The global oil market is broken, drowning in crude nobody needs
The global oil market is broken, overwhelmed by an unmanageable surplus as virus lock downs cascade through the world's largest economies.
Onshore tanks in many markets are full, forcing traders to store excess oil in idle supertankers. Refineries are starting to shut down because nobody needs the fuels they produce. In physical oil markets, barrels are already changing hands for less than $10 and in a few landlocked markets producers are paying consumers to take away their crude.
"The physical oil market has seized up", said Gary Ross, an influential oil watcher and chief investment of Black Gold Investors LLC. "The logistics are struggling to cope because we are facing a catastrophic loss of demand".
Oil traders say it's likely to get worse this week.
The root cause is an accelerating plunge in consumption that's without precedent since a steady flow of oil became essential to the global economy more than a century ago. The great crash of 1929, the twin oil shocks of the 1970s and the global financial crisis don't come close. The world normally uses 100 million barrels of oil a day and traders and analysts reckon as much as a quarter of that has disappeared in just a few weeks.
The global airline industry is grounded, countless businesses and factories are shuttered and billions of people have been forced to stay home.
"Demand clearly is off, in some parts of the world, very dramatically", Chevron CEO Mike Wirth told Bloomberg TV.
The immediate problem is a lack of storage in the right places. With demand running 20 million barrels a day below supply, the world won't have any tanks to store the surplus in two to three months. But the issue is even more pressing because global tank capacity, mostly concentrated in a few hubs like Rotterdam, the Caribbean and Singapore, isn't available to every producer. For those without access to pipelines and ports, local storage will run out in days, traders and consultants say.
For those with access to the coast, one solution is to use the supertanker fleet as floating storage tanks and that's happening at an unprecedented rate. The CEO of the world's largest tank owner, Frontline Ltd., said on Friday that he'd never known such demand to hire ships for long-term storage. Traders could book ships to put 100 million barrels at sea this week alone, he estimated, but even that could account for less than a week's over supply.
In the US, one of the largest pipeline companies, Plains All American Pipeline LP, has asked oil producers to voluntarily cut output to avoid overwhelming the network that connects well heads to refineries through thousands of miles of pipelines.
The world is running out of places to put oil because the shutdown of vast swathes of economy has been catastrophic for demand. The collapse in commercial air travel has cut jet fuel use by up to 75% or almost 5 million barrels a day.
As for gasoline, American drivers are the single biggest source of demand, using more than 9 million barrels a day, according to the Energy Information Administration. As whole states, including California and New York, have told people to stay home, billions of car journeys have been lost. It's a pattern repeated in Europe and Asia.
"Demand destruction is unprecedented", said Ben Luckock, co-head of trading at Trafigura Group, the second largest independent oil trader. He estimates the hit to consumption will total 22 million barrels a day in April.
Around the world, about 700 refineries turn crude oil into gasoline, diesel and other fuels. They are starting to dial down production and even shut outright because demand for the fuel they produce is so dire. In India, for example, where 1.3 billion people are under lock down until mid-April, the nation's biggest refinery has cut processing rates at most plants by as much as 30%.
A small refinery in Italy, the epicenter of Europe's virus outbreak, shut on Friday because demand for fuel plunged 85%.
As the refining system withers, the crude oil market is suffering. Many crudes, especially sticky, sulfurous grades that refiners find hard to process, trade at hefty discounts to international benchmarks. Western Canadian Select, a tarry blend squeezed from Alberta's oil sands, reached a record low of $4.51 a barrel on Friday.
In the US, Oklahoma Sour is changing hands at $5.75, Nebraska Intermediate at $8 while Wyoming Sweet prices at $3 a barrel.
In one obscure corner of the American crude market, prices have already turned negative. Wyoming Asphalt Sour, a dense oil used mostly to produce paving bitumen, was bid at minus 19 cents a barrel in mid-March by Trading Mercuria Energy Group Ltd.
Source. From the internet.
* * *
The PN Panicker Foundation contributed its mite towards the fight against corona virus. It was called upon to arrange food and shelter for about 250 migrant labourers in Thiruvananthapuram. The needful was achieved by speaking to the concerned people; at times, even cajoling them!
Tailpiece.
Got up at 6, went through the chores and was ready well in time. We wished Ammu, my niece many happy returns as it is her birthday by the English calendar.
Suma, finally, left the house after all her work around a half past 4. Bunty has not been keeping well and I've put him on to a doctor friend of mine......hope his medical problems are put behind at the earliest.
It's the end of yet another month!
The global oil market is broken, overwhelmed by an unmanageable surplus as virus lock downs cascade through the world's largest economies.
Onshore tanks in many markets are full, forcing traders to store excess oil in idle supertankers. Refineries are starting to shut down because nobody needs the fuels they produce. In physical oil markets, barrels are already changing hands for less than $10 and in a few landlocked markets producers are paying consumers to take away their crude.
"The physical oil market has seized up", said Gary Ross, an influential oil watcher and chief investment of Black Gold Investors LLC. "The logistics are struggling to cope because we are facing a catastrophic loss of demand".
Oil traders say it's likely to get worse this week.
The root cause is an accelerating plunge in consumption that's without precedent since a steady flow of oil became essential to the global economy more than a century ago. The great crash of 1929, the twin oil shocks of the 1970s and the global financial crisis don't come close. The world normally uses 100 million barrels of oil a day and traders and analysts reckon as much as a quarter of that has disappeared in just a few weeks.
The global airline industry is grounded, countless businesses and factories are shuttered and billions of people have been forced to stay home.
"Demand clearly is off, in some parts of the world, very dramatically", Chevron CEO Mike Wirth told Bloomberg TV.
The immediate problem is a lack of storage in the right places. With demand running 20 million barrels a day below supply, the world won't have any tanks to store the surplus in two to three months. But the issue is even more pressing because global tank capacity, mostly concentrated in a few hubs like Rotterdam, the Caribbean and Singapore, isn't available to every producer. For those without access to pipelines and ports, local storage will run out in days, traders and consultants say.
For those with access to the coast, one solution is to use the supertanker fleet as floating storage tanks and that's happening at an unprecedented rate. The CEO of the world's largest tank owner, Frontline Ltd., said on Friday that he'd never known such demand to hire ships for long-term storage. Traders could book ships to put 100 million barrels at sea this week alone, he estimated, but even that could account for less than a week's over supply.
In the US, one of the largest pipeline companies, Plains All American Pipeline LP, has asked oil producers to voluntarily cut output to avoid overwhelming the network that connects well heads to refineries through thousands of miles of pipelines.
The world is running out of places to put oil because the shutdown of vast swathes of economy has been catastrophic for demand. The collapse in commercial air travel has cut jet fuel use by up to 75% or almost 5 million barrels a day.
As for gasoline, American drivers are the single biggest source of demand, using more than 9 million barrels a day, according to the Energy Information Administration. As whole states, including California and New York, have told people to stay home, billions of car journeys have been lost. It's a pattern repeated in Europe and Asia.
"Demand destruction is unprecedented", said Ben Luckock, co-head of trading at Trafigura Group, the second largest independent oil trader. He estimates the hit to consumption will total 22 million barrels a day in April.
Around the world, about 700 refineries turn crude oil into gasoline, diesel and other fuels. They are starting to dial down production and even shut outright because demand for the fuel they produce is so dire. In India, for example, where 1.3 billion people are under lock down until mid-April, the nation's biggest refinery has cut processing rates at most plants by as much as 30%.
A small refinery in Italy, the epicenter of Europe's virus outbreak, shut on Friday because demand for fuel plunged 85%.
As the refining system withers, the crude oil market is suffering. Many crudes, especially sticky, sulfurous grades that refiners find hard to process, trade at hefty discounts to international benchmarks. Western Canadian Select, a tarry blend squeezed from Alberta's oil sands, reached a record low of $4.51 a barrel on Friday.
In the US, Oklahoma Sour is changing hands at $5.75, Nebraska Intermediate at $8 while Wyoming Sweet prices at $3 a barrel.
In one obscure corner of the American crude market, prices have already turned negative. Wyoming Asphalt Sour, a dense oil used mostly to produce paving bitumen, was bid at minus 19 cents a barrel in mid-March by Trading Mercuria Energy Group Ltd.
Source. From the internet.
* * *
The PN Panicker Foundation contributed its mite towards the fight against corona virus. It was called upon to arrange food and shelter for about 250 migrant labourers in Thiruvananthapuram. The needful was achieved by speaking to the concerned people; at times, even cajoling them!
Tailpiece.
Got up at 6, went through the chores and was ready well in time. We wished Ammu, my niece many happy returns as it is her birthday by the English calendar.
Suma, finally, left the house after all her work around a half past 4. Bunty has not been keeping well and I've put him on to a doctor friend of mine......hope his medical problems are put behind at the earliest.
It's the end of yet another month!
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