Those short in crude oil futures should beware the Trump administration has not one but two plans to resolve the crude oil "problem". 1) pay domestic producers to stop or cut-back on their drilling activities. This will be done thru the Fed. 2) activate the SPR and/or expand it to hold more crude oil. When these announcements are made, you don't want to be short. You will be smoked. These are the Trump oil "puts". These will likely come between May 11th and May 19th (settlement date of WTI June futures). Heads up crude oil traders !
1 never happen at least not to any great extent. 2) when SPR is activated it means oil is being released not stored. And anyway there is not much more spare unfilled capacity currently. They are thinking about adding some but it won't happen quickly. But demand not supply or oversupply is the issue.
Too much oil. Too much Beer? What is the world coming to? next thing you know, we'll all be getting too much... nah, that ain't gonna happen.
Don't underestimate the Donald. He has openly said he wants to protect "our great oil industry". Anyway, his announcement is likely to have more reaction in the market than the actual implementation. He's out to burn the shorts....taking a playbook from Elon Musk. Of course I meant open for deposit instead of activate for withdrawal. AFAIK there are about 120-150 million barrels of capacity remaining. From what I understand, this can be expanded considerably. Not much can be done right now to spark demand. It will eventually increase as economies around the world begin to open. But that will take time. Right now, it's critical to curtail supply given the inventory overload.
The $400k figure was from two months ago and they were almost all booked by KSA to send their own cargoes west. KSA's intent was to price their mideast rivals out of the USGC market and they briefly succeeded. Current rates are $150-170k/d as of Friday. As for gas station retail prices, stations buy from their local rack, and there are ~1500 terminals in the US. Each region is subject to its own fundamentals. To discuss CARB fundamentals is very different from Group 3, Rocky's, USGC or NYH. The cost of additives, local storage, logistics to get the gasoline from production to distribution, etc. all add layers of cost to the gallon. Gas stations are not necessarily gauging prices, they might be at the mercy of their local rack. And most racks have 5-10 wholesale providers which are all competing to sell barrels.
Probably not going to save Jun20 contract. Only ones truly buying are those who have storage capacity and they know there's a problem...why buy now when they can buy lower? All the production cuts will be useless if supply-storage problem is happening now as front contracts will expire this month.
https://www.wsj.com/articles/oils-crash-prompts-record-push-to-store-fuel-at-sea-11588510803 Oil’s Crash Prompts Record Push to Store Fuel at Sea Traders react to weak energy prices and lack of onshore storage; in turn, freight rates soar An oil tanker in the Suez Canal. Some vessels moving oil from Asia to Europe are skipping the canal and taking the long route around Africa to prolong their time at sea. The cost to ship gasoline, diesel and jet fuel around the world has soared to record highs, as traders look to dodge the commodity price crash by stashing refined oil at sea. Charter prices for vessels that transport refined oil products have tripled since the start of March, according to the Baltic Clean Tanker Index, a gauge of freight rates along 11 shipping routes. The index, calculated daily from estimates submitted by shipbrokers, hit its highest level on record early last week before slipping in recent days. The coronavirus lockdowns deterred activities like driving and flying that involve burning fuel. The resultant glut of oil sent prices into a tailspin. But with so much extra supply, the price to store or move oil products has moved in the opposite direction. Baltic Exchange tanker-price indexesSource: FactSetNotes: Dirty tankers transport crude oil. Cleantankers move refined products. “The lack of on-land storage, surplus of supply and collapse of demand globally means the oil is on the water, and it’s moving long haul,” said Claire Grierson, head of tanker research at shipbroker Simpson Spence Young. “We’re seeing record levels on some of the routes,” she said of freight rates. Last week, it cost just under $170,000 a day to charter a vessel from the Persian Gulf to Japan, a busy route, according to Ms. Grierson. That is a high for Simpson Spence Young’s records and 10 times the rate in early March of $17,000. Freight and commodity markets have a way of feeding on each other. Because the prices for oil and oil products in contracts for delivery down the road are higher than they are today, traders can make money storing cheap oil today and cashing in on it later. The Forces Fueling 2020’s Oil Bust The coronavirus pandemic has stalled factories and shut down business around the world, causing a historic drop in oil demand just as production was reaching new highs. WSJ explains the oil price bust that could reshape energy markets. Photo Illustration: Carlos Waters/WSJ That creates more demand for tankers as traders are motivated to keep oil at sea, especially with almost nowhere to store it on land. Some vessels moving oil from Asia to Europe are skipping the Suez Canal and taking the long route around Africa for this reason, according to Erik Broekhuizen, head of tanker research at Poten & Partners Inc. Long Hauls Five main kinds of tanker are used to transport crude and refined oil by sea. Oil tankers, by cargo-capacity range in metric tons Refined products or crude oil Crude oil Circle size reflects maximum capacity: Long Range 1 45K-80K Aframax 80K-120K Long Range 2 80K-160K Very Large Crude Carrier 160K-320K Ultra-Large Crude Carrier 320K-550K Source: U.S. Energy Information Administration At the same time, high tanker and storage costs put pressure on spot or near-term futures contracts, since owning oil today is more expensive. That dynamic played out in dramatic fashion in late April when the price of near-term oil futures contracts went negative for the first time in history as the cost to store oil shot up. Refiners, which distill thick crude oil into usable fuels, haven’t cut output fast enough to stop a surge in supply. Global stockpiles of petroleum products will grow by around 550 million barrels in the second quarter, according to the International Energy Agency. A race is under way to store the surplus gasoline, diesel and jet fuel at sea. The number of available “clean tankers,” smaller ships that move refined petroleum products, has plummeted. “Dirty tankers” transport unrefined crude. London-based Signal Ocean Ltd. tracks the location of tankers and where they could travel to if needed. As of Thursday, no Long Range 2 vessels, the largest kind of clean tanker, were in a 15-day range of Jubail, a port city on Saudi Arabia’s east coast that is home to a major refinery run by Saudi Aramco and Total SA TOT 0.39% . At the start of March, 21 of the tankers were available. “There are very few vessels left,” said Semiramis Assimakopoulou, vice president for sales at Signal. Clean-tanker rates are expected to remain high. As refiners cut production, unusual gaps will emerge in the price of oil products in different regions, according to Lars Barstad, commercial director of shipowner Frontline Ltd. in Norway. That will encourage traders to buy oil where it is cheap, charter vessels, and move the oil to places where they can sell it at a profit. Logistical difficulties at ports pose further constraints. Tankers are taking longer to unload because there is so little free storage space on land. Coronavirus quarantine measures have added to delays. “There are bottlenecks everywhere,” Mr. Broekhuizen said. Write to Joe Wallace at Joe.Wallace@wsj.com
So while freight rates soar , most VLCC and option tankers have locked in contracts for the next year, tanker stocks have gone down sharply. STNG, NAT, DHT, EURN etc.... the whole gamut. What is the deal here? Most speculators will see these huge profits as only temporary but they are still significant regardless of when oil comes back up.