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Crude prices will likely get a fresh boost this week, as stockpiles at the key US storage hub in Cushing, Oklahoma, risk collapsing to the lowest level (aka “tank-bottoms”) in almost a decade.

Such a move would embolden those aiming for a return of $100 oil by year-end.

Cushing matters. Being the delivery point for the WTI futures contract, the rise and fall of the holdings is among the market’s most closely followed trends. So far in 3Q, inventories have slumped by ~47% to 22.9m barrels. That’s the lowest since July 2022 and that’s not far away from the 2014 lows.

If that comes to pass, it’d highlight the scramble for near-term supplies as the global market tightens up.

Estimates come on Tuesday, followed by the official print the next day.

JPM: “We Could Be Just Weeks Away From Cushing Effectively Running Out Of Crude”

October 21, 2021

JPM: “We Could Be Just Weeks Away From Cushing Effectively Running Out Of Crude”

Back in April 2020, the landlocked West Texas Intermediate crude oil price briefly crashed into negative territory – a stunning turn of events that cost traders massive losses – when the spot oil market found itself with an unprecedented glut as there was literally too much oil to be stored, and as such those traders who were assigned delivery would pay others just to take the physical oil off their hands. Well, in just a few weeks we may see the opposite scenario: no physical oil at all in the largest US commercial storage facility, leading to what may be a superspike in the price of oil.

In a note predicting the near-term dynamics of the oil market, JPMorgan’s commodity Natasha Kaneva writes that in a world of pervasive nat gas and coal shortages which are forcing the power sector to increasingly turn to oil (boosting demand by 750bkd during winter and drawing inventory by 2.1mmb/d in Nov and Dec), Cushing oil storage – which just dropped to 31.2mm barrels, the lowest since 2018…

… may be just weeks from being “effectively out of crude.” The bank’s conclusion: “if nothing were to change in the Cushing balance over the next two months, we might expect front WTI spreads to spike to record highs—a “super backwardation” scenario.”

Before we get into the meat of the note, first some background which as usual these days, begins with Europe’s catastrophic handling of its energy needs.

As JPM notes, the heating season of 2021/2022 is opening with record high global gas prices even as cold winter weather has yet to arrive…

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

“It’s Happening Again” – Traders Store Oil At Sea As Recovery Falters

September 10, 2020

“It’s Happening Again” – Traders Store Oil At Sea As Recovery Falters

Crude prices slid Thursday as the stalled global economic recovery from the virus pandemic triggers a “second wave” of demand fears and sparks renewed interest in floating storage as the oil market flips bearish.

Reuters said a “fresh build-up of global oil supplies, pushing traders including Trafigura to book tankers to store millions of barrels of crude oil and refined fuels at sea again.”

Floating storage, onboard crude tankers, comes as traditional onshore storage nears capacity as supply outpaces demand.

Total Oil Inventories

Refinitiv vessel data shows trading house Trafigura has recently chartered at least five crude tankers, each capable of 2 million barrels of oil.

The inventory build up, driving up demand for floating storage comes as OPEC+ recently trimmed supply curbs from earlier this year on expectations demand would improve. Though with the peak summer driving season in the US now over, demand woes and oversupplied markets are pressuring crude and crude product prices.

Very large crude-oil carrier (VLCC) storage has started to rise once again.

“Despite the recent slide in oil prices, we think that the OPEC+ leadership will continue to direct its efforts towards securing better compliance rather than pushing for deeper cuts at this stage,” RBC analysts said.

Another catalyst for the bearish tilt in crude markets is that China’s oil imports are likely to subside as independent refineries have reached maximum annual oil import quotas.

Reuters notes, in a separate report, that other top commodity traders are booking tankers to store crude products at sea, including diesel and gasoline.

Refinitiv vessel data also shows Vitol, Litasco, and Glencor have been booking tankers in the last several days to store diesel for the next three months.

“The market is soft and bearish, and floating storage is returning again,” a market source told Reuters.

Will covid-19 delay peak oil?

May 9, 2020

Will covid-19 delay peak oil?

With global demand having fallen by about 29 million barrels per day from a year ago, it seems like this pandemic might delay peak oil production while the pandemic and consequent depression lasts, since so much less oil is being consumed. Since storage is getting full, many oil producers are being forced to shut down wells, since there’s nowhere to put the oil or demand for it.

Shut down wells may produce less oil after being restarted

Shutting in wells can reduce oil production when restarted, but that doesn’t happen every time. Sometimes you get lucky. More often though, the sub-surface gremlins in the reservoirs are going to get you. The net effect will likely be less oil and gas than there was before.

With prices so low and storage so full, some producers are shutting down wells. But the problem with that is it can have long term consequences, damaging the reservoir so that in the future not all of the oil can be produced (Brower 2020).

In addition to reservoir problems, especially tar sands, conventional and other wells face restart issues with the pipes, valves, separators, pumps, pipelines, older wells, and so many other technical problems that at least about 10-20% plus a loss of ability to reopen marginal projects. Depending how the game is played by the industry, the damage can be twice that, easily, especially in offshore and ultra-deep offshore wells, where methane hydrates will form immediately in seafloor pipelines and plug them. These wells could be 100 times more difficult to restart than a shale well (Patzek 2020).

Operations in the Gulf of Mexico will likely shut last, since the miles of pipelines that carry the oil along the sea floor to processing facilities on shore can clog if shut off for too long.

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

There Is Now A Record 375 Million Barrels Of Oil Stored On Tankers

May 3, 2020

There Is Now A Record 375 Million Barrels Of Oil Stored On Tankers

Last weekend we showed that as oil storage on land was rapidly filling up, a familiar sight was seen off the coast of Asia’s oil hub in Singapore: a record surge in tankers on anchor used as seaborne storage, and taking advantage of the supercontango just waiting for oil prices to rebound so they can deliver their (formerly) precious cargo.

So as more and more storage moves offshore, here is an update from Bank of America on the current status of the oil market as the “oil glut moves from tanks to tankers.”

In the last five weeks, onshore inventories held in floating top tanks climbed 180mn bbl, suggesting that builds have averaged roughly 4.3mn b/d since mid-March. These inventory increases reduce BofA’s estimates for available onshore crude storage capacity from roughly 910mn bbl to 730 mn bbl (Chart 2), although the bank still believes that this capacity is unlikely to be fully utilized due to logistical constraints and other issues.

How did we get here? As has been extensively reported here and elsewhere, WTI timespreads signalled a massive build in Cushing inventories and stocks would likely reach their operational limits within a few weeks (Chart 3). More recently, the expiration of the May WTI contract demonstrated the lack of available capacity at the hub. Cushing inventory builds are set to slow dramatically as much of the remaining capacity may be needed as an operational backstop for pipeline issues and blending needs (Chart 4). Over the coming weeks and months, US inventory trends could even reverse as producers in Canada and the Bakken shut-in output and refiners increase runs on the back of the re-opening of the economy.

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

“We Are Moving Into The End-Game”: 27 Tankers Anchored Off California, Hundreds Off Singapore As Oil Industry Shuts Down

April 27, 2020

“We Are Moving Into The End-Game”: 27 Tankers Anchored Off California, Hundreds Off Singapore As Oil Industry Shuts Down

Back in the late fall of 2014, when Saudi Arabia broke up OPEC for the first time and unleashed a torrent of crude oil on the world despite the protests of its fellow cartel members, oil prices crashed as a result of what then seemed to be a “calculated” move by Riyadh which hoped to put US shale out of business amid a flawed gamble betting that shale breakeven prices were around $60-80. They, however, turned out to be much lower, which coupled with Saudi misreading of the willingness of junk bond investors to keep funding US shale producers, meant that despite a 3 years stretch of low oil prices, US shale emerged stronger than ever before, with the US eventually eclipsing both Saudi Arabia and Russia as the world’s biggest crude oil producer.

Fast forward to March 2020, when Saudi Arabia doubled down in its attempt to crush shale, only to avoid angering long-time ally Donald Trump, the Crown Prince pretended that the latest flood of oil was an oil price war aimed at Moscow not Midland. And this time, unlike 2014, with the benefit of the global economic shutdown resulting from the coronavirus pandemic, the Saudis may have finally lucked out in the ongoing crusade against US oil, because as Bloomberg writes with “negative oil prices, ships dawdling at sea with unwanted cargoes, and traders getting creative about where to stash oil”, the next chapter in the oil crisis is now inevitable: “great swathes of the petroleum industry are about to start shutting down.”

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

The Unthinkable Is Happening: Oil Storage Space Is About To Run Out

March 29, 2020

The Unthinkable Is Happening: Oil Storage Space Is About To Run Out

In the past three weeks, oil plunged and has continued to plunge even more in the aftermath of the oil price war declared between Saudi Arabia and Russia, and where US shale (and its junk bonds) has been caught in the crossfire. However, as we reported last week, we may get to the absurd point when the price of a barrel of oil not only hits $0 but goes negative.

The reason: according to Mizuho’s Paul Sankey, at a whopping 15MM b/d in oversupply, crude prices could go negative as Saudi and Russian barrels enter the market. According to Sankey, much of the US 4MM bpd in crude exports will be curtailed as prices fall and tanker rates soar. And with US storage roughly 50% full, and able to take another 135MM bbl more, assuming a build rate of 2MM b/d, the US can add 14MM bbl/week for 10 weeks until full.

As a result, there is a now race between filling storage and negative pricing “unless U.S. decline rates can outpace inventory builds, which we very much doubt.” Said otherwise, absent dramatic changes, in roughly 3 months, energy merchants will be paying you if you generously take a couple million barrels of crude off their hands.

It went from bad to an outright disaster earlier this week when Goldman, Vitol, and the IEA all raised their estimate for daily oil oversupply to an unthinkable 20 million barrels per day, as a result of the collapse in oil demand as the global economy grinds to a halt coupled with Saudi Arabia’s determination to put all of its higher-cost OPEC peers out of business.

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

Europe Is Awash With Oil Stored On Ships

June 14, 2018

Europe Is Awash With Oil Stored On Ships

While many analysts and agencies have already called the end of the global oil glut, oil held in floating storage in Europe is at an at least 18-month-high, also due to the booming U.S. oil exports that have displaced some of the traditional crude oil routes in the world.

Oil in ships around European shores was 12.9 million barrels on average in May, accounting for 26 percent of all global floating storage, and more than Asia-Pacific’s 9.7 million barrels of oil stored, according to estimates by oil analytics company Vortexa, as carried by Reuters.

In the two preceding months, March and April, the share of oil in floating storage in Europe accounted for 10 percent of the global storage, compared to 40 percent stored in the Asia-Pacific region. But in May, the volumes of oil held in Europe—including in the Mediterranean—exceeded the oil held off the Asia Pacific coasts for the first time since at least early 2015, according to Vortexa.

Consultant Kpler has estimated that there are some 17 million barrels of oil stored on ships in northwest Europe—the highest since at least the beginning of 2016.

Soaring U.S. exports have upended some traditional buying patterns, as China, India, and Indonesia have purchased more U.S. crude at the expense of African crude grades from OPEC members Nigeria and Angola, and of some Middle Eastern crudes.

On the other hand, U.S. crude oil exports to Europe have also been rising lately, as U.S. oil is increasing in popularity with European refiners, often at the expense of oil cargoes from OPEC nations and Russia.

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

Hurricane Irma Prompts Oil Storage, Port Shutdowns

September 8, 2017

Hurricane Irma Prompts Oil Storage, Port Shutdowns

Hurricane Irma has prompted the shutdown of at least two oil storage complexes in the Caribbean, with a combined capacity of 18.6 million barrels, S&P Platts reports. One of these, a 14-million-barrel terminal on the island of St Eustatius operated by NuStar Energy sustained damages to some of its tanks and other equipment, the company said.

The other facility, Buckeye Partners’ Yabucoa storage complex in Puerto Rico, was shut down on Tuesday and the company is now preparing its 26.2-million-barrel storage facility on Grand Bahama Island for the hurricane. Statoil, which also has a storage site in Freeport on Grand Bahama, is monitoring developments but has not yet closed the facility.

The hurricane, which has already caused 14 deaths in the Caribbean, is moving toward Florida and is expected to make landfall on Sunday, passing through the Bahamas and Cuba en route. Some 1.2 million people have been affected by Irma so far, according to Red Cross data, and this number could shoot up to 26 million as a result of the damage done by the storm.

In Florida, ports will start closing today ahead of the storm, and this could disrupt the supply of oil products, Platts notes. Florida receives 97 percent of its oil products by sea, with throughput at Port Everglades, in eastern Florida, at 121.07 million barrels last year. Port Everglades is among the terminals that will be closed. Related: China Declares Support For Punitive Action Against North Korea

Already in some parts of the state, fuel retailers are reporting shortages as people stock up on gasoline ahead of Irma’s arrival and evacuate. Meanwhile, two more storms are brewing in the region, with the U.S. National Hurricane Center expecting Jose to intensify to a major hurricane by the end of the day today. The other one, Katia, is in the Gulf of Mexico, expected to reach the Mexican coast late today or early tomorrow.

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

Glut Fears Spike As Europe Runs Out Of On-Land Oil Storage

November 12, 2016

Glut Fears Spike As Europe Runs Out Of On-Land Oil Storage

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…

Why China Is Really Dictating the Oil Supply Glut

May 2, 2016

Why China Is Really Dictating the Oil Supply Glut

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…

Oil Prices Fall Fast On Huge Inventory Build

March 23, 2016

Oil Prices Fall Fast On Huge Inventory Build

Two hundred and twenty-two years after Josiah G. Pierson patented the rivet machine, and the oil market remains as riveting as ever. (I’m here all week, folks). After yesterday’s API report gave a flourishing hat-tip towards a large build to crude stocks and a large draw to gasoline, oil is sliding amid a stronger dollar, while gasoline is pushing higher. Here are some things to consider today:

Jumping straight into economic data, the most insights we’ve had overnight have come from Brazil. Its mid-month inflation print dropped into single digits (at +9.95 percent), but still close to a 12-year high. Meanwhile, its unemployment rate jumped to 8.2 percent, its highest level in nearly 7 years.

Economic weakness in Brazil is strongly tied to the performance of the underlying resources it is rich in. Hence, as the price of key commodities for the South American country – such as soybeans, iron ore and crude – have headed south, so has its economy. As the chart below illustrates, the fate of the state-run oil company Petrobras tracks closely with oil prices. Hence as oil prices have charged lower, it is no surprise to hear this week that Petrobras has reported its biggest ever quarterly loss of $10 billion in Q4 of 2015, due to asset write-downs amid falling oil prices.

(Click to enlarge)

We have U.S. weekly inventories on deck this morning, with last night’s humongous API crude build of 8.8 million barrels adjusting expectations ahead of today’s number. The API report also yielded a large 4.3 million barrel draw to gasoline stocks, pointing to a drop in refinery utilization (read: refinery maintenance) amid destocking from the winter to the summer blend. As we mentioned yesterday, our ClipperData showed strong crude imports last week amid a wealth of waterborne arrivals into the U.S. Gulf, tipping us off to a crude build.

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

Why Oil Prices May Not Move Higher

March 15, 2016

Why Oil Prices May Not Move Higher

It is similar to the false March-June 2015 rally. In both cases, prices increased largely because of sentiment. As in the earlier rally, current storage volumes are too large and demand is too weak to sustain higher prices for long.

WTI prices have increased 47 percent over the past 20 days from $26.21 in mid-February to $38.50 last week (Figure 1).

Figure 1. NYMEX WTI futures prices & OVX oil-price volatility, 2015-2016. Source: EIA, CBOE, Bloomberg and Labyrinth Consulting Services, Inc. (click image to enlarge).

A year ago, WTI rose 41 percent in 35 days from $43 to almost $61 per barrel. Like today, analysts then believed that a bottom had been reached. Prices stayed around $60 for 37 days before falling to a new bottom of $38 per barrel in late August. Much lower bottoms would be found after that all the way down to almost $26 per barrel at the beginning of the present rally.

Higher prices were unsustainable a year ago partly because crude oil inventories were more than 100 mmb (million barrels) above the 5-year average (Figure 2). Current inventory levels are 50 mmb higher than during the false rally of 2015 and are they still increasing.

Figure 2. U.S. crude oil stocks. Source: EIA and Labyrinth Consulting Services, Inc. (click image to enlarge).

International stocks reflect a similar picture. OECD inventories are at 3.1 billion barrels of liquids, 431 mmb more than the 2010-2014 average and 359 mmb above the 2015 level. Approximately one-third of OECD stocks are U.S. (1.35 billion barrels of liquids).

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

A Secret About Oil You Won’t Find Anywhere Else

March 2, 2016

A Secret About Oil You Won’t Find Anywhere Else

This is going to be a far larger problem than Wall Street realizes.

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…

“There’s A Feeling Of Bits Of Ice Cracking All At Once” – This Is The ‘Big New Threat’ To Oil Prices

February 27, 2016

“There’s A Feeling Of Bits Of Ice Cracking All At Once” – This Is The ‘Big New Threat’ To Oil Prices

One week ago, we reported that even as traders were focusing on the daily headline barrage out of OPEC members discussing whether or not they would cut production (they won’t) or merely freeze it (at fresh record levels as Russia reported earlier today) a bigger threat in the near-term will be whether the relentless supply of excess oil will force Cushing, and PADD 2 in general, inventory to reach operational capacity.

As Genscape added in a recent presentation, when looking specifically at Cushing, the storage facility is virtually operationally full (at 80%) with just 4-5 more months at current inventory build left until the choke point is breached, and as we have reported previously, storage requests for specific grades have already been denied.

Goldman summarizes the dire near-term options before the industry as follows:

The large builds in gasoline and crude stocks have brought PADD 2 storage utilization near record high levels. While the recent decline in Midcontinent refining margins should help avoid breaching storage capacity, by finally bringing gasoline back into deficit, this will likely only exacerbate the build in crude inventories in coming months and should require further weakness in PADD2 crude prices to spread this build to the USGC. Weaker gasoline demand/exports, or higher margins/runs or finally resilient crude imports/production, could create binding storage issues beyond the intermittent Cushing WTI cash price weakness observed so far, which would require another large leg lower in crude prices to shut production in the Midcontinent and Canada. As we have argued, this continued testing of storage constraints should keep price and margin volatility elevated.

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

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