CrowdStrike Outage Aggravates California’s Fuel Storage Crisis

The recent IT outage at CrowdStrike, which led to the grounding of numerous flights, has had a ripple effect on California's already strained fuel storage market, highlighting the challenges the state faces due to its stringent environmental policies. The outage not only disrupted air travel but also created a logistical nightmare for fuel traders, who were forced to turn to waterborne tankers for storing jet fuel that could no longer be accommodated on land.

California, despite being a major hub for petroleum trading due to its strategic location on the U.S. West Coast, has long struggled with limited petroleum storage capacity. This is largely a consequence of the state's aggressive push towards reducing fossil fuel dependency, which has made it increasingly difficult to permit and build new oil and gas infrastructure. Ernie Barsamian, founder of The Tank Tiger, a U.S. terminal storage clearinghouse, emphasized that the lack of available storage has been an ongoing issue. "When it comes to petroleum products storage in California, there has been no room at the inn for several years," he noted.

This scarcity of storage is not without significant consequences. California's market is particularly vulnerable to fuel price volatility during periods of disruption, whether due to technical outages like the one at CrowdStrike or operational issues at refineries. The high demand for petroleum in the region, coupled with the challenges of expanding storage capacity, has driven storage costs in California to double those of other major trading hubs, such as New York Harbor and Houston.

The impact of the CrowdStrike outage was immediate and severe. With flights grounded and jet fuel consumption plummeting, the excess fuel had nowhere to go within California's constrained storage network. As a result, traders were forced to store the fuel on ships off the coasts of Houston and New Orleans—a costly and inefficient solution that is typically only used as a last resort. Keeping these vessels in storage mode delays their return to active service, further tightening the market and driving up costs.

The situation was exacerbated by already high levels of jet fuel inventories along the U.S. West Coast. By the week ending July 26, just days after the outage began on July 19, onshore jet fuel stocks had surged to over 12 million barrels—a record high. This increase in inventories reflects strong demand for jet fuel on the West Coast, where imports have risen significantly this year. Data from Kpler, a ship-tracking service, shows that West Coast jet fuel imports have averaged about 135,000 barrels per day in 2024, up by about 25,000 barrels per day compared to the previous year.

As of last week, West Coast jet fuel stocks stood at 11.8 million barrels, nearly 28% higher than the same time last year. This buildup of inventory, combined with the logistical challenges posed by limited storage capacity, underscores the vulnerability of California's fuel market to disruptions. It also highlights the broader tension between the state's environmental goals and the practical needs of its energy infrastructure.

The situation serves as a stark reminder of the delicate balance that must be maintained in managing California's transition away from fossil fuels. While the state continues to lead the nation in environmental policy, the CrowdStrike incident illustrates the ongoing challenges of ensuring reliable and cost-effective energy supply in a market where storage capacity is severely constrained. Moving forward, it will be crucial for California to find ways to address these infrastructure limitations without compromising its commitment to reducing carbon emissions.