From Oklahoma to Alberta and around the globe, oil storage is filling quickly — flowing into tank farms, tanker ships and salt caverns.
“Or swimming pools,” as one analyst joked last week.
The laughs are rare these days.
Oil prices have plunged, companies are slashing spending and demand for fuel is being crushed by an epic economic lockdown due to the COVID-19 pandemic.
Now, analysts warn the meltdown in crude demand could also test the limits of storage capacity worldwide, further damaging prices and forcing companies to halt production.
The situation hit home again this past week when the United States reported its biggest weekly inventory build on record. Oil prices tumbled again this morning, with concerns about storage capacity making headlines.
“Demand is disappearing overnight, but oil production is going to take longer to react,” Aaron Brady, vice president of energy oil market services at IHS Markit, told CBC News.
The size of this global imbalance is large enough, Brady said, that he thinks most of the storage could fill up over the coming weeks and months.
“It’s happening at lightspeed,” Brady said.
Potential production cuts
The implications of storage reaching tank tops would be significant. Producers that couldn’t sell their oil because of crashing demand — and are unable to find places to store it — would have to slam the brakes.
“This lack of storage is going to cause shut-ins of production,” Brady said.
Quiet streets are seen in Ottawa’s ByWard Market after people were told to stay home in March. Demand for fuel has fallen dramatically due to the pandemic. (Adrian Wyld/Canadian Press)
For operators in Canada’s oilsands, the situation would be particularly painful should they be faced with shutting in some of their complex production. Alberta Premier Jason Kenney noted last week that, in some cases, shutting down oilsands operations can cause permanent damage to the reservoirs, jeopardizing billions of dollars of assets.
Much of the focus today is on what’s happening in the U.S., the primary destination for Canada’s oil.
Total commercial storage in the U.S. stands at about 653 million barrels, or some 780 million barrels including pipeline fills and crude-in-transit.
Net stocks of crude held at refineries and tank farms amounted to 375 million barrels a little more than a week ago, implying storage facilities were about 57 per cent full, according to Reuters.
It’s believed the system could absorb crude at the current rate for a few more weeks, and longer if the inflow is slowed by production cuts from OPEC and its allies as well as U.S. and Canadian producers.
Western Canada storage under pressure
But some market watchers say if the global oil market remains oversupplied into summer, storage could start to become a more significant problem.
Analysts believe storage in western Canada is feeling the pressure, too.
Consultants Rystad Energy forecast last month that storage in the region stood a good chance of running out by the end of March, but the pressure eased somewhat as oil companies began ratcheting back production.
A pumpjack works at a well head on an oil and gas installation in rural Alberta. Storage capacity is under pressure in the region, analysts say. (Jeff McIntosh/The Canadian Press)
“It had days away from being filled up,” said Thomas Liles, Rystad senior analyst, in an interview Friday. “I generally do think it tends to be a days-away kind of situation, perpetually, at this point in western Canada.”
Liles says that from the beginning of April, there’s been a noticeable decoupling in the price of some synthetic grades of oil from the region and the U.S. benchmark, West Texas Intermediate.
“That’s a pretty clear indication of the storage pressure building,” he said.
U.S. refineries hampered
However, Liles said there are a lot of moving parts, like upstream production levels and how much crude finds its way into the American market.
Unlike the U.S., official information about storage levels in Alberta is not released on a weekly basis, so people looking for timely updates often turn to private firms that use some creative means to gather the data.
Genscape, for example, completes weekly flyovers around key energy hubs, using infrared and visual spectrum imagery of individual storage tanks to measure how full they are.
Genscape said Western Canada inventories were at 30 million barrels in the final week of March, utilizing 47 percent of operational capacity.
“Capacity utilization in Western Canada has not exceeded 67 per cent or dipped lower than 30 per cent since [2011],” it said. “Given this utilization maximum, only 13 million barrels of space remained as of March 27.”
Hampered U.S. refinery demand could lead to storage builds in Western Canada in April, the firm added.
“Many refineries have cut runs, which cuts demand for Canadian barrels, and that potentially backs into terminals in Western Canada,” said Genscape analyst Dylan White.
Global logistics to be tested
Globally, the situation is also a concern.
The International Energy Agency said last week that the build-up in oil stocks in the first half of the year threatens to overwhelm the logistics of the oil industry — ships, pipelines and storage tanks — in the coming weeks.
“We estimate that available capacity could be saturated in mid-year, based on our market balances,” the IEA said.
The agency said floating storage is becoming more expensive as traders compete for ships. Chartering costs for Very Large Crude Carriers (VLCC) have more than doubled since February.
“Never before has the oil industry come this close to testing its logistics capacity to the limit,” the agency said.
TOKYO (AP) — Japanese technology group SoftBank swung back to profitability in the July-September quarter, boosted by positive results in its Vision Fund investments.
Tokyo-based SoftBank Group Corp. reported Tuesday a fiscal second quarter profit of nearly 1.18 trillion yen ($7.7 billion), compared with a 931 billion yen loss in the year-earlier period.
Quarterly sales edged up about 6% to nearly 1.77 trillion yen ($11.5 billion).
SoftBank credited income from royalties and licensing related to its holdings in Arm, a computer chip-designing company, whose business spans smartphones, data centers, networking equipment, automotive, consumer electronic devices, and AI applications.
The results were also helped by the absence of losses related to SoftBank’s investment in office-space sharing venture WeWork, which hit the previous fiscal year.
WeWork, which filed for Chapter 11 bankruptcy protection in 2023, emerged from Chapter 11 in June.
SoftBank has benefitted in recent months from rising share prices in some investment, such as U.S.-based e-commerce company Coupang, Chinese mobility provider DiDi Global and Bytedance, the Chinese developer of TikTok.
SoftBank’s financial results tend to swing wildly, partly because of its sprawling investment portfolio that includes search engine Yahoo, Chinese retailer Alibaba, and artificial intelligence company Nvidia.
SoftBank makes investments in a variety of companies that it groups together in a series of Vision Funds.
The company’s founder, Masayoshi Son, is a pioneer in technology investment in Japan. SoftBank Group does not give earnings forecasts.
Shopify Inc. executives brushed off concerns that incoming U.S. President Donald Trump will be a major detriment to many of the company’s merchants.
“There’s nothing in what we’ve heard from Trump, nor would there have been anything from (Democratic candidate) Kamala (Harris), which we think impacts the overall state of new business formation and entrepreneurship,” Shopify’s chief financial officer Jeff Hoffmeister told analysts on a call Tuesday.
“We still feel really good about all the merchants out there, all the entrepreneurs that want to start new businesses and that’s obviously not going to change with the administration.”
Hoffmeister’s comments come a week after Trump, a Republican businessman, trounced Harris in an election that will soon return him to the Oval Office.
On the campaign trail, he threatened to impose tariffs of 60 per cent on imports from China and roughly 10 per cent to 20 per cent on goods from all other countries.
If the president-elect makes good on the promise, many worry the cost of operating will soar for companies, including customers of Shopify, which sells e-commerce software to small businesses but also brands as big as Kylie Cosmetics and Victoria’s Secret.
These merchants may feel they have no choice but to pass on the increases to customers, perhaps sparking more inflation.
If Trump’s tariffs do come to fruition, Shopify’s president Harley Finkelstein pointed out China is “not a huge area” for Shopify.
However, “we can’t anticipate what every presidential administration is going to do,” he cautioned.
He likened the uncertainty facing the business community to the COVID-19 pandemic where Shopify had to help companies migrate online.
“Our job is no matter what comes the way of our merchants, we provide them with tools and service and support for them to navigate it really well,” he said.
Finkelstein was questioned about the forthcoming U.S. leadership change on a call meant to delve into Shopify’s latest earnings, which sent shares soaring 27 per cent to $158.63 shortly after Tuesday’s market open.
The Ottawa-based company, which keeps its books in U.S. dollars, reported US$828 million in net income for its third quarter, up from US$718 million in the same quarter last year, as its revenue rose 26 per cent.
Revenue for the period ended Sept. 30 totalled US$2.16 billion, up from US$1.71 billion a year earlier.
Subscription solutions revenue reached US$610 million, up from US$486 million in the same quarter last year.
Merchant solutions revenue amounted to US$1.55 billion, up from US$1.23 billion.
Shopify’s net income excluding the impact of equity investments totalled US$344 million for the quarter, up from US$173 million in the same quarter last year.
Daniel Chan, a TD Cowen analyst, said the results show Shopify has a leadership position in the e-commerce world and “a continued ability to gain market share.”
In its outlook for its fourth quarter of 2024, the company said it expects revenue to grow at a mid-to-high-twenties percentage rate on a year-over-year basis.
“Q4 guidance suggests Shopify will finish the year strong, with better-than-expected revenue growth and operating margin,” Chan pointed out in a note to investors.
This report by The Canadian Press was first published Nov. 12, 2024.
TORONTO – RioCan Real Estate Investment Trust says it has cut almost 10 per cent of its staff as it deals with a slowdown in the condo market and overall pushes for greater efficiency.
The company says the cuts, which amount to around 60 employees based on its last annual filing, will mean about $9 million in restructuring charges and should translate to about $8 million in annualized cash savings.
The job cuts come as RioCan and others scale back condo development plans as the market softens, but chief executive Jonathan Gitlin says the reductions were from a companywide efficiency effort.
RioCan says it doesn’t plan to start any new construction of mixed-use properties this year and well into 2025 as it adjusts to the shifting market demand.
The company reported a net income of $96.9 million in the third quarter, up from a loss of $73.5 million last year, as it saw a $159 million boost from a favourable change in the fair value of investment properties.
RioCan reported what it says is a record-breaking 97.8 per cent occupancy rate in the quarter including retail committed occupancy of 98.6 per cent.
This report by The Canadian Press was first published Nov. 12, 2024.
