Tag: Organization of the Petroleum Exporting Countries (OPEC)

Oil To Test Storage Capacity

Posted on by Robert Boslego

Timing when oil storage will be full is one of the key issues of interest in the oil market. It depends on how long stays depressed, or how quickly it can rebound, and how much oil producers are cutting output in the U.S. and worldwide. The answers are unknown, but I will try to outline what is known and likely.

Oil data in the U.S. is the most timely and accurate, so that’s a good place to start. Crude oil inventories in Cushing, Ok., the delivery hub for the NYMEX WTI crude futures contract, reached 59.7 million barrels in the week ending April 17. About 2.1 million is used for line fill, and so 57.7 million is the net stocks held in tank farms. That represents 76 % of net working storage of 76.1 million barrels.

Given the excess storage, it would not explain why trader panic drove oil prices negative just prior to the expiration of the May contract. The reason was that the remaining storage was leased. “The terminals have already contracted their storage 100%,” said Ernie Barsamian, chief executive officer of The Tank Tiger, a terminal storage clearinghouse, was quoted.

And so traders who were still long but could not take delivery had to sell at any price. And buyers got Continue reading "Oil To Test Storage Capacity" →

World Oil Supply And Price Outlook, April 2020

Posted on by Robert Boslego

The Energy Information Administration released its Short-Term Energy Outlook for April, and it shows that OECD oil inventories likely bottomed last June 2018 at 2.802 billion barrels. It estimated stocks built by 109 million barrels in March to end at 3.059 billion, 201 million barrels higher than a year ago.

For 2020, OECD inventories are projected to build by 468 million barrels to 3.351 billion. For 2021 it forecasts that stocks will draw by 207 million barrels to end the year at 3.144 billion.

OECD Global Oil Inventories

The EIA forecast was made prior to the OPEC+ decision to cut production and exports. According to OPEC’s press release: Continue reading "World Oil Supply And Price Outlook, April 2020" →

Oil Just Posted Its Worst Monthly/Quarterly Loss Ever!

Posted on by Matt Thalman

Over the last month, we have seen the price of Crude oil benchmarks in the U.S. and Brent futures get destroyed. Both benchmarks lost right around two-thirds of their value during the first quarter and roughly 55% of their value during March alone.

The massive price destruction occurred because of many reasons. The first and foremost is the Coronavirus pandemic and how the world is fighting the spread of the virus. Shutting borders to foreign nationals, implementing 'Stay at home Orders,' and recommending 'social distancing' is all leading to a massive reduction in the demand for oil on a worldwide scale. Cruise ships aren't leaving ports, airlines have slashed their number of flights, both public busses and school busses are not operating, and the average person isn't driving their vehicles. We have already begun to see reports from around the world how pollution levels are declining due to these modes of transportation, essentially stopping.

The second reason the price of oil crumbled was because of the "price war' that is currently ragging between Russia and Saudi Arabia. The two countries were the main reasons the Organization of the Petroleum Exporting Countries (OPEC) couldn't agree on production cuts following the softening demand after the Coronavirus began spreading on a massive scale. Russia and OPEC's de facto leader, Saudi Arabia, disagreed on how much each country would reduce production in order to help stabilize the price of oil around the world.

The price war has caused the Saudi's to increase production from 9.7 million barrels a day in February to a targeted more than 12 million barrels a day in April. Thus far, they have held up their threats. As of early April, the first wave of crude was already heading toward Europe, and the U.S. Saudi Arabia hired extra supertankers in March. Those ships are positioned near oil terminals preparing to be filled. Continue reading "Oil Just Posted Its Worst Monthly/Quarterly Loss Ever!" →

Unprecedented Oil Glut Appears Inevitable

Posted on by Robert Boslego

The U.S. has voiced its concerns over the Saudi-Russian oil price war, but thus far, those concerns appear to have fallen on deaf ears. In an interview that was broadcast on CNBC, Senator Ted Cruz (R-TX) answer the question, “Do you think President Trump should try to use his influence with Russia or Saudi Arabia to try to get them to stop producing so much oil?”

“Absolutely. I think that is a major priority especially for my home state of Texas. And if you look what happened, right in the midst of the coronavirus crisis, a public health crisis that is dominating our focus, and an economic crisis that is flowing from it. Millions of people losing their jobs.

“The Saudis and Russians decided to take advantage of that crisis by flooding the market and driving the price of oil way, way down. And that was opportunistic. It was designed with a very specific purpose. The Saudis are trying to drive out of business American producers, and in particular shale producers, largely in the Permian Basin in Texas, North Dakota and in a number of oil producing states across the country.

“That behavior I think is wrong. I think it is taking advantage of a country that is a friend.

“A couple of weeks ago, I joined with thirteen senators in a letter to the Saudi Ambassador to pull back and stop trying to drive the price down to artificially low. Nine of the thirteen did a conference call with Saudi Ambassador that was as candid a call and direct a call as I’ve ever had with a foreign leader. The nine of us unloaded on her. And their defense was but Russia is doing this.

“I said but Russia is not our friend. We treat them accordingly. We are aware of their Continue reading "Unprecedented Oil Glut Appears Inevitable" →

World Oil Supply And Price Outlook, March 2020

Posted on by Robert Boslego

The Energy Information Administration released its Short-Term Energy Outlook for March, and it shows that OECD oil inventories likely bottomed last June 2018 at 2.802 billion barrels. It estimated stocks dipped by 5 million barrels in February to end at 2.914 billion, 44 million barrels higher than a year ago.

For 2020, OECD inventories are projected to build by 137 million barrels to 3.031 billion. For 2021 it forecasts that stocks will draw by 48 million barrels to end the year at 2.983 billion.

Oil

The EIA estimated that OPEC production dropped by 72,000 b/d in February to 28.49 million barrels per day. For 2020, it estimates that OPEC production will average about 29.08 million, about 720,000 b/d lower than in 2019. For 2021, it estimates OPEC production average 2.941 million. The EIA did not increase its estimates for OPEC despite the announcements by Saudi Arabia that it is pushing its production up to 12 million barrels per day and the UAE is increasing its production by 1 million barrels per day.

Oil

Oil Price Implications

I updated my linear regression between OECD oil inventories and WTI crude oil prices for the period 2010 through 2019. As expected, there are periods where the price deviates greatly from the regression model. But overall, the model provides a reasonably high r-square result of 79 percent. Continue reading "World Oil Supply And Price Outlook, March 2020" →