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After some initial excitement, November has seen crude oil prices collapse back towards cycle lows amid demand doubts (e.g. slumping China oil imports, overflowing Chinese oil capacity, plunging China Industrial Production) and supply concerns (e.g. inventories soaring). However, an even bigger problem looms that few are talking about. As Iraq – the fastest-growing member of OPEC – has unleashed a two-mile long, 3 million metric ton barrage of 19 million barrel excess supply directly to U.S. ports in November.

Crude prices are already falling:

(Click to enlarge)

But OPEC has another trick up its sleeve to crush US Shale oil producers. As Bloomberg reports,

Iraq, the fastest-growing producer within the 12-nation group, loaded as many as 10 tankers in the past several weeks to deliver crude to U.S. ports in November,ship-tracking and charters compiled by Bloomberg show.

Assuming they arrive as scheduled, the 19 million barrels being hauled would mark the biggest monthly influx from Iraq since June 2012, according to Energy Information Administration figures.

The cargoes show how competition for sales among members of the Organization of Petroleum Exporting Countries is spilling out into global markets, intensifying competition with U.S. producers whose own output has retreated since summer. For tanker owners, it means rates for their ships are headed for the best quarter in seven years, fueled partly by the surge in one of the industry’s longest trade routes.

Worse still, they are slashing prices…

Iraq, pumping the most since at least 1962 amid competition among OPEC nations to find buyers, is discounting prices to woo customers.

The Middle East country sells its crude at premiums or discounts to global benchmarks, competing for buyers with suppliers such as Saudi Arabia, the world’s biggest exporter.Iraq sold its Heavy grade at a discount of $5.85 a barrel to the appropriate benchmark for November, the biggest discount since it split the grade from Iraqi Light in May. Saudi Arabia sold at $1.25 below benchmark for November, cutting by a further 20 cents in December.

…click on the above link to read the rest of the article…

The Biggest Threat To Oil Prices: 2-Mile Long Stretch Of Iraq Oil Tankers Headed For The U.S.

November 11, 2015

The Biggest Threat To Oil Prices: 2-Mile Long Stretch Of Iraq Oil Tankers Headed For The U.S.

After some initial excitement, November has seen crude oil prices collapse back towards cycle lows amid demand doubts (e.g. sllumping China oil imports, overflowing Chinese oil capacity, plunging China Industrial Production) and supply concerns (e.g. inventories soaring). However, an even bigger problem looms that few are talking about. As Iraq – the fastest-growing member of OPEC – has unleashed a two-mile long, 3 million metric ton barrage of 19 million barrel excess supply directly to US ports in November.

Crude prices are already falling:

But OPEC has another trick up its sleeve to crush US Shale oil producers. As Bloomberg reports,

Iraq, the fastest-growing producer within the 12-nation group, loaded as many as 10 tankers in the past several weeks to deliver crude to U.S. ports in November, ship-tracking and charters compiled by Bloomberg show.

Assuming they arrive as scheduled, the 19 million barrels being hauled would mark the biggest monthly influx from Iraq since June 2012, according to Energy Information Administration figures.

The cargoes show how competition for sales among members of the Organization of Petroleum Exporting Countries is spilling out into global markets, intensifying competition with U.S. producers whose own output has retreated since summer. For tanker owners, it means rates for their ships are headed for the best quarter in seven years, fueled partly by the surge in one of the industry’s longest trade routes.

Worst still, they are slashing prices…

Iraq, pumping the most since at least 1962 amid competition among OPEC nations to find buyers, is discounting prices to woo customers.

The Middle East country sells its crude at premiums or discounts to global benchmarks, competing for buyers with suppliers such as Saudi Arabia, the world’s biggest exporter.Iraq sold its Heavy grade at a discount of $5.85 a barrel to the appropriate benchmark for November, the biggest discount since it split the grade from Iraqi Light in May. Saudi Arabia sold at $1.25 below benchmark for November, cutting by a further 20 cents in December.

…click on the above link to read the rest of the article…

Venezuela Default Countdown Begins: After Selling Billions In Gold, Caracas Raids $467 Million In IMF Reserves

November 9, 2015

Venezuela Default Countdown Begins: After Selling Billions In Gold, Caracas Raids $467 Million In IMF Reserves

In late October, when describing Venezuela’s desperate steps to keep itself afloat for a few more months, we reported that in order to fund $3.5 billion bond payments in early November, Maduro’s government had engaged in something that is the very definition of insanity: selling the country’s sovereign (and pateiently repatriated by his deceased predecessor) gold to repay creditors.

Specifically, in the past several months, Caracas has quietly parted with 19% of its gold holdings: “Central bank financial statements posted this week on its website show monetary gold totaled 91.41 billion bolivars in January and 74.14 billion bolivars in May. At the strongest official exchange rate of 6.3 bolivars per U.S. dollar, which the bank uses for its financial statements, that decline would be equivalent to $2.74 billion.”

But while ridiculous, Venezuela’s decision to liquidate some of its gold is perhaps understandable under the circumstances: Venezulea relies on crude oil for 95% of its export revenue, and with prices refusing to rebound, the only question is when do all those CDS which price in a Venezuela default finally get paid.

What is even more understandable is what Venezuela should have done in the first place before dumping a fifth of its gold, but got to do eventually, namely raiding all of the IMF capital held under its name in a special SDR reserve account.

Recall that this is precisely what Greece did in July when everyone was speculating when it would default. Now its Venezuela’s turn.

The details: Reuters reports that Venezuela withdrew some $467 million from an IMF holding account in October, according to information posted on the fund’s web-site, as the OPEC nation seeks to improve the liquidity of its reserves amid low oil prices and a severe recession.

…click on the above link to read the rest of the article…

Amnesty International: Shell’s Claim Of Clean Up In Nigeria “Blatantly False”

November 4, 2015

Amnesty International: Shell’s Claim Of Clean Up In Nigeria “Blatantly False”

A new report from Amnesty International alleges that Royal Dutch Shell did not, in fact, clean up its oil spills in Nigeria despite company claims that the task was completed.

Shell is the largest oil company to operate in the Niger Delta, with over 5,000 kilometers of pipeline and investments in over 50 oil fields. Shell’s pipelines have been responsible for 1,693 oil spills since 2007, but Amnesty International says the true number is likely much higher. Moreover, the non-profit alleges that Shell’s claims that it has cleaned up the oil spills are “blatantly false.”

Amnesty International also points the finger at the Nigerian government, which has failed to properly police the oil industry in the delta. “The quality of life of people living surrounded by oil fumes, oil encrusted soil and rivers awash with crude oil is appalling, and has been for decades,” said Stevyn Obodoekwe, the Director of Programmes for the Centre for Environment, Human Rights and Development (CEHRD), which partnered with Amnesty International on the report.

The report concludes that four sites in the Niger Delta “remain visibly contaminated,” areas where Shell says cleanup was completed. “This is just a cover up. If you just dig down a few metres you find oil. We just excavated, then shifted the soil away, then covered it all up again,” a contractor hired by Shell told Amnesty International.

A 2011 investigation by the United Nations Environment Programme (UNEP) documented the contamination at Shell’s sites, prompting a promise from the Anglo-Dutch oil major to follow through on cleanup.

Shell has sought to reduce its holdings of Nigerian oil assets over the past two years, part of a divestment campaign to cut costs and raise cash. The company has moved to sell off at least four oil fields, plus a major pipeline that plagued the company.

…click on the above link to read the rest of the article…

Forget China: This Extremely “Developed” Country Just Suffered Its Biggest Money Outflow Ever

November 2, 2015

Forget China: This Extremely “Developed” Country Just Suffered Its Biggest Money Outflow Ever

While understandably all eyes have been fixed on every monthly capital outflow update from China (even the ones that the Politburo is clearly massaging), few have noticed that one of the biggest total outflows currently in the global developed economy is taking place right in America’s own back yard.

According to BofA’s Kamal Sharma, Canada’s basic balance – a combination of the capital and the current account: a measure of national accounts that spans everything from trade to financial-market flows – swung from a surplus of 4.2% of GDP to a deficit of 7.9% in the 12 months ending in June. That’s the fastest one-year deterioration among 10 major developed nations.

Citing Sharma’s data Bloomberg writes that “money is flooding out of Canada at the fastest pace in the developed world as the nation’s decade-long oil boom comes to an end and little else looks ready to take the industry’s place as an economic driver.” In fact, based on the chart below, the outflow is the fastest on record.

“This is Canadian investors that are pushing money abroad,” said Alvise Marino, a foreign-exchange strategist at Credit Suisse Group AG in New York. “The policy in Canada the last 10 years has greatly favored investments in energy. Now the drop in oil prices made all that investment unprofitable.”

The reasons for the accelerating otflows are familiar, or mostly one reason: the collapse in crude oil, among the nation’s biggest exports, has dropped to half of its 2014 peak. “The slump has derailed projects this year in Canada’s oil sands – one of the world’s most expensive crude-producing regions. Royal Dutch Shell Plc’s decision to put its Carmon Creek drilling project on ice last week lengthened that list to 18, according to ARC Financial Corp.”

Worse, there does not appear to be any improvement, despite the recent stabilization in Brent prices:

…click on the above link to read the rest of the article…

Saudi, US Oil Inventories Hit Record High as Demand Fizzles

October 20, 2015

Saudi, US Oil Inventories Hit Record High as Demand Fizzles

The amount of oil in storage globally, not including the various “strategic petroleum reserves” in the US, China, Europe, Japan, and other locations, has grown to staggering proportions this year, as oversupply drowns out tepid demand.

In the US, oil storage is seasonal. A big buildup starting late fall gets Americans and their favorite gas or diesel sipping or guzzling toys or clunkers through “driving season” – late spring and summer – when somehow everyone has to drive somewhere. After driving season, petroleum stocks fall. This pattern has played out this year as well, but with a difference.

Last week, the EIA reported that crude oil stocks rose 7.6 million barrels to 468.6 million barrels, the highest for this time of the year since records have been kept. Crude oil stocks are now 98 million barrels higher than they were last year at this time, when they were already bouncing into the upper end of the 5-year range.

This chart from the EIA shows the out-of-whack relationship between the five-year range (gray area) and the weekly buildup (blue line) this time around:

Instead of getting better somehow, this situation simply got worse over driving season. At the peak of the buildup this year, crude oil stocks were 22.5% higher than a year earlier. Now they’re 26.4% higher than they were at this time last year.

If the inventory buildup this fall, winter, and spring continues in this manner from today’s much higher starting point, we can look forward to a fiasco on the storage front – and on the pricing front. Because at this rate, by April, we’ll be having oil coming out of our ears!

But this is a global issue for producers (or conversely, an opportunity for oil consumers). Here’s Saudi Arabia, which has been pumping oil at record levels to maintain its market share against Russia and the boys from the oil patch in the US and Canada: its inventories are ballooning too.

…click on the above link to read the rest of the article…

Saudis Poke The Russian Bear, Start Oil War In Eastern Europe

October 18, 2015

Saudis Poke The Russian Bear, Start Oil War In Eastern Europe

Any weakening of Russian support for Mr. Assad could be one of the first signs that the recent tumult in the oil market is having an impact on global statecraft. Saudi officials have said publicly that the price of oil reflects only global supply and demand, and they have insisted that Saudi Arabia will not let geopolitics drive its economic agenda. But they believe that there could be ancillary diplomatic benefits to the country’s current strategy of allowing oil prices to stay low — including a chance to negotiate an exit for Mr. Assad.

That’s a quote from a New York Times article that ran in February of this year.

At the time, we pointed to the piece as evidence that yet another conspiracy “theory” has become conspiracy “fact” as it effectively served to validate (to the extent The New York Times is validation) the thesis that at the end of the day, this is all about energy.

If the Saudis could use oil prices to force Moscow into ceding support for Bashar al-Assad in Syria, then the West and its regional allies could get on with facilitating his ouster by way of arming and training rebels. Once Assad was gone, a puppet government could be installed (after some farce of an election that would invariably pit two Western-backed candidates against each other) then Riyadh, Doha, and Ankara could work with the new government in Damascus to craft energy deals that would not only be extremely lucrative for all involved, but would also help to break Gazprom’s iron grip on energy supplies to Europe.

Those are the “ancillary diplomatic benefits” mentioned in The Times piece.

Only it didn’t work out that way.

…click on the above link to read the rest of the article…

River Supplying Water To Alberta Oil Sands Operations At Risk From Drought

October 16, 2015

River Supplying Water To Alberta Oil Sands Operations At Risk From Drought

A new study casts doubt on the long-term ability of the Athabasca River to supply the water Alberta’s oil sands industry relies on.

Water is allocated to oil sands operations based on river flow data collected since the 1950s, but that doesn’t necessarily represent an accurate assessment of the Athabasca River’s flow variability over the longer term, according to a report published this week in the Proceedings of the National Academy of Sciences.

Development of Alberta’s oil sands, the world’s third-largest crude oil reserve at an estimated 168 billion barrels, uses a lot of fresh water — more than 3 barrels of water for every barrel of oil produced. Currently, the oil sands industry is allocated 4.4% of the mean annual flow of the Athabasca River to meet that demand. In 2010, the oil and gas industry accounted for 74.5 percent of total surface water allocations in the Athabasca River Basin, the report says.

That allocation takes into account seasonal fluctuation, but not long-term climatic variability and change, the authors of the report write — even though the region has a history of droughts and future droughts are likely, suggesting the industry’s water use might be unsustainable.

Syncrude_mildred_lake_plant
Syncrude’s Mildred Lake oil sands operation in Alberta, Canada. Photo via Wikimedia Commons.

Researchers from the University of Regina and the University of Western Ontario, both in Canada, analyzed the measured river flow record for the Athabasca River Basin while accounting for the effects of climate oscillations that can confound attempts to spot long-term trends, like the Pacific Decadal Oscillation, the Pacific North American mode and El Niño.

Their analysis revealed declining flows throughout the river basin, which is consistent with the record of regional warming and the resulting loss of glacier ice and snowpack at high elevations in the Rocky Mountains, the origin of much of the Athabasca’s water.

…click on the above link to read the rest of the article…

OPEC Crude Little Change

October 13, 2015

OPEC Crude Little Change

The OPEC Monthly Oil Market Report is just out with the crude only production numbers for the 12 OPEC countries. The data below is in thousand barrels per day and the last data point is September 2015.

OPEC 12 crude only production was up 109,000 barrels per day in September but that was after the August production numbers were revised down by 82,000 bpd. OPEC crude only production now stands at 31,571,000 pbd. That is just 12,000 bpd above June production but still 100,000 bpd below their peak in July of 2008.

Saudi Arabia was down 48,000 bpd in September to 10,225,000 bpd. That is 174,000 bpd below their latest peak in June.

The big gainer in September was Iraq, up 80,100 bpd in September. That is still 5,000 bpd below their latest peak in July.

The UAE hit a new high in September, up 24,300 bpd in September to 2,902,000 bpd.

…click on the above link to read the rest of the article…

How Big an Oil Glut is There Really?

October 10, 2015

How Big an Oil Glut is There Really?

Revisiting Crude Oil

Beginning in late August we have frequently discussed the possibility that a significant low in crude oil prices could be imminent in spite of the “obvious” lousy fundamentals. As blind luck would have it, the first of these articles (entitled “Is Crude Oil Close to a Low?”) was posted exactly one trading day before the low to date was actually put in. Well, you know what they say about blind chickens :).

Image credit: freshidea – Fotolia

Note here that we are not saying it was the low, although this cannot be ruled out either. It seems very likely though that it was at least a low of medium term significance.

From a technical perspective, the action in crude oil since late August is so far consistent with a medium term low. The recent advance looks actually somewhat healthier than the previous one, due to the lengthy consolidation after the initial strong rally leg – click to enlarge.

To summarize our train of thought on the topic: We noted for one thing that commodities always bottom out at a point in time when their fundamentals still look atrocious. This is simply due to the fact that prices will at some point have declined sufficiently to discount all the (by then widely known) negative factors.

For another thing, we have pointed out that the prices of commodities are ultimately not only determined by their specific supply-demand characteristics, but also by the money relation. For instance, no-one would seriously expect crude oil prices to revert back to their level of 1933 ($ 0.67 annual average), no matter how bad crude oil’s supply-demand fundamentals become. After all, since May of 1933, the Fed has managed to devalue the US dollar by nearly 95% (based on the government’s own dubious CPI statistics).

…click on the above link to read the rest of the article…

Pre-emption: How and Why Rail Companies Are Above The Law

October 3, 2015

Pre-emption: How and Why Rail Companies Are Above The Law

CSX is one of the major rail companies that is profiting from the oil-by-rail boom led by North Dakota’s Bakken crude oil. On September 28th, a day that is apparently national “good neighbor day,” CSX broadcast the following message on Twitter.

Which is a nice message. But CSX and the rest of the rail industry can turn into a horrible neighbor for many communities across the country. Why? Because as rail companies they are essentially above the law due to a legal doctrine known as “pre-emption.”

Pre-emption means that rail companies are not subject to any local or state laws. So if they want to build a new propane transloading facility near a school or neighborhood, they can. And CSX and others in the industry do.

A new article by the New England Center for Investigative Reporting (NECIR) details how pre-emption has allowed for the construction of oil and gas transloading facilities on rail company property with little to no oversight in communities like Grafton, Massachusetts.

In Grafton, the owner of a small railroad constructed what is now the largest rail propane facility in the state. No construction permits were acquired. No environmental assessments completed. And as NECIR reports, the rail company’s neighbors weren’t very happy about any of this.

Residents were dumbfounded: The location was in the middle of a residential neighborhood, less than 2,000 feet from an elementary school and atop the town’s water supply.

That is the reality of pre-emption. As we’ve reported on DeSmog since oil trains started derailing and exploding, pre-emption applies to all areas of rail operations.

Rail companies believe they are not subject to “right to know” laws regarding the transportation of dangerous materials through communities.

…click on the above link to read the rest of the article…

What’s The Worst That Could Happen?

October 2, 2015

What’s The Worst That Could Happen?

Via ConvergEx’s Nicholas Colas,

The 30 stocks of the Dow Jones Industrial Average currently trade for an average of 14.8x next year’s consensus earnings. But… Everyone knows Wall Street analysts are always too optimistic, so what if we just look at the lowest estimate for each company? That “Worst Case scenario” P/E is 16.7x – not “Cheap”, but not crazy expensive either – and incorporates a decline in earnings from 2015 of 1.5%.

As tempting as it is to say “Buy stocks” with this math, the truth is hazier. In reality, markets currently discount this “Worst case” as the “Base case”. With the 10 year Treasury yielding 2.1%, that 16.7x multiple is where stocks should actually trade.

The driver of this market pessimism sits at the top of the income statement – the Street’s worst case revenue estimates call for a decline of 1.7% in 2016. Now, Q3 earnings season is unlikely to provide much comfort here; why should corporate managements go out on a guidance limb when their stocks are down on the year? All this points to further volatility in October, and with a bias to the downside.

Of all the words of tongue or pen, the dumbest are these: “What’s the worst that could happen?” I imagine every stupid stunt ever uploaded to Youtube started life with that question. Skateboard off the roof of your parent’s house into the pool… Taunt the chimps at the zoo… Jump a bike over 17 of your friends… That phrase is cursed. Even a movie of the same name, starring Martin Lawrence and Danny DeVito, only has a 10% approval rating on Rotten Tomatoes.

In financial markets, however, this is one of the most important questions you can ask. A few examples:

Every hedge fund uses some form of risk management to understand the worst case scenario for their portfolio. In general, the larger the firm and more complex the strategy, the more elaborate the analysis.

…click on the above link to read the rest of the article…

Open Thread: Any Energy Related Subject

September 27, 2015

Open Thread: Any Energy Related Subject

Russian production has flattened out during the last 12 months. Russia is the world’s second largest producer of crude oil, only slightly below Saudi Arabia.

Iran unveils a three stage plan to get its Persian Gulf oil back to pre sanction levels… in five years.

3-stage plan to raise oil production unveiled

Managing director of the Iranian Offshore Oil Company has explained details of Iran’s three-stage plan to increase oil production during the post-sanction era.

Explaining the detail of Iran’s three-stage plan to increase crude oil production in Persian Gulf, Saeed Hafezi said that, “currently, the natural decline in Iran’s oil production in offshore fields exceeds the decline in onshore fields.”

Pointing to the 10-12 percent drop in oil production at Persian Gulf fields, Hafezi asserted that, “accordingly, implementing plans to increase oil production in these areas will be time consuming and only after compensating for the natural decrease we can begin to increase our production capacity.”

This official reiterated that by the removal of sanctions, Iran will undertake a three-stage plan to increase oil production adding that, “based on this plan, during the first stage we will implement emergency techniques to increase daily production of crude oil in Persian Gulf by 32 thousand barrels.”

Announcing a medium-term program to increase daily production in Persian Gulf and the Strait of Hormuz by 130 thousand barrels, Hafezi added that, “by undertaking a four to five-year plan, the natural drop in annual production capacity will be compensated in order to reach the quota of 800 thousand barrels per day.”

I found the above article extremely revealing. First, much of Iran’s decline during sanctions has been due to “natural decline”. Of course we knew that but I had no idea it was as high as 10 to 12 percent. That was just their Persian Gulf fields, but their inland fields have been declining also. It will be interesting to see how long it takes them to get those fields up to their previous levels.

…click on the above link to read the rest of the article…

Crude Oil – a “Ray of Hope”

September 16, 2015

Crude Oil – a “Ray of Hope”

Why Technical Developments Shouldn’t be Ignored

This is a little addendum to our recent comments on the crude oil market (which you can see here, here andhere, in chronological order). Apparently Goldman Sachs just published a research report calling for $20 oil – which strikes us as a bookend to their infamous $200 call in 2008, which preceded the ultimate peak at $149 by just one or two weeks if memory serves (readers may remember this call by GS – it did get a lot of press at the time).

13328798 Photo credit: fmh

The recent sharp reversal after a seeming break of support definitely deserves attention, especially as everybody seems certain that after having declined some 75% from its peak, the price of oil can only go down further. Obviously, no such certainties were in evidence anywhere near the peak or when WTI crude was still trading near $100 a year ago (even though the supply-demand situation had quite obviously deteriorated gravely already).

WTIC crude, weekly – a lateral support level was broken amid a price/RSI divergence, and then prices reversed back up. There hasn’t been any follow-through buying since then, so this reversal may yet fail, but it seems to us that the market is ripe for an upward correction even if the longer term bear market isn’t over yet – click to enlarge.

Anyway, we wanted to briefly come back to the reasons why we think such technical signals shouldn’t be ignored. For one thing, experience shows that price lows are put in long before the “fundamentals” indicate they should. In fact, price lows are routinely put in while the fundamental backdrop is seemingly still at its very worst. This is so because market prices are discounting negative fundamentals in advance to some extent; so even though the fundamental backdrop may still get worse, it offers no guarantee that prices will go even lower.

…click on the above link to read the rest of the article…

Jeffrey Brown: To Understand The Oil Story, You Need To Understand Exports

September 14, 2015

Jeffrey Brown: To Understand The Oil Story, You Need To Understand Exports

Peak Oil is very much alive

Despite the attention-grabbing economic volatility that is grabbing headlines, it’s important to keep our eye on the energy story firmly in focus. This is especially true as the headlines we regularly read about Peak Oil being dead ” are “manifestly false” according to this week’s podcast guest, petroleum geologist Jeffrey Brown.

As concerning as the fact that global oil production has plateaued over the past decade, despite trillions invested in trying to goose it higher, are Brown’s forecasting model for oil exports. His Export Land Model shows how rising internal consumption can swing (and has swung) countries from major exporters to permanent importers within a dizzyingly short period of time:

The crucial issue to understand about what has happened after 2005 is that we’ve had a very large increase in global gas production and natural gas liquids, but a much slower increase in crude plus condensate. So, what I think has happened is the actual crude oil production has basically flatlined while the liquids associated with natural gas production, condensate and natural gas liquids, have continued to increase. So, we ask for the price of oil, we get the price of Brent or WTI; but when you ask for the volume of oil, you get some combination of crude, condensate, natural gas liquids, biofuels. So, the fact is that substitution has worked and is working in that they’re bringing on alternative substitutes, but they’re only partial substitutes. The actual, physical volume of crude oil production has probably been flat to down since 2005. Over the past ten years, it has taken us trillions of dollars, basically, to keep us on an undulating plateau in actual crude oil production. What happens going forward?

…click on the above link to read the rest of the article…

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