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U.S. shale growth could support Caribbean oil storage owners

Caribbean oil terminals hurt by dwindling Venezuelan supply and a market that encourages traders to pull oil out of tank may get a shot in the arm from U.S. shale.

Supply cuts by OPEC and its allies helped shrink global stocks over the past few months, lifting near-term contracts above those for later delivery and reducing the incentive to store crude. Venezuela’s oil output fell by 14% over the past year.

Blending more U.S. oil at the terminals may help offset the loss of some Venezuelan supply and the emptying of tanks by companies that had stored crude last year to sell later at a higher price. Traders looking to ship shale oil economically to Asia can bring smaller cargoes from around the Americas to fill up a supertanker in the Caribbean for the long journey.

Rising U.S. crude supply could offset the lack of Venezuelan oil stored at these Caribbean facilities, Sandy Fielden, director of research and commodities for Morningstar Inc. in Austin, Texas, said in a phone interview. “A revival in shale will be a good thing for these Caribbean facilities.”

The Caribbean is home to more than 140 MMbbl of commercial storage for crude and refined products, according to data compiled by Morningstar Inc. and Bloomberg. Venezuela’s state-owned Petroleos de Venezuela SA is among companies that lease tanks owned by ArcLight Capital Partners LLC, Freepoint Commodities LLC, NuStar Energy LP and Buckeye Partners LP to supplement their own storage.

Ratings agency Moody’s on Jan. 22 changed its outlook for Caribbean storage owner Limetree Bay Terminals LLC from stable to negative because of the company’s “difficulties” in securing new long-term contracts.

The U.S. government expects domestic output, led by the rapid growth in shale, to rise about a million barrels a day this year to 10.8 million, rivaling Russia and OPEC’s largest producer Saudi Arabia.

Output from Venezuela, once the largest producer in Latin America, has been on a chronic decline because of mismanagement and lack of funds. It may sink as low as 1.44 MMbpd this year, according to Nomura Securities International Inc.

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