Tyler Durden: Something Strange Is Taking Place In The Middle Of The Atlantic Ocean // Recession, retrenchment, revolution? Impact of low crude prices on oil powers
"The idea is to keep tankers on the water as long as
you can and try to find a stronger market."
Early last month, we
noted that something very strange was happening off the coast of
Galveston, Texas. As FT reported, "the amount of oil [now] at sea is at
least double the levels of earlier this year and is equivalent to more than a
day of global oil supply.” In short: the global deflationary crude
supply glut is beginning to manifest itself in a flotilla of stationary
supertankers, as millions of barrels of oil are simply stuck in the ocean as
VLCCs wait to unload.
Ultimately, this led to nearly 40 crude tankers with a
combined cargo capacity of 28.4 million barrels waiting to anchor near
Galveston. In the latest sign that the world is simply running out of
capacity when it comes to coping with an inexorable supply of commodities, three
diesel tankers en route from the Gulf to Europe did something rather odd on
Wednesday: they stopped, turned around in the middle of the ocean, and headed
back the way they came! "At least three 37,000 tonne tankers - Vendome
Street, Atlantic Star and Atlantic Titan - have made U-turns in the Atlantic
ocean in recent days and are now heading back west," Reuters
reported, citing its own tracking data.
The Vendome Street actually made it to within 800 miles of
Portgual (so around 75% of the way there) before abruptly turning around.
"Ship brokers said a turnaround so late in the journey would come at a
cost to the charterer," Reuters notes. The problem: low prices, no storage capacity, and soft
demand. Here's Reuters again:
"European diesel prices and refining margins have
collapsed in recent days to six-year lows as the market has been overwhelmed by
imports from huge refineries in the United States, Russia, Asia and the Middle
East. At the same time, unusually mild temperatures in Europe
and North America further limited demand for diesel and heating oil, ptting
even more pressure on the market. Gasoil stocks, which include diesel and heating
oil, in the Amsterdam-Rotterdam-Antwerp storage hub climbed to a fresh record
high last week. As of now, it's "unclear if the tankers will
discharge their diesel cargoes in the Gulf Coast or await new orders," but
what you're seeing is a supply glut so acute that tankers are literally just
sailing around with nowhere to go as there are reportedly some 250,000
tonnes of diesel anchored off Europe and the Mediterranean looking for a home. On
that note, we'll close with the following quote from a trader who spoke to
Reuters:
"The idea is to keep tankers on the water as long as
you can and try to find a stronger market."
The decision to strike a nuclear agreement with Iran, which
has more oil reserves than all but four Opec countries, will over the coming
months unleash new Iranian oil into the markets. Analysts expect Iran to pump 1m or more
barrels a day as a result, so the prospect of the deal has been driving prices
down in recent weeks – by about 15% – interrupting a stabilising in the price
of oil since the big plunge last year. Even before the Iran news, the clash between the US and
Saudi Arabian energy interests had created a volatile new force in the global
economy and unprecedented challenges for the two largest producers. The Saudis
need high prices to fund their nation but have lost control of the market
because of the oil boom in the world’s largest economy. The United States,
after years of easy growth, is grappling with painful adjustments –including
tens of thousands of layoffs – with the hope of staying viable amid the price
collapse... read more:
http://www.theguardian.com/business/2015/jul/21/falling-oil-prices-fracking-us-iran-saudi-arabia-opec
A glut of oil, the demise of Opec and weakening global demand
combined to make 2015 the year of crashing oil prices. The cost of crude fell
to levels not seen for 11 years – and the decline may have further to go. There have been four sharp increases in the price of oil in
the past four decades – in 1973, 1979, 1990 and 2008 – and each has led to a
global recession. By that measure, a lower oil price should be positive for the
world economy, with lower fuel costs for consumers and businesses in those
countries that import crude outweighing the losses to producing nations.
But the evidence since
oil prices started falling from their peak of $115 a barrel in August
2014 has not supported that thesis – or not yet. Oil producers have certainly
felt the impact of the lower prices on their growth rates, their trade figures
and their public finances butthere has been no surge in consumer spending or
business investment elsewhere.
Economists still reckon there will be a boost from a lower
oil price particularly if it looks as if the lower cost of crude will be
sustained. Dhaval Joshi, an economist at BCA, a London-based research
company, said: “A commodity bubble has deflated three times in the past 100
years: the first was after world war one; the second was after the 1980s oil
shock; the third is happening right now.” For the big producer countries, this is a major headache,
the ramifications of which are only starting to be felt. Oil powers base
their spending plans on an assumed crude price. The graphic below shows just
how far below water their budgets are... Read more:
