I think that was a very different situation. The move up to 147 in July of 08 saw serious demand destruction which is very hard to recover from. This selloff has been very controlled and very steady. Almost shockingly steady. I believe it's mostly a China story. You had a lot of weird distortions in 2008 from credit freezing to Fed Policy moves that are very difficult to compare to what's going on now. I certainly would not want to trade off the comparison. Not to mention a very different story in the Dollar currency.
Here's a blast from the past Mav: http://www.marketwatch.com/story/crude-super-contango-puts-more-oil-in-storage-signals-price-rise I completely agree the catalysts for $30 this time are vastly different from 2009, but if Cushing nears capacity it should ultimately manifest the same way in the curve. Genscape says we're approaching 80% so peak capacity and any resultant curve distortions are something to keep an eye on.
So here is what has changed in my humble opinion since 2008. Storage is HUGE now. Cushing is a non-event. In 2008 everyone was watching the levels there. Now you have half the Atlantic stuffed with cargoes full of oil. Cushing is a drop in the bucket. So many feel, who cares if Cushing is full, no one is buying their oil from them anyway. Why? Because the US is no longer the incremental buyer, China is. And until now, we could not even export WTI to get oil to China. The world has changed a lot since 2008. You can throw away the free Cushing coffee mugs. Your kids will be visiting it as museum. And to further add, the US is no longer relevant in the oil game anyway. Gone are the days where we did live coverage on the floor of the NYMEX, now a retail gift shop. The oil capital of the world is Singapore.
Wow, so much I didn't know. But aren't we relevant as far as production? At least until we dropped enough to throttle supply. Maybe weren't is a better word.
http://www.wsj.com/articles/SB10001424052702304632204579337913522664136 "Come gather ’round people Wherever you roam And admit that the waters Around you have grown And accept it that soon You’ll be drenched to the bone If your time to you is worth savin’ Then you better start swimmin’ or you’ll sink like a stone For the times they are a-changin’" Bob Dylan
SINGAPORE—Asia's largest oil-trading hub is about to get much larger. Singapore is running out of space for the facilities needed to store crude oil, products such as gasoline, and chemicals. Billions of dollars of new investment money is flowing into neighboring Malaysia and Indonesia to take up the slack. ENLARGE Southeast Asia's first subterranean hydrocarbon storage facility is located on Jurong island, Singapore. The contract to operate the Jurong Rock Caverns was awarded to a consortium led by Vopak Terminals Singapore. JTC Corp. Singapore's existing energy infrastructure is already immense. It supplies enough shipping fuel in a year to fill more than 17,000 Olympic-size swimming pools, and its ports can accommodate around 1,000 ships at a time, including oil tankers as long as three football fields each. Adding tanks being planned and built within an hour-long voyage of the city-state's central Keppel Harbour, the "greater Singapore" area will increase its capacity for hydrocarbon storage by more than half over the next several years, allowing it to surpass the world's largest international oil-trading hub, known as ARA for the European cities it encompasses: Amsterdam, Rotterdam and Antwerp. Singapore can currently store around 11 million cubic meters of chemicals, oil and liquid fuels like gasoline and diesel in its tank farms. That is equivalent to around 68 million barrels of oil, about as much as Vietnam consumes in half a year. Indonesia and Malaysia have completed tank farms in the area that can store 7 million cubic meters, and as much as an additional 10 million cubic meters is in the works. ENLARGE "By 2015, independent oil-storage capacity of five million cubic meters will be added in the greater Singapore region," Wood Mackenzie senior downstream analyst Sushant Kumar told The Wall Street Journal. "This will take total oil-storage capacity to 23 million cubic meters in the whole region, surpassing the Amsterdam, Rotterdam and Antwerp oil hub in Europe." The ARA hub's capacity will likely be 21 million cubic meters by 2015, according to Mr. Kumar. The industrial cluster on Jurong island, just southwest of Singapore island, comprises more than $42 billion in energy and petrochemical investments. Every million cubic meters of additional storage costs around $300 million-$400 million to build, based on an average estimate provided by market players. The largest storage operator in Singapore, with four operational terminals, is Netherlands-based Royal Vopak, VPK-0.17% the world's largest independent oil-storage company. It is developing a 1.3 million-cubic-meter oil-storage terminal in Pengerang, Malaysia, with Dialog Group and the state government of Johor. The facility, expected to be complete by April , can be expanded by another million cubic meters. "Land scarcity is indeed one of the challenges for Singapore and it does mean that efficient and creative use of land will always be on the government's agenda," said Patrick van der Voort, division president for Vopak Asia. The planned $20 billion Pengerang oil-refining and petrochemical complex is one of Malaysia's most ambitious projects under state-run Petroliam Nasional Bhd., or Petronas. Other projects lined up in Malaysia include the expansion of a facility at Tanjung Bin from 890,000 cubic meters to 1.14 million cubic meters by the second quarter of 2015. The existing facility is run by VTTI is a 50:50 joint venture between Geneva-based, Dutch-owned commodity trader Vitol Group and Malaysian shipbuilder MISC MISC0.00% Bhd. Trafigura, the world's third-largest independent oil trader, has an expansion project at Tanjung Langsat in Malaysia, while in Indonesia, oil trader Gunvor, Oiltanking GmbH, and China International United Petroleum & Chemicals Co., or Unipec, have plans for new storage facilities. Some industry experts have voiced concerns about the feasibility of the expansion plans. "If all of the announced new projects get built, some of them might struggle to compete with the established terminals or face a challenge to make a return on their investment," said Aernout Boot, general manager at VTTI. Nevertheless, Asia's fuel demand is rising inexorably. The U.S. Energy Information Administration said in its latest international energy outlook that countries in Asia that aren't members of the Organization for Economic Cooperation and Development will account for more than two-thirds of the increase in global liquids demand between 2010 and 2040. This means that more oil and oil-product cargoes are making their way through Singapore's environs. Platts, a unit of McGraw Hill Financial, MHFI0.63% now takes into account oil deliveries at key ports around Singapore in its assessments of prices for Asian oil and oil products. "The commodity markets that Platts covers from Singapore—particularly the spot oil markets trading in Singapore itself, and the Middle East—have grown significantly over the past five years," said Dave Ernsberger, Platts's global director of oil. The volume of trading reported to Platts in a variety of oil markets, including Southeast Asian fuel oil, Middle Eastern crude oil, and gasoline, has reached records at various times over the past 12 months, he added. Write to Eric Yep at eric.yep@wsj.com
We are relevant as far as production goes, but oil is a "growth fuel". It's relevant to markets that are growing the fastest (BRIC). Why? Because emerging growth countries have by far the fastest growth in both cars and also manufacturing i.e the transport that is needed to move product. You want to be long oil in places where a middle class is being formed and grown, not where it's being destroyed (hint: the US).
Trying to think of an equity play. The storage biz doesn't seem like a very high margin play. But that article does at least point to the silver lining behind this cloud. I wonder if demand will drop or at least fail to meet expectations based on the correction in China.
Not only oil, but geopolitics.... ===== - Glimmers Of Hope For Oil As Russia Poised To Slash Output – But.. (AEP) The first signs of a thaw are emerging for the battered oil market after Russia signalled a sharp fall in exports this year, a move that may offset the long-feared surge of supply from Iran. The oil-pipeline monopoly Transneft said Russian companies are likely to cut crude shipments by 6.4pc over the course of 2016, based on applications submitted so far by Lukoil, Rosneft, Gazprom and other producers. This amounts to a drop of 460,000 barrels a day (b/d), enough to eliminate a third of the excess supply flooding the world and potentially mark the bottom of the market. Russia is the world’s biggest producer of oil, and has been exporting 7.3m b/d over recent months. Transneft told journalists in Moscow that tax changes account for some of the fall but economic sanctions are also beginning to inflict serious damage. External credit is frozen and drillers cannot easily import equipment and supplies. New projects have been frozen and output from the Soviet-era fields in western Siberia is depleting at an average rate of 8pc to 11pc each year. Russia’s deputy finance minister, Maxim Oreshkin, told news agency TASS that the oil price crash could lead to “hard and fast closures in coming months”. What is unclear is whether the production cuts are purely driven by markets or whether it is in part a political move to pave the way for a deal with Saudi Arabia. Opec stated in December that it is too small to act alone and will not cut production unless non-OPEC states join the effort to stabilize the market, a plea clearly directed at Russia. Kremlin officials insist publicly that they cannot tell listed Russian companies what to do, and claim that Siberian weather makes it harder to switch supply on and off. Oil veterans say there are ways to cut quietly if president Vladimir Putin gives the order. Helima Croft, from RBC Capital Markets, said the expected cuts could be the first steps towards an accord. “As the economic reality of lower oil prices begins to bite, perhaps Putin will push for a course correction and reach a deal with the Saudis. It would certainly upend the current conventional wisdom that Opec is down for the count,” she said. Russia has a strong incentive to strike a deal. Anton Siluanov, the finance minister, said the Kremlin is drawing up drastic plans to slash spending by 10pc, warning that the country’s reserve fund may run dry by the end of the year. “We have decided not to touch defence spending for now,” he said. The budget deficit is running near 5pc of GDP at current oil prices, yet the country lacks an internal bond market and cannot borrow abroad.