health care. The big three: housing, healthcare, and college education. Congress can't do much about about housing; Congress won't do much about health care. That leaves education. Which explains why Bernie Sanders and Hillary Clinton are rushing to propose free college education for all. Paid for by $10 / bbl "fee" on US crude oil.