Iran, OPEC's second-largest oil producer, more than doubled the fuel it stores in tankers idling in the Persian Gulf because of falling demand for its sulfur- rich crude, people familiar with the situation said. The increase has contributed to a surge in tanker leasing rates, with prices more than tripling since April 8, based on data from the Baltic Exchange and ship-fuel prices. Iran has 10 tankers holding at least 20 million barrels of oil, equal to about 5 days of the country's output, said the people, who asked not to be identified because the information isn't public. While demand for crude oil pushed the benchmark price to a record $119.93 a barrel on April 28, Iran has a glut of high- sulfur crude as refineries that process the fuel have shut down for maintenance. The discount on Iranian Heavy crude compared with Oman and Dubai petroleum has more than doubled since the start of the year, according to data compiled by Bloomberg. ``There's not much demand for heavier crudes such as those from Iran,'' said Anthony Nunan, assistant general manager for risk management at Mitsubishi Corp. in Tokyo. ``It's the peak of the refinery maintenance season in Asia, and Iran also sells oil to Europe and the Mediterranean, where some refineries are having turnarounds,'' or seasonal closures for repairs, he said. Anybody trading freight derivatives ? http://www.bloomberg.com/apps/news?pid=20601087&sid=aQZcc1kgLb8k&refer=home
I do not trade freight derivatives, but the question from my mind is what is Iran's angle for using tankers to store oil? There is no cheaper storage than in the ground. I have been around oil fields enough to know you can slow production by rotating shutdowns and not hurt the wells at all. The Iranians know this. They have had a bunch of tankers offshore for quite a while...now they are doubling it? Maybe tying up tankers is an economic retaliation against nuclear sanctions and keep oil high as a byproduct? Ideas anyone? T
I was told that an Italian oil mogul did a very similar trick many years ago. The tankers were coming ashore to unload, but he stopped them and told them to wait for a while off the coast. Price went up, and he banked a nice profit. They're probably playing the same game.
That tanker story caught my eye too. I remember a story out of Scadinavia that the Iranians had had to lease a bunch of vlcc because of a hopeless overproduction/low demand/storage problem. It was right before the 25$ crash nobody seems to remember maybe two years or so ago. No idea if there was a connection and I never took the short trade then. I might well be taking it Sunday night or Monday though if I see an opening.
The Scandinavia story is fascinating. Unquestionably EVERYONE positions themselves for their best possible outcome. There was this guy on Bloomberg today that was saying that the increase in US inventories today was bullish for oil/gasoline/distillates because of some interaction with refiners coming off turnarounds. He was breathless and talking 198 words per minute and I couldn't follow his logic as to why having more supply for the refiners to buy from would be bullish. Maybe I missed some key fact or don't have enough knowledge about that supply chain...but he just looked like someone that knew he was full of poo and had to lie anyway. Personally, I really want to know the logic on renting very large crude carriers by Iran. I had a couple Iranian friends in college and they were smart as they come, but there could be politics involved that flushes all brainpower. It just seems so counterproductive to lease where it is expensive and risky vs leaving it in the ground where it is safe and free. Does anyone know the answer to this question: Is there any requirement in forward sales contracts that the oil must already have been produced and in 'above ground' storage to be valid (vs being 'near-production' and still in the ground?) If that were true that might explain explain a lot of inventories rising to support an oversupply of futures contracts. On the other hand, production risk rides with the producer who is on the other side of the contract. Just don't know. I wish we had an honest oilman here that was retired and out of the business to give us the straight dope. Ideas? Best Regards, T
To your first question - the guy may have been simply referring to stock prices for refiners. If so, you need to focus on the fact that crude is a cost to the refiner which, after being lumped in with all of the other costs to run the refinery, has to be recouped and then some after the crude is converted to gasoline, jet fuel, diesel, etc. After a crude oil run up, there tends to be a lag between a fall back in crude prices and a fall back in retail gasoline prices (retail gasoline prices tend to not fall back as fast) . So he may have been addressing that. Re: the maintenance turnarounds, if a bunch of refiners are going back into full operation (which means they are all significantly increasing their crude oil runs) at the same time in a tightly supplied crude oil market, the competition for the barrels could ramp up the crude price - possibly to a point where the percentage cannot be passed along on the refined product side. He seems to be saying that crude is in decent supply and the group of refiners swinging back into full op mode will not have to compete w/each other to get the barrels. In his opinion, the cost side of the profit margin is not threatened. On the oil contracts, you are responsible for getting the agreed upon # barrels and crude oil that meets the agreed upon specs to a certain place by a certain time. Whether you deliver your own bbls. or buy them from another - the receiver will rarely care about that.
random thought, what keeps these wealthy oil producing companies from buying large amounts of future contracts to drive up oil's price even more ?