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Oil has been called names (“dirty fossil fuel!”). The cartels use it as a weapon to thwart their rivals. ISIS steals it and pimps it out on some sketchy black market. Swaths of it are set on fire and used as a shield. The pipelines through which it travels to and fro are bombed or protested—nearly daily. Sometimes unscrupulous babysitters let it loose to drown in an ocean or float carelessly down the river, never to be recovered. And now, oil, at least that destined for Europe, is homeless and is not being allowed to disembark after shipment.
Oil majors in northwest Europe have booked tankers to store 9 million barrels of oil as the international supply glut grows in size, according to a ship-operator who spoke to Bloomberg.
The companies have resorted to using tankers as storage as signs emerge that onshore storage is filling up on the land-starved continent.
Next month, Northwest Europe, which includes mega-producer Norway as well as the United Kingdom, France, Germany and others, expects to load the highest number of shipments in 4.5 years.
Somewhere in between 14 to 16 medium-sized Aframax tankers have lined the ports, according to Jonathan Lee, the CEO of Tankers International. Lee, whose firm operates the biggest pool of supertankers in the world, confirmed that the lack of land space to store fuel is the likely cause of the tanker buildup.
Reuters reported on Friday that the rate to book an Aframax tanker has almost doubled from the July figure, partially due to the widespread use of ships as floating storage units.
North Sea producers have upped production as the Organization of Petroleum Exporting Countries (OPEC) prepares to finalize the term of an output freeze by the end of this month.
…click on the above link to read the rest of the article…
Oil prices fell on Friday as the IEA downgraded its projections for oil demand, dashing hopes that oil markets would rebalance this year.
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…click on the above link to read the rest of the article…
While the world was speculating about oil prices plunging to $20 and $10 per barrel, China was busy stockpiling its reserves.
The chart below shows an increase in imports as crude prices collapsed. Since the beginning of this year, China has imported a record quantity of oil.
(Click to enlarge)
Back in January 2015, Reuters had reported that China planned to increase its strategic petroleum reserves (SPR) from 30 days to 90 days. In January 2016, it was revealed that China was building underground storage to complement its above-ground storage tanks.
The Chinese urgency points to two things. China believes that crude oil prices will not remain at the current levels for long, and that a disruption is possible due to geopolitical reasons, which can propel oil prices higher.
As a net importer of crude, it is protecting itself against a black swan event and using the current low prices to fill its tanks. The filled up tanks will ensure a steady supply of crude for at least three months in case of a disruption.
Does the record buying spree by the Chinese indicate a bottom in crude oil prices?
That is difficult to conclude, but it does put a floor beneath the current lows, because in all likelihood, China will resume its record buying and top up its SPR if prices tank.
The total Chinese imports in March via the very large crude carriers was 7.7 million barrels a day. Other than the supertankers, China also imports oil through pipelines and small tankers.
…click on the above link to read the rest of the article…
You may remember that just two months ago the International Energy Agency warnedthe oil market could “drown in oversupply” in 2016. The outlook for oil, which had tumbled 75% since 2012 and hit a low of $28 per barrel by mid January, was looking bleak with some analysts suggesting that sub-$20 oil was a real possibility.
The official numbers were compelling – the world was awash in oil with scores of tankers brimming with black gold reportedly sitting in limbo with nowhere to go. Oil storage was at capacity. OPEC warned that oil wouldn’t return to triple digits for two decades.
The entire North American oil sector had collapsed. Tens of thousands of jobs disappeared almost overnight. And with prices so low, many producers and exploration companies who had taken out large financing packages started missing payments. The energy debt bubble had burst.
But what if the oversupply that was threatening to topple mid east governments and unravel the global economy was a complete fabrication?
What if it the numbers upon which the entire narrative was predicated were nothing but fantasy?
It turns out that this may well be the case, according to Fortune:
The IEA was unable to account for 800,000 barrels of crude per day last year–the highest level of missing crude in 17 years.
The missing crude could simply be a figment of statistics, showing up in the agency’s data due to flawed accounting.
…
If the oversupply has been exaggerated and those barrels don’t exist, market analysts say that the oil market could tighten substantially.Crude prices have wallowed at their lowest point in more than a decade over the course of a nearly-two-year crash marked by concern about oversupply.
…click on the above link to read the rest of the article…
Former CIBC chief economist outlines latest predictions at ‘Carbon Talks.’
Former CIBC world markets economist Jeff Rubin at SFU’s ‘Carbon Talks’ panel. On the right is Vancity’s mutual fund manager Dermot Foley. Photo by Mychaylo Prystupa.
Those were the takeaways from a trio of experts who spoke in Vancouver Wednesday at a “Carbon Talks” event hosted by Simon Fraser University with the David Suzuki Foundation and the Centre for International Governance.
And the reasons for them have a lot less to do with vocal activist opposition or the Trudeau government’s climate commitments than they do with the brute forces of the global marketplace for oil.
It was Jeff Rubin — former CIBC World Markets chief economist and now energy futurist — who declared some of Canada’s largest oil sands operations doomed to be shuttered.
“Hanging over the oil sands industry like the Sword of Damocles,” Rubin said, “is the fact that they are hemorrhaging red ink. At today’s prices, the oil sands are not commercially viable.”
The problem, he said, isn’t that the industry “has been targeted by sanctions or by environmental groups. The problem has been that oil imports in the United States have been halved over the last five years.”
…click on the above link to read the rest of the article…
The behavior of Saudi Arabia since 2014 has demonstrated the intent to increase both capacity and supply, a pattern not yet mitigated despite a distracting news feed from OPEC and the kingdom.
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Figure 1: Rig counts in US (oil-directed) and Saudi Arabia.
Figure 1 shows the rig counts in Saudi Arabia and the United States from 2009 to last week. (footnote: The U.S. count is oil-directed rigs while it is the total rig count in Saudi Arabia which produces mainly associated gas and exports none.) The data is shown on two different scales in such a way that the curves are equivalent during 2012 and 2013 as this was a relatively stable baseline with Saudi running 80 to 85 rigs, and 1300 to 1400 were drilling for oil in the US. What is most interesting are the actions since then.
As the shale oil revolution had sustained momentum at prices near $100 /bbl, Saudi Arabia began the second most rapid rig count expansion in its history starting in late 2013. During 2014, while the potential for oversupply was clearly known and even as prices turned sharply down in the latter half of the year, Saudi continued ramping up its rig count.
In late November 2014, the semi-annual OPEC meeting turned dissentious, and the group closed without even the pretense of a target production volume. Starting in November and continuing through March, the Saudi rig count grew in its third largest expansion in history, increasing 15 percent in four months.
…click on the above link to read the rest of the article…
In early 1983 – the first week of February, to be precise – the inventory of crude oil in the U.S. reached an all-time economic high. I say “economic high” because nominal supply of crude oil has since far surpassed its 1983 number. In fact, current U.S. crude-oil inventory (504 million barrels) is the actual all-time high. Supply today is about 150 million barrels more than total supply in 1983.
Obviously, we have a lot more oil in storage than we’ve ever had before – about 40% more. But nominal supply numbers aren’t as important as you might think. Demand for crude oil in our economy has grown a lot since 1983.
To make a bona fide “apples-to-apples” comparison to today’s supply glut, we should measure the amount of oil supply relative to consumption. In 1983, the number of days’ worth of consumption in the U.S. hit a peak of 33.4. That’s the largest amount of crude oil we’ve ever held in private storage, relative to demand. That’s the all-time highest amount of “economic supply” – supply in relation to actual demand.
Much like today’s glut, the glut of oil from the mid-1980s was caused by a sustained increase in U.S. production. More oil was coming from Alaska’s North Slope. The Trans-Alaska pipeline began operation in July 1977. It had an immediate effect on total U.S. supply.
U.S. oil production grew from 227 million barrels per month in 1977 to almost 270 million barrels per month in July 1986 – an increase in monthly production of 18.9% over nine years. As you might remember, gasoline prices fell to well below $1 per gallon… and we saw a commercial real estate and banking crisis in Texas. Houston real estate didn’t recover for 20 years.
…click on the above link to read the rest of the article…
It was just last week when we said that Cushing may be about to overflow in the face of an acute crude oil supply glut.
“Even the highly adaptive US storage system appears to be reaching its limits,” we wrote, before plotting Cushing capacity versus inventory levels. We also took a look at the EIA’s latest take on the subject and showed you the following chart which depicts how much higher inventory levels are today versus their five-year averages.
And now with major US refiners dumping crude, as we detailed overnight, those fears are surging.
U.S. Energy Information Administration data on Wednesday showed inventories at the Cushing, Oklahoma delivery hub hit a record 64.7 million barrels last week – just 8 million barrels shy of its theoretical limit – stoking concerns that tanks may overflow in coming weeks.
And now, given the “super-contango” in 3-month it is extremely clear that storage concerns are at their highest in 5 years…
Simply put, as one trader noted, speculators are now “making the leap to Cushing storage never being more full… will actually overfill, or even stop taking crude oil deliveries outright.”
It was just last week when we said that Cushing may be about to overflow in the face of an acute crude oil supply glut.
…click on the above link to read the rest of the article…
That would upend the financial prospects for a lot of oil and gas companies. In January, Moody’s Investors Service put 120 oil and gas companies on review for a possible downgrade as the financial positions of the entire industry continue to suffer.
Smaller companies with fewer financial resources at their disposal are more likely to have trouble with mountains of debt. In fact, the yields on speculative energy debt are spiking amid growing speculation about financial distress.
Bond yields on the Markit CDX North America High Yield Index, which tracks 100 high-yield companies, spiked to its highest level since 2012. The energy sector rose to 1,525 basis points. This is a sign of rapidly shrinking confidence in the ability of these companies to meet debt payments.
The problem for so many energy companies is that on top of the worst bust in oil prices since the 1980s is the fact that there are much broader concerns about the global economy.
The crash in oil prices was largely a supply-side phenomenon. Oil demand grew relatively steadily in recent years, but supply surged at a much faster clip. The overhang was what sent prices plunging by 75 percent in just 18 months.
But the lack of a strong rebound, while still evidence of persistent problems on the supply side of the equation, is also being driven by weak demand. The IEA said that demand grew at 1.6 million barrels per day (mb/d) in 2015, but will only expand by 1.2 mb/d this year. While it would be hard to repeat the strong 1.6 mb/d figure a second year in a row, one would think that oil selling at its lowest point in at least 12 years would spark stronger demand.
…click on the above link to read the rest of the article…
Remember, peaking in production, by definition, means that you have plenty of oil left. It has nothing to do with running out.…[T]he only people who ever use the phrase ‘running out of oil’ are people who either don’t understand Peak Oil, or people trying to mislead an audience about Peak Oil. Because again, if you can successfully mislead an audience and frame the argument as ‘No more oil’ vs ‘We still have oil’ – you again set yourself up for an easy debate victory. [1]
The reality—difficult as acceptance of it appears to be for some—is that by whatever phraseology one prefers, readily available and affordable conventional crude oil is no longer readily available and affordable—from the production standpoint. The energy source of choice for decades is no longer as abundant and accessible as it once was [temporary “glut” duly acknowledged], and the fossil fuel industry has had no choice in recent years but to look elsewhere and at other and inferior supply sources. To the credit of industry efforts and technological prowess, recent years [at least until recent months] have seen an uptick in production from the shale formations here in the United States.
Yet that short-lived benefit highlights another failing of right-wing philosophy in the face of Peak Oil: Yes, we’ll need all of the marvels of “human ingenuity” and great technological inventions. But those factors alone are not the solution.
Conventional crude oil’s rate of production peaked a decade ago. Finite resources drawn down daily beyond that point possess no magic qualities. Continuing to draw them down means there will be less the next day and then even less the day after.
We’re not running out. There is a lot of fossil fuel left underground. But now it’s more difficult to extract. It costs more to do so.
…click on the above link to read the rest of the article…
The Australian Capital’s daily newspaper Canberra Times started the New Year by reprinting an article of the Daily Telegraph referring to an abundance of oil – without checking whether this also applies to Australia, especially after a year of political football games between a Senate committee and energy bureaucrats on one side and between the Industry and Foreign Ministers on the other, over Australia’s non-existent strategic oil reserve.
So let’s check on Australia’s commercial stocks, using the Australian Petroleum Statistics
http://www.industry.gov.au/Office-of-the-Chief-Economist/Publications/Pages/Australian-petroleum-statistics.aspx of the Department of Industry.
Fig 1: Gasoline stocks and consumption cover in days
Average Gasoline stocks over 5 years were 740 Kt with seasonal fluctuations of around ±100 Kt (table 6). These stocks cover consumption of around 21 days or 3 weeks (table 7). The month-to-month fluctuations are caused by the arrival of tanker ships.
Fig 2: Diesel stocks and consumption cover in days
Average diesel stocks are 860 Kt equal to a consumption cover of only 17 days.
Fig 3: Jet fuel stocks and consumption cover in days
Average jet fuel stocks are 300 Kt equivalent to 18 days’ consumption.
Fig 4: LPG stocks and consumption cover in days
Average LPG stocks are 160 Kt equal to 27 days’ consumption.
Fig 5: Crude oil stocks and refinery input cover
Crude oil stocks have been reduced after the closure of 2 oil refineries.
The Shell refinery in Sydney (85 kb/d) closed in September 2012 which is about 340 Kt/month.
The Caltex refinery in Sydney (135 kb/d) closed in December 2014 equivalent to 550 Kt/month. So at around one month refinery input in stocks, these refinery closures would explain a drop in stocks of around 900 Kt.
The next refinery closure will be BP in Brisbane (100 kb/d)
As a member of the IEA and a net oil importer Australia is obliged to keep stocks of 90 days of net oil imports (crude and products)
…click on the above link to read the rest of the article…
The media is full with news that there is a global oil glut.
There are now more than 3bn barrels of excess oil in the world
13/11/2015
http://www.telegraph.co.uk/finance/oilprices/11993687/There-are-now-more-than-3bn-barrels-of-excess-oil-in-the-world.html
Record oil glut stands at 3bn barrels
13/11/2015
http://www.bbc.com/news/business-34808487
It was parroted by the Australian public broadcaster ABC TV, using this (unsuitable) opportunity to take a swipe at peak oil:
Peak oil losing credibility as renewables shift accelerates
24/12/2015
“With the world awash with too much crude oil at the moment, the fear of an economic catastrophe when fossil fuels start running out is quietly fading in the background.”
http://www.abc.net.au/news/2015-12-24/peak-oil-losing-credibility-as-shift-to-renewables-accelerates/7052196
These stories go back to the IEA’s Monthly Oil Market Report (OMR), November 2015 which reads:
“Stockpiles of oil at a record 3 billion barrels are providing world markets with a degree of comfort. This massive cushion has inflated even as the global oil market adjusts to $50/bbl oil.”
https://www.iea.org/oilmarketreport/reports/2015/1115/
So how much is 3 bn barrels?
Let’s have a look at the statistics in the latest IEA OMR of December 2015. It’s only about OECD stocks, not the whole world.
Fig 1: OECD total oil stocks
https://www.iea.org/media/omrreports/fullissues/2015-12-11.pdf
We see that oil stocks in the period 2009 (light blue line) to 2013 (dotted line) varied between 2,6 bn and 2.8 bn barrels along with seasonal changes. The average stocks for this time of the year is 2.7 bn barrels. We can consider this range as the result of normal operating conditions allowing for accidents, refinery maintenance, transport disruptions, strikes etc but also demand side changes from a weak economy (2009) to high oil prices (2013).
Therefore, that magic glut is 3 bn – 2.7 bn = 300 million barrels or roughly 10% of the average. The long term trend of OECD stocks is shown in the next graph:
Fig 2: OECD stock changes since 1988
In 1988, average stocks were 2.5 bn barrels One can put many trend lines into Fig 2, depending on which period one selects and which exceptional events are excluded.
…click on the above link to read the rest of the article…
Much has been written about the mounting pile of debt for U.S. oil companies (not to mention the well-known Brazilian oil giant).
Not that long ago, many oil and gas companies secured at least a part of their revenue by hedging contracts. Bloomberg already reported in June that many of these companies saw their artificial safety nets vanishing as oil prices failed to recover. One month later, we heard such morale boosting terms as ‘frack now, pay later,’ which were merely a bold move by struggling oil services companies to encourage cash strapped oil and gas companies to continue operations.
Simultaneously, we witnessed the bankruptcies of companies such as Samson Resources, Hercules Offshore and Sabine Oil & Gas Corp. These bankruptcies put the industry on notice. The cash flow situation for the entire oil and gas sector looks outright grim. Credit rating agency Moody’s expects a sector wide negative cash flow of $80 billion and is expecting spending cuts to continue next year. See figure 1 below for an overview of industry income and spending.
Related: Tanker Companies Profiting From Low Oil Prices
Image source: Reuters
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Summing it up, debt, negative cash flows and the outlook for oil prices have led weak companies with balance sheets to a divest in a big way.
Although we have witnessed a couple of noteworthy acquisitions in the last months, which put 2015 in the books as a year with high volume takeovers, we cannot yet speak about an absolute M&A boom.
One of the most important reasons holding back takeovers of entire companies is the oil price volatility we have seen in the last few weeks. Financially stronger oil and gas companies seem to have postponed takeover plans and are now focusing on the acquisition of promising land holdings. Nonetheless, it seems that both buyers and sellers are preparing themselves for what could turn out to be a fire sale.
…click on the above link to read the rest of the article…
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…
Gasoline may stay cheap until we burn through the current market glut in perhaps a year.
The Texas shale drilling industry was supposed to keep us driving normally forever, or at least until the economy could recover enough so we could afford to make a transition to electric cars, right? Everyone connected to Wall Street and its financial followers with any media influence were saying that only about a year ago. Then the global oil price gradually collapsed from over $100 a barrel in mid-2014, down to its current price of about $45.
The reason that the Texas shale drilling boom is now in a state of deep decline and won’t easily bounce back is that shale drilling is losing money. Shale oil really needs $80 a barrel or above to break even in the context of fast well decline and shrinking number of sweet spots left to drill.
Shale drillers must keep producing oil at a loss because of their largely junk bond financing.
…click on the above link to read the rest of the article…
