Odd Lots - How Surging US Oil Output Is Being Moved and Stored

Episode Date: February 9, 2024

US oil production has surged to an all-time record of more than 13 million barrels produced per day. But where's all that crude actually going? And how is it being handled and stored? On this episode, we speak with Steven Barsamian, chief operating officer at the Tank Tiger, a clearing house for terminal storage, and co-host of the Tank Talk podcast, about the business of moving and storing oil and its related products. We talk about what storage capacity looks like right now, how it's changed over time, plus last year's diesel shortage in the Northeast. He also describes exactly how crude oil and refined products move from point A to point B, talks about the crud you find at the bottom of storage tanks, and explains why you should definitely not keep oil in the bathtub (or on your desk) to benefit from contango. See omnystudio.com/listener for privacy information.

Thanks for listening to Odd Lots. Follow the show on Amazon Music for more future episodes or just ask, Alexa, play the Odd Lots podcast on Amazon Music. Hello and welcome to another episode of the Odd Lots podcast. I'm Tracy Alloway. And I'm Joe Wisenthall. Joe, do you remember that time I bought a barrel of oil? That was a classic moment in a, well, yeah, that was classic. You can say it. In all of financial journalism, where you actually acquire, it. Isn't a barrel, though. No, it wasn't.

Let's be honest here. Let's be honest. It wasn't. I tried to buy an actual barrel. It was like a gallon, right? It was basically a jar of crude oil. I'm really happy. I didn't buy an entire barrel in the end because part of the experience of doing this was I realized how difficult it is to actually move and store oil.

Oil is a dangerous thing. Yeah. You had it on the desk next to us and then you left, right? Like you left for Hong Kong or you left for Abu Dhabi and left. and left the oil and like a bunch evaporated? I'm not sure I should tell this story, but I couldn't figure out how to dispose of my jar of crude oil, so I just procrastinated and left it on the desk,

and it slowly evaporated and poisoned my colleagues. We all inhaled oil fumes for months and months and months on it. Sorry about that, too. Sorry, I survived. All right. Well, I bring it up because I'm very, very curious about the business of storing and transporting oil right now. And part of the reason is because, as we've been discussed,

on this podcast. We had a really great episode with our colleague, Javier Blas, for instance. U.S. oil production is at a record. I think it's like more than 13 million barrels per day now. Yeah, it's really extraordinary. Obviously, the U.S. just production booming like crazy. And, you know, you mentioned that episode with Javier. When we talk about oil most of the time, right, we're talking sort of like macro. Like, who are the big producers? How much global demand is there? What is the trajectory? What's happening in Shell? what is happening in Saudi, et cetera. But as we like to do from time to time, like these aren't just numbers on the screen.

Right. Oil is definitely not just a number on a screen. And if you want to go long oil, if you're bullish on oil, you might be able to do that with a few clicks, but someone somewhere. You don't want to take physical delivery. You probably don't want to.

But someone somewhere has to have the physical, I don't know if it's counterpart or the physical exposure to meet your financial obligation. So if you trade oil futures, there, like I assume, takes the other side on some level by having exposure to the physical product, which means worrying about disposal, delivery, storage tankers, and so forth. And so like the side of the business that's not usually talked about, we should talk about. Absolutely. And just going back to that episode with Javier, I remember one of the themes from

that was how much oil production patterns have changed in the past few years. And so I'm very curious if the storage and transportation patterns are also changing. So I'm pleased to say we really do have the perfect guest to dive into the business of storing and moving oil. We're going to be speaking with Stephen Barsamian. He is C-O-O at the Tank Tiger and also the co-host of the Tank Talk podcast. So a fellow podcaster. Steve, thank you so much for coming on all thoughts. Thanks, Tracy. Thanks for having me. Thanks for having me, Joe. Maybe just to begin with, talk to us about what the tank tiger actually does. I was looking at the website. You describe yourself as a clearinghouse for terminal storage. And if you go to the website, Joe, I don't know if you've done this yet. I have. But you can look at basically kind of want ads for storage. It's like looking for, you know, specialty chemical storage, this amount. Or I have available this amount of storage for a particular product. Yeah, I mean, Tracy, you kind of nailed it there. That's kind of what we do. I like to say we're Airbnb for tanks. I was going to say Tinder for tanks, but Airbnb probably works too. My dad has used Match.com before. So, yeah, no, that's kind of high level of what we do. Essentially, we have customers that are terminals that store, you know, petroleum products, chemicals, bio products, and they're all pretty much liquids and they go into a, you know, a giant tank. I'm sure people have seen the Sopranos, the intro to the Sopranos, those giantormous tanks in the intro, that typically holds gasoline or diesel.

And essentially, you can lease them out like an apartment and people pay for a term on that tank like you would pay for a term on an apartment. And essentially, oil traders, oil majors, they usually are the customers that lease those tanks. And there's terminal storage companies that are public companies that kind of lease them out third party. So that's kind of how it works. And essentially we kind of get in the middle of that and we try to facilitate the transactions of people that need storage and the people that have storage. And like you said, it's kind of like want ads, you know,

trying to find the perfect match. And really that's what we've done for the past nine years. And so far we're still in business and still paying the bills. So wanted storage unit with sensitivity and, I don't know, affinity for poetry. A slightly random. How much of the business, if you look overall, all is sort of like big, sort of long-term relationships between some oil producer and some storage company. And then how much maybe we have the Tank Tiger's business or anyone else's

business is perhaps like sort of like, I don't know, maybe the term is odd lots of oil storage where some storage company has a little bit of extra space beyond what their contract is. I mean, I assume there are like long-term contracts. But why don't you like talk about the breakdown there of how these deals usually come together. You know, so my dad who started the company, he worked at Hess for over 30 years, and he kind of started the third-party leasing of terminal storage at Hess. Those terminals are now not obviously owned by Hess anymore,

and he kind of saw this need in the market to create this company. And, you know, when he was doing deals at Hess, it was, you know, largely long-term deals or spot deals and essentially, you know, trying to find the best fit for their excess capacity and assets. So I would say, you know, typically today, you know, with us being in the market, we've kind of added some liquidity and transparency. A lot of the big players, you know, there's big and small terminals and a lot of them have, you know, like you said, long-term customers that have been there for years and years. And then there's swings in the market where there's contango, which I hope your folks know what that is. It's basically in the futures market when the price is more than today's price.

So essentially you can put oil away and make money. by storing it. And then backwardation is the opposite. So that's de-incentivizes storage. So that kind of fluctuates and, you know, people leave and enter markets all the time. Companies change all the time. So lease has run off. So that kind of leaves that excess and incremental storage capacity that's, you know, for a spot or long-term lease. I was just going to ask one quick question. This comes up in a lot of the episodes we do on trucking where we look at the rates and they say, okay, there's a spot rate and a contract rate for trucking. Is there basically an equivalent where you could sort of plot over time, what sort of contracted rates there are for long-term

relationships and then like a spot rate that fluctuates both up and down relative to the contract? Yeah, definitely. I mean, you kind of hit the nail on the head there. You know, long-term rates, they're kind of steady at a certain threshold, and it has to make sense for both sides. And there's spot rates, and that kind of moves kind of with the markets. And that's, yeah, exactly it. So I know some oil majors obviously have their own storage, but a lot of people are clearly leasing it from third parties. Why is that? Like, why not just build out your own capacity? Some do, but it's kind of like, you know, the old economics model that I remember

from an episode of the office. Usually, you know, you don't want the liability and you have to essentially use that tank all the time if you're going to be building it. That's really what leasing comes in is you don't have that general liability of operating a terminal, so you just can come in and go as you please when you need it and when you don't need it. Most oil majors do own their own storage for their own operational use. I would say a lot of oil majors now these days are trading, physical trading, and they will take advantage of arbitrage opportunities by leasing storage in certain markets, whether that's for blending or moving product from A to B or taking advantage of contango, as I mentioned. So they kind of do both. And there's oil trading companies

that exist that are just, you know, these companies that trade commodities from all different parts of the globe and basically they operate with long-term and short-term leases to take advantage of the same trading opportunities, as I kind of just mentioned. You mentioned those tanks in the opening scenes of the Sopranos. My assumption would be that in suburban New Jersey or suburban New York, or wherever they are, there's probably not a lot of appetite to build more, that there are neighbors who probably do not want those big fields or those big terminals or the big, you know, storage facilities to continue to expand. I imagine people don't want to live next to them. Whereas on the production side, I imagine, you know, in sort of depopulated parts of like North Dakota or Texas or wherever there's explosion,

there's probably not much of a less of a constraint. So is there a mismatch in the country's ability to produce oil, which seems like it can ramp up like crazy, versus the country's ability. to store oil, which I imagine, especially in strategic locations near ports, near where people live, is going to be somewhat constrained. For sure, Joe. I mean, we live, or I live, all of us live kind of in the New York area. And New York Harbor is the NYMEX hub for gasoline and diesel. And we have a, I don't know if people have noticed, but there's a giant bunch of tanks,

farms in the area. And really, that kind of has actually constrained over the years. A lot of terminals have been sold and turned into warehouses. And like you mentioned, NIMBY, you know, nobody wants to see, you know, an oil tank pop up in their backyard. Yeah. So a lot of that is actually kind of constraining here in this geography, whereas you mentioned other parts of the U.S. and the globe, they're probably more willing and there's nothing around them to build more tanks. Building tanks, I mean, it kind of fluctuates with the market, as I said before. You know, we started the podcast with production growth.

That was a big boom in midstream in the early parts of the 2010s with the fracking and kind of midstream followed along with that to. facilitate the movement of that production. And that was kind of a big midstream boom there. And then, you know, recently with the opening of the Mexican border, there was a big boom for midstream needs to move product to Mexico, whether it was by rail. Sorry, the tanks are midstream. Midstream tanks, sorry, sorry. No, I'm just making sure, but tanks are considered midstream.

Midstream, yes. Yeah, midstream terminals, yes. It's kind of all. Midstream includes, you know, pipelines, tanks, etc. So, yeah, there's downstream, midstream, and upstream. Yeah. So you had, you know, the big boom for Mexico, there was a lot of tanks built for that movement of product to Mexico that all these companies were able to do business in Mexico. So that provided the opportunity to expand and build more tanks for that. And then recently we've seen on the chemical side and on the agricultural side, which kind of leads into renewable fuels. We've seen quite a large movement to build more tanks for housing renewable fuels. And, you know, that's not a coincidence. has been a global push to get into renewables. When I say renewable fuels, that's, you know, biodiesel, that's ethanol, that's renewable diesel. This product called SAF that's meant for airlines,

it's a replacement fuel for jet fuel. And then, you know, there's the feedstocks that are used to produce these products. And those are typically like palm oils, veg oils, use cooking oil. All this product does need to be imported and then move to the production facility. So that's kind of facilitated this kind of new boom and midstream and terminal infrastructure of building more tanks for that. And that's largely, I mean, we've seen it largely across the U.S., and it's predominantly happened in the Gulf Coast, too, where I would say the Gulf Coast is one of the largest holders of tanks inventory in probably the U.S. and just sheer total capacity. It's definitely the most active in the largest. On April 4th, 2023, around 2 in the morning, a man was found stabbed multiple times on a sidewalk in downtown San Francisco.

Hey, who did this to you? What happened next turned the story into a political firestorm. Reports have identified the victim as Bob Lee, the founder of Cash App. From Bloomberg Podcasts, this is Foundering, the Killing of Bob Lee, beginning April 16. What separates good leaders from transformational ones? I'm Jessica Chen, and in season two of Leading By Example, we'll sit down with executives like Grace Chen of Bertie Gray to find out. It's important to understand where you spike,

but also really acknowledge where you don't and find people who can fill those gaps. Listen to Leading by Example, executives making an impact on the IHeart Radio app, Apple Podcast, or wherever you get your own. podcasts. There used to be headlines about the U.S. running out of oil storage. I think during the depths of the pandemic in 2020, we started to see those crop up. But even before then, I think during the shale boom, there was storage concerns and like the pipelines were getting clogged up and

things like that. Do those concerns still exist today? If U.S. oil production is at more than 13 million barrels per day, we've seen this massive surge. Is the infrastructure to have handle the movement and storage of that where it needs to be? Yeah, actually, we kind of overbuilt our pipeline capacity a little bit in anticipation of all this production and needing it to pretty much any incremental barrel we produce is exported because, you know, we've kind of saciated our need with the refining capacity here in the U.S. for light crudes. So, yeah, we kind of overbuilt it a little bit and the production is trying to keep up to get to that point where levels are paying for that infrastructure that was built.

Yeah, kind of the things you mentioned, you know, for your prior point with the, it was around like 2015 when oil kind of cratered and, you know, oil typically does boom and bus cycles, as everybody says. And that was a bus cycle in 2015 with all that production. And yeah, pretty much everybody that had a tank was filled during that time period. And then we have, you know, the pandemic, which was more on the demand side where there was no demand for oil, so people had to park it every nook and cranny. I mean, that might have been the craziest two months of my life during that. What did you see? Did you see creative storage

solutions? Yeah, talk about that time. Yeah, no, it really was pretty wild. I'm not going to lie, it was unprecedented for so many reasons for so many people. And yeah, we did see so many unusual things, which probably won't be replicated. We had people parking fracked tanks, which are these small like portable tanks and filling them in with oil next to you know cushing which is you know the nimex hub for wTI and for futures contract that's the easiest place to trade oil so yeah we were seeing that kind of weird level of detail of you know filling up and moving frack tanks to cushing you know people filling up pipelines and not even moving the oil it was a very very strange time and you know typically it's more of a flatter market than that and

we were seeing another weird thing, you know, people booking vessels and just parking oil on large vessels and parking them at sea or near ports. I'm trying to think, oh, oil on rail cars. That was another thing. People were parking on rail cars and parking them in rail yards. So, yeah, that was an interesting time, not going to lie. I was doing a lot of work in a very short period of time and also being in a lockdown was making it weirder. But what is the economic sweet spot for owners of midstream assets? obviously, you know, you know, we could talk about oil in terms of volume or we could talk about oil in terms of price and sometimes they move in the same direction. Sometimes not. Often they move,

I guess intuitively often, they move in opposite directions. What is the sort of like the dream business environment if you're in the midstream space? Probably the dream is high oil prices and high contango. That's pretty much, you know, the dream. So high oil prices, but even higher in the future. Yeah, exactly. I would say that's probably a dream scenario. Typically, that doesn't. happen. But yeah, that would be the dream scenario. I mean, then you have, you know, producers still producing moving the oil, which, you know, they're paying tariffs for the pipeline, and then, you know, they're paying it for the export of moving it from the pipeline to the tanks to the dock and onto a ship. So that's making money for the terminal all the way through.

And then they're making money on the storage costs, which, you know, people are just going to park oil in the storage and pay for it. So I would say that's a good dream scenario. What makes for a good storage facility? And obviously, I get that the requirements are going to depend on the exact product. But in general, what are the things people are looking for when they're looking for storage capacity? Is it just price or is it maybe safety or convenience, things like that? So when we started the tank tiger, storage prices was very, very opaque. And we tried to bring a little bit of light and transparency. Like I said, we've been doing this for eight years now. So people kind of trust us, I think. So we've been able to kind of shed some light on storage pricing,

and it was a black box day. You know, somebody could have been paying like $2 more than the other person in that same terminal or, you know, vice versa. So we've been able to actually create kind of more transparency and liquidity in what we do. But to answer your question, yeah, I would say it's a combination of all. So typically in a, you know, a flatter, more backwardated market or a small contango market, the more what I call well-connected facilities or desirable locations are going to be, you know, the first to, you know, get leased out. And typically those are, you know, terminals in Houston. Those are terminals in New York Harbor, like I mentioned, in Cushing and along the river in New Orleans. You know, these are pretty much major trading hubs and logistical hubs. And for at least oil terminals,

the better connected, which means, you know, the best pipeline. connected facilities tend to do better than the other ones that are not as well-connected pipeline. And that kind of means is like they're bringing in oil from multiple locations, so it gives a person optionality, and they're bringing it to their outbound connectivities to are vast and broad. So that kind of lends itself to be a favorable facility. And then, you know, obviously price matters a lot as well. And then for logistically, it's, you know, location. So customers that least storage want to be around other people that lease storage, so they're able to move barrels from point A to B and, you know, that provides some liquidity and trading activity so they

don't want to be stuck in the middle of nowhere and nowhere to sell their barrels. And that kind of hurts a lot if they can't sell and the market's bad. So that's kind of what I would say lends to a favorable facility and crude and products, what clean products is like gasoline and diesel jet and crude oil, you know, obviously it's crude oil. So they're kind of segregated in different terminals, typically their different facilities handle both. So there's differentiators between those two. I have a really basic question since you mentioned the pipelines, but how does the oil or the product get from the pipelines into the actual storage facilities? Like, what is the mechanism? Are we talking from crude oil or clean product standpoint? I guess we could do both. I'd be curious to hear

the sort of like life cycle of both those things from like stuff comes out of the ground and then gets moved or stuff comes out of the ground and gets refined and then put into storage because I don't really understand the physical process. Yeah, the sequencing of it. And do the pipelines like plug in directly into storage tanks? I can't imagine that's the case. But go ahead. Sure. Yeah, of course. I'll start with crude because that's where it all starts. So typically the, you know, they drill it out of the ground and the way it's moved is into kind of like an aggregation site. Either they move it via a truck or a pipeline that's connected kind of close to the well. And that's moved into like an aggregation terminal. And from that aggregation terminal, a terminal that has tanks. So it's literally taken,

if it's a truck that's driving it to the terminal, they'll stick a hose into the truck. It'll pump it into a tank. And then at that tank, there's multiple tanks in that little small terminal. that'll pump into a bigger terminal, and that bigger facility will then inject it into a long-haul pipeline. Some of the long-haul pipelines from the Permian go to Houston or Corpus Christi for crude corpus for their refining complex and to export out of there, and then Houston, you know, for their refining complex into export out of there. So when it goes to the long-haul pipeline, typically the midstream company that owns the long-haul pipeline, also owns the terminal at point A and point B, so when it's coming in and when's going out. And then from that pipeline, it'll go into various tanks in that tank field, depending on

manifolds and connections in that terminal. And that's kind of how it moves. And then, you know, in that terminal, there's multiple pipes that are connecting each individual tank, so it can move from one point to another and one tank field to another. certain terminals have interconnected tanks and it's just like kind of a web inside the terminal how the oils move to each location. And then from that tank, it's either transported onto a dock, so the dock is located at the terminal. It's piped into the dock and a ship comes up and the ship is loaded and it goes off to some foreign port. Or it's moved into another pipeline

that is connected generally to a refinery. And then the refinery has their own tanks at their own plant, and they'll take from that tank into a distillation tower and start producing clean products. And then that kind of leads me to the clean products. So once a refinery produces clean products, typically we'll start from Houston because that's where a lot of refining capacity is.

So a lot of these refineries have connections into some of these major terminal hubs in Houston, where a lot of gasoline blending and diesel activity happened, and they're pumped into these terminals via a pipeline, and it can go trade hands from one person to another. And then it can be exported, like I mentioned before, pumped onto a dock, sent to, like, South America or wherever. Or it can be shipped up colonial pipeline,

which is, you know, the largest distribution pipeline in the U.S., And that pipeline has injections at the terminal site in Houston. And then there's various stops along the way as it goes up to New York Harbor. And then once it's at its destination, let's say at a terminal here in Linden or Bayonne or wherever in New Jersey, it hits the tank. And then typically it's consumed by a customer. So you'll have a truck that comes up to the terminal. It'll load the product at the truck rack. And then it'll drive off to a gas station.

And so that's kind of how it works. That was great. Yeah, that was a really good overview. And I have a very, first I have a very quick, simple question. The basic pricing, I mean, are we basically talking about a sort of barrel per day type of pricing? Storage pricing? Yeah, storage pricing. Yeah, so it's essentially, like you said, it's in dollars per barrel per month.

So that's a typical storage. What do we, what's a typical price on an average market? The store of barrel of oil. It varies quite. It varies quite a bit. I mean, petroleum products are probably slightly less expensive than chemical products in terms of pricing. And so it's just kind of... Like in a dollar amount.

If we want, Tracy suddenly had a barrel of oil, which maybe she would. What would have cost her to store it for a month in a typical market? Okay. So, yeah, I'll say, let's start in Houston. You know, gasoline, gasoline components in Houston is around, you know, 90 to a dollar, 90 cents to a dollar barrel. Diesel's a little bit slightly less than that. and essentially you're paying for one month minimum at least. You have to pay for at least one month.

That's the minimum a terminal will do. More desirable terminals won't even do that month. They're like, you need to take a year or so. So you basically pay for that year, whether you use it or you don't use it. And then there's actually secondary markets where people are allowed to sub lease their tanks. Like you sublet an apartment. So I was going to, this was going to be kind of my next question. Is there an active speculative market for?

storage capacity. In other words, could I say, you know what, I want to go long the cost of storing oil here? Or I just want to buy a bunch of capacity and I don't know if I'm going to use it, but I think I can resell it for more six months from now, or I want to buy a bunch of capacity here and sell a bunch of capacity here because I think it's going to rerun it. Like, how liquid, like, can you just sort of be like a computer warrior and trade capacity in some way? So yeah, that's kind of a multifaceted question. So yes, trading companies will take speculative positions and lease tanks, but typically they don't do it so they can sublet it. It's typically they're anticipating some sort of market need and you usually want it for your own use, whether it's blending or storing the oil.

And that will actually make you more money than sub-leaseing the tank because it could be, you know, exponential factor, how much more money you can make having that tank. And yeah, there is a secondary very market, I wouldn't say it's that liquid, but with us being around, it's maybe gotten more liquidity to it. And in terms of future buying of storage, so it's interesting you say that. There was a company that had futures exchange for storage on CME, and you were able to, if you wanted to book June storage for, you know, a certain amount of price, and it would be a one-month contract. So that contract did exist. I'm not sure if it's still on CME. I'd have to check. I don't remember offhand because they were kind of a competitor of ours.

But yeah, that did it. And it was pretty innovative and that did exist. So yes, you could, you kind of do both. I'm June Grosso, inviting you to join me for the Bloomberg Law podcast. Every weekday, we help you make sense of the legal stories that shape the nation and the world. Listen for complete analysis of the biggest court cases, the latest actions from Congress and regulators, and the legal moves driving the markets. From corporate law to constitutional law and from state courts to the Supreme Court. At Bloomberg Law, we go beyond the day's headlines. We speak with top attorneys, judges, scholars, and policy experts to break down what the rulings really mean. We do this every weekday,

then bring you the best conversations in our daily podcast. Search for Bloomberg Law on YouTube, Apple, Spotify, or anywhere else you listen. On the East Coast, Listen as you start your day. And on the West Coast, catch up in the evening. That's the Bloomberg Law podcast with me, June Grasso. Subscribe today wherever you get your podcast. What separates good leaders from transformational ones? I'm Jessica Chen, and in season two of Leading By Example,

we'll sit down with executives like Grace Chen of Bertie Gray to find out. It's important to understand where you spike, but also really acknowledge where you don't. find people who can fill those gaps. Listen to leading by example, executives making an impact on the IHeart Radio app, Apple Podcast, or wherever you get your podcasts. How long can oil be stored? And the reason I ask is going back to me keeping a jar of oil on my desk and slowly poisoning

my colleagues, I really didn't mean to do that, Joe. I was surprised by how quickly it actually evaporated from this jar. And there was other weird stuff that. happened, like for instance, the solids start settling at the bottom, right? And so every once in a while, I remember I would pick up this jar and just kind of shake it to get it looking how it looked when I first received it. But there are all these considerations that go into actual physical storage. How long can you actually do this? And again, thinking back to the Strategic Petroleum Reserve, I always have this picture in my mind of a mountain of oil barrels like in

storage somewhere, but I don't know if that's actually the case. If we have barrels of oil that are just sitting around for decades or something like that. So yeah, I mean, you just mentioned it. Crap can go to the bottom of a tank and that does happen naturally in all tanks. You know, if you've ever opened one of those large crude oil tanks, you'll see some interesting things at the bottom of it. Like what? Like rocks and stuff? I mean, crude has like all types of metals and yeah, not rocks, but yeah, it's just a, it's a, it's a, it's a, it's a, it's a, sludge and solids. Yeah. And you can't shake it. Presumably to get it back. Yeah, they typically clean the bottoms. Every once in a while terminals will have to clean the bottoms of a tank to,

you know, get all that crud out of there. But you can basically park crude oil and for a tank forever. I mean, it's essentially the same as leaving it in the ground. Typically, products, once it's refined, they need to be turned over and eventually consumed. Their shelf life isn't as long as crude oil. Crude oil, you can just really leave there forever. And all terminals have what I would call. So for crude oil, they have floating roofs that sit on top of the crude oil to control the vapor pressure.

And then there's the bottoms of the tank. So there's actually like a little hole, a circular hole and a tank. And that's where the pipe is connected to. And actually, beneath that hole, there's what called the bottoms of the tank or the heels of the tank. And that's where all the crud is. And then on top of that is where the oil is able to pull. pump out of the tank. So when you're leasing a tank, you're actually leasing that full capacity,

even though technically that usable capacity is less than what you're paying for. So that's just kind of an industry standard. What happens to the vapor? When you suck a oil out of the tank? That's a good question. I don't even know. Okay. We're going to have to do a whole other episode on oil vapors. But I was, I mean, that is sort of what I was wondering next. Has the midstream slash storage industry, been forced to do any changes as a result of sort of climate and other questions. I mean, obviously, you hear about it in natural gas with methane leaks, et cetera, and as a particularly potent contributor to climate change.

Has there been anything in your world that has to be done different business practice-wise in terms of like storage or handling or distribution in order to meet environmental guidelines? They're changing those rules every year or so. I mean, there's a regulatory agency that. that has standards for these tanks, and they look to change them based on events or to meet climate goals, and like you mentioned. So yeah, there are standard practices in place,

and you need to take tanks out of service every certain number of years to get it inspected and make sure it's up to code. And yeah, essentially, you know, there's basically bylines that terminals need to follow to keep safety procedures. And luckily, you know, in the eight years or nine years that I've been doing,

this. There hasn't been as many or that many incidents of terminal leaking or fires or anything like that. So around this time last year, there was a lot of discussion of a diesel shortage in the northeast. And it was a pretty big deal. I think the White House actually put out a statement on it at one point. How did that come to happen? How bad was it in retrospect? And why does it seem to have gone away? Yeah, no, it's funny. You know, everybody lives. kind of in the short term, they're like, ah, we're running out of diesel, and then, you know, nobody's talking about it today. It was the same thing with IMO 2020. I don't know if you guys remember that. No. But, yeah, essentially, you know, that I believe that was around, you know,

the war in Russia and Ukraine, and the sanctions happened, and people were not accepting Russian oil, so that, you know, disrupts global supply chains. And there's, like, this natural flow of market's efficiency of moving the oil from point A to point B that kind of suffice. is the global demand for oil. So basically global demand stayed pretty high and, you know, there wasn't enough supply to reach that with the sanctions. So that's kind of what led to the shortage in that time period. And that can cause spikes when there's no inventory and say there's a, you know, really cold winter and you need heating oil and there's none there. That like the price just keeps going up. So it's that can cause severe spikes. But when there's inventory,

that kind of flattens out those spikes because it kind of smooths that price. process. Today, you know, we're not really having those issues. Actually, that level was kind of historic lows for low inventory and today. Now, you know, we're building inventory on the distalate side. And it's kind of more, I would say, a normal market, as you would say. And we don't really have those issues today. And I would say that's mostly because kind of the Russian oil's gotten out. And demand has, you know, weakened a little bit for our consumption standpoint and refinement. And have been able to adapt and produce more, you know, heating oil and more diesel. So I think it's like a combination of factors like anything.

And that kind of causes a little bit of an oversupply and that kind of fills the tanks. And, you know, that's almost like a self-selling proxy. Once inventory levels build, that's what traders watch. And as I see, inventory levels build, that kind of decreases the price of oil. And that actually encourages more people to park more oil. So it just kind of builds like that. So the Northeast, especially in winter, as you mentioned, uses a lot of oil for heating. We produce a lot of oil not in the Northeast.

There's some pipelines, but we can't, because of the Jones Act, we can't. Where's our Jones Act? Yeah, right, the arrow horn for every time the Jones Act comes up. But is there like a perversity or how do you see that play out? It's like, okay, the U.S. has oil. There are tankers. There is domestic need. what is the infrastructure like for getting or not getting oil from, say, Texas to homes in the Northeast that want to heat their homes?

I mean, obviously with the invention of fracking and natural gas that has kind of alleviated a lot of the heating oil need, and that's kind of, you know, helped a little bit as well. I would say the majority of the product for us in the Northeast is coming from the Gulf Coast and the refinery complexes down there. Via pipeline. Via the colonial pipeline, yeah. And then, you know, further up north in, like, the New England area, they're not connected to any pipe. Right. There's no pipeline in, like, in Vermont. No.

So they'll take diesel supplies from Europe via vessel, or they'll barge it up from New York Harbor and put it into terminals. And, you know, Boston. Barge. So wait, that means an inland waterway from New York. So you can do pipeline from Texas to New York. Yes. And then via barge. Yes.

So that way you don't have to deal with any. Jones. Yeah, you don't have to pay for a joint action. Okay, okay. Barges are so underrated. I always think that whenever they come up. Yeah, no, totally. And also, just America's blessed inland waterway system is incredibly underrated. Yeah, for sure. I was going to say Joneses, they still do exist. People still do lease them. And they will still take them. Typically, it goes to Florida. Most of the Jones acts go from the Gulf Coast of Florida. And you'll see some that go to New England, but not as many. So I know it's been a busy few years for the oil and commodities industry in general, but looking back, you know, now versus 2020, what's been the big change in your business

if you could sort of, you know, just encapsulate it for us? Sure, yeah. I mean, it's kind of crazy how quickly everything so much has changed in only three years. I mean, a lot of the oil majors were, you know, crying because, you know, oil prices were so depressed. and refining margins were terrible, and now oil prices are high, and refining margins are great, and a lot of these big companies are reaping in tons of profit. We've seen a lot of mergers and acquisitions on the shale production side, with a lot of independent shale producers getting gobbled up by these oil majors, because shale producers are seeing good evaluations,

and the majors are looking to grow their drilling production, but without actually having to drill holes in the ground, they can just acquire a company. So, you know, we're seeing a lot of that. And from refining standpoint, I mean, there's going to be new refineries built across the world, and that's kind of eat away at, you know, domestic refining capacity. From us on the midstream side, the terminal side, we've seen a lot of mergers and acquisitions as well. You know, a few big recent buyouts happened, and that's kind of changed the hands of the names of the tanks. So same assets, different names, and that's kind of what we're seeing recently, you know, just in the past few months.

and basically what I mentioned earlier was the global demand for renewables. And that's not just talk. It's happening today. And there is definite capital expenditures being put into building plants and building terminal infrastructure to house these renewable fuels. So it'll be interesting what the next few years hold for that. But yeah, I mean, it's constantly changing. And that's kind of what keeps me on my toes and keeps me interested in this oil game.

But yeah, it's been different since 2020. A lot of things have changed. All right, Stephen Barsamian, thank you so much for coming on odd lots and explaining the business of storing and moving oil and its various products to us. Really appreciate it. That was fun. Thank you. Yeah, that was great. Joe, that was a fun conversation.

I enjoyed that. It brought back a lot of memories for me about that buying oil project. And there was actually a broker who took me out on his boat to go around. like Arthur Kill. Yeah, and look at all the terminal facilities and the tankers out there and stuff. There are a few things that stuck out for me. So I was kind of surprised that we have actually built out storage infrastructure to the extent that we seem to because it does seem like in so many other areas, the U.S. sort of struggles with building just in case capacity. Yeah. But for some reason, it seems to have worked out in the oil world. That was really interesting. I was also,

just like really, I mean, there were a lot of interesting things. I remember when March, or I guess April 2020 is when we had the negative oil for one day. And I remember thinking like, well, like, there must be some market somewhere that is essentially the mirror image to this oil price, but we don't have a chart because there's not like, you know, I don't think like storage capacity data is like as common as the oil price data or as like readily available. But I remember at the time thinking like there must be some charts somewhere that is literally. the mirror image of this because someone with some marginal storage capacity must have seen, you know, the amount that they can rent out their space for essentially like shoot up positive

40 or something de facto like that because if you have this oil and you're producing so much and you run out of space, like you're desperate, right? Right. So that was when everyone was joking about buying oil and storing it in their bathtub and stuff like that. You were ahead of the curve on owning oil ahead of that. But yeah, right? Like that would be the ultimate time if you had the capacity you must have just been making a fortune. I did think it was interesting. Steve brought up the sort of creative storage solutions that you did see at the time. So, for instance, just keeping your oil on rail cars or just leaving it in pipelines for storage

as opposed to using them to actually move it. I wonder, yeah, crazy times. I'm also, like, interested, you know, to, like, how I guess at some point there was, like, a CME futures contract for capacity. And, like, intuitively, there's got to be, like, arbitrage opportunities where you're, like, oh, I'm long, Houston storage capacity and short Louisiana storage capacity, et cetera. But maybe those markets have yet to be fully like a built down liquid. Do you think Steve will let us advertise storage capacity on his website and see if we get anyone interesting?

Do you have storage capacity in your basement tracing? I've got like one foot of desk space for if someone wants to store another jar of oil. It sounds like an environmental headache, the minimum. Yeah, you're right. Okay, shall we leave it there? Let's leave it there. This has been another episode of the Oddlots podcast. I'm Tracy Alloway.

You can follow me at Tracy Allaway. And I'm Joe Wisenthal. You can follow me at the stalwart. Check out Stevens podcast, Tank Talk, brought to you by Tank Tiger. Follow our producers, Carmen Rodriguez at Carmen Armin, Dashel Bennett at Dashbot, and Kale Brooks at Kail Brooks. Thank you to our producer, Moses, Ondam. For more Odd Lots content, go to Bloomberg.com slash Oddlots.

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