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Refinery on Mississippi River
Stuart Hampton

Midwest Floods Worsen US Oil Glut

by Stuart Hampton | Dun & Bradstreet Editor

January 5, 2016 | No Comments »

Refinery on Mississippi RiverWhen it rains it pours.

The world oil glut is bad, and the unseasonable US winter weather is making it worse, according to a recent Bloomberg report.

US oil producers have seen oil prices slump from more than $100 a barrel to the mid-$30s over the past 18 months due to weak global energy demand (especially in China); Saudi Arabia’s decision to keep producing as a way to squeeze more expensive producers in Russia, Venezuela, and the US; and the lifting of sanctions on Iran’s oil exports.

To add insult to injury, the unusual winter weather in the US has added to producers’ woes. For one thing, the unseasonably warm winter in the US has drastically cut the usual demand for heating oil and other energy fuels.

On top of this, heavy spring-like rains have caused flooding on the Missouri and Mississippi rivers, already shutting some oil pipelines and terminals near St. Louis.

The worst flooding since May 2011 threatens refinery and chemical operations and the disruption of shipping all along the Mississippi.

So far, the biggest shutdown is Enbridge’s Ozark oil pipeline, which was scheduled to carry about 200,000 barrels a day in December to Wood River, Illinois, from Cushing, Oklahoma. The outage of the section under the Mississippi River may further add to stockpiles at Cushing, already at a record high.

Spectra Energy shut the 145,000-barrel-a-day Platte oil pipeline between Guernsey, Wyoming, and Wood River as a precaution because of the river’s condition. Kinder Morgan shut its Cahokia terminal in Sauget, Illinois, and its Cora terminal in Rockwood, Illinois.

Exxon Mobil is shutting a fuel terminal on the Mississippi River at Memphis as a prudent measure while the flood surge moves downriver. Other Memphis terminals, such as Delek US Holdings’ products terminal and Valero Energy’s 180,000-barrel-a-day refinery, are also under threat.

When the floodwaters reach Louisiana, some 10 refineries in the Baton Rouge-New Orleans area with a combined capacity of about 2.5 million barrels (13% of US capacity) face closure or major disruption.

But this may not be the worse news. What if all the world’s land storage facilities (such as the Cushing hub in Oklahoma) and the scores of offshore tankers acting as floating storage tanks reach capacity (as some analysts warn could happen in Q1 2016)? A fire sale of surplus oil may then occur, pushing oil prices down to $20 a barrel or less.

Good for American car drivers, but grim news for oil explorers, producers, refiners, state budgets, and the US economy.

British editorial veteran Stuart Hampton has been covering oil and gas companies for Hoover’s since the Neogene-Quaternary period. Well, actually, since the early 1990s. For the best overview of the oil industry and its history he recommends Daniel Yergin’s “The Prize.” You can also follow Stuart on Twitter.


Photo by Flickr user leidio, used here under a Creative Commons license.

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