It's a cheap way to store it.
As oil prices linger below $35 a barrel, U.S. producers are finding the cost of transporting crude by train just isn’t worth the returns.
The low price and ready availability of crude has forced about one-third, or 20,000, of North America’s oil-hauling train cars out of commission, and they’re parked in storage yards or along unused tracks, the Wall Street Journal reported.
So with U.S. inventories surging toward their highest levels since 1930, according to the U.S. Energy Information Association, traditional, and even cheaper, storage options are running out of space, creating a pocket market for storing excess oil in surplus railcars.
That has turned some loading centers into storage centers. “The focus has shifted from a loading terminal to an oil-storage and railcar-storage business,” J.P. Fjeld-Hansen, a managing director at trading company Musket, told the Journal.
The cost of storing crude in railcars is roughly 50 cents a barrel per month, while the cost of floating storage, or storing on a boat, is roughly 75 cents a barrel and up. The cheapest option, underground storage in salt caverns, costs 25 cents a barrel, the Journal reported.
But as crude inventories rise, the cost of storing oil is likely to also increase in pace. That said, transportation by rail accounts for about 2.7% of the oil being moved around the U.S., according to another Journal report.
The current price of oil is $32.78 according to the WTI crude futures, down 32% from the same period a year earlier.