n late February, the tanker Jag Lok loaded oil from Equatorial Guinea in western Africa and set sail for the Chinese port of Qingdao, the gateway to the world’s newest buyers of crude, a journey of more than 12,000 nautical miles.
After reaching its destination in early April, the ship churned in circles for 20 days before it got a chance to deliver its cargo. That’s because the port in Shandong province was struggling to handle a record number of vessels arriving to supply the privately held refineries called “teapots” that dot the region, ship-tracking data compiled by Bloomberg show.
The backup illustrates the challenges facing the independent refiners, which have emerged as a bright spot of rising demand amid a global glut. The processors are forecast by ICIS-China to purchase a combined 1 million barrels a day of crude from overseas this year, up from 620,000 barrels in 2015. While small individually, together they account for almost a third of China’s refining capacity. Any curb on imports would threaten oil’s rebound from a 12-year low, according to Nomura Holdings Inc. and Samsung Futures Inc.
“If teapots’ intake of crude slows down, the global oil demand and supply re-balancing might take longer,” said Gordon Kwan, head of Asia oil and gas research at Nomura in Hong Hong. “If demand from teapots is lower, then oil prices might rebound to just $55, instead of $60 a barrel next year.”
To ease purchasing from foreign suppliers, 16 of the refiners banded together in February to form an alliance. Its aim is to better negotiate bulk purchases as the newest buyers in the physical oil-trading market and improve their credibility. Zhang, the chairman, said it seeks term contracts of two to three years.
“When we are dealing with major producers, there is certainly some mistrust in terms of credit lines and unstable demand, which we are seeking to solve,” Zhang said. “Also we could get the cold shoulder because buying volumes can be small.”
The red dots show ships either at anchor or barely moving, either oil tankers or cargo, which have made the Straits of Malacca, one of the world's most important shipping lanes which carries about a quarter of all seaborne oil primarily from the Persian Gulf headed to China, into a "bumper to bumper" parking lots of ships with tens of millions of barrels in combustible cargo.
it is also the topic of the latest Reuters expose on the historic physical crude oil glut which continues to build behind the scenes, and which so far has proven totally immune to dissipation as a result of the sharp increase in oil prices over the past three months.
Indeed, as Reuters notes, prices for oil futures have jumped by almost a quarter since April, lifted by severe supply disruptions caused by triggers such as Canadian wildfires, acts of sabotage in Nigeria, and civil war in Libya. And yet flying into Singapore, the oil trading hub for the world's biggest consumer region, Asia, reveals another picture: that a global glut that pulled down prices by over 70 percent between 2014 and early 2016 is nowhere near over, and that financial traders betting on higher crude oil futures may be in for a surprise from the physical market.
"I've been coming to Singapore once a year for the last 15 years, and flying in I have never seen the waters so full of idle tankers," said a senior European oil trader a day after arriving in the city-state.
As Asia's main physical oil trading hub, the number of parked tankers sitting off Singapore's coast or in nearby Malaysian waters is seen by many as a gauge of the industry's health. Judging by this, oil markets are still sickly: a fleet of 40 supertankers is currently anchored in the region's coastal waters for use as floating storage facilities.
The glut is not only constant but is rising with every passing week: the tankers are filled with 47.7 million barrels of oil, mostly crude, up 10 percent from the previous week, according to newly collected
EIA's global crude supply outlook considers planned and unplanned production outages
The U.S. Energy Information Administration's (EIA) May Short-Term Energy Outlook (STEO) forecasts that global liquid fuels supply will grow by 0.5 million barrels per day (b/d) in 2016 and by 0.8 million b/d in 2017. The supply growth comes from production increases by members of the Organization of the Petroleum Exporting Countries (OPEC) that more than offset decreases in non-OPEC supply. This level of supply growth compared with expected demand growth implies that the oil market will remain relatively loose through the first half of 2017, with significant inventory builds continuing through the end of 2016.
One month ago we presented the simple reason why numerous oil producers did not believe the oil rally: they were aggressively hedging future production at prices - some as low as the mid-$30's - which were considered uneconomical as recently as 6 months ago, and while they were eliminating future downside risk should oil resume its plunge, they would also cap their gains should oil continue surging. In other words, those who hedged were confident the rally had peaked.
As a trader quoted by Reuters said then, "Brent's flattening contango since January comes as many producers want to cash in immediately on recent price rises. They've been heavily selling 2017/2018 and beyond, and it shows that they don't quite trust the higher spot prices yet. This means that even the producers don't really expect a strong price rally until well into 2017 or later."
Then last night, the WSJ also picked up on this and wrote that "in an about-face, companies are using hedges to lock in prices that they turned their noses up at a few months ago. Last September, Energen Corp. officials told investors they would hold out for roughly $60 a barrel before using the futures market to hedge their production. But the company recently said it had locked in about half of its expected 2016 production—or more than 6 million barrels—at around $45."
Many others have followed suit: EV Energy Partners LP hedged in recent weeks at prices slightly above $40, even though last spring it opted not to hedge when prices were between $50 and $60, finance chief Nicholas Bobrowski said. “We thought we were smarter than everyone,” Mr. Bobrowski said of the missed opportunity. “Lessons learned.”
The reason is simple: as the WSJ writes, "while many oil-company executives say prices will continue to rise in coming months, some don’t have the financial rope to chance it any longer given oil’s wild swings between $26 and $44 a barrel so far this year."
In any case, having locked in their potential upside and pro
Sentiment: Strong Buy
DWTI will limit your losses to what you invested...futures can hold you accountable to additional funds to replenish your account if margin calls come into play = potential unlimited liabilities if the trades go the wrong way. There is larger funding requirements for futures if you want to play in that arena.
Do you look at Fibs for your analysis in oil at all? Also...what time frames do you use for your RSI and Stochastic RSI (which according to Investopedia is more volatile). I could never figure out what is the best time frame to put in the charts when asked (like that over in stockchartsdotcom). Finally for us trying to learn what do you look at in the Futures and/or options...I am not sure how to read or factor those into an analysis but I suspect they are extremely important as well. I appreciate your time.
Not quite sure I follow...what contract are you talking about? Any idea how warrants figure into a potential BK (e.g. are they senior to common shares but below bonds?)
Why would they convert to shares? If BK is in order wouldn't (for example) the senior secured notes take precedence over the common stocks? Not sure how warrants rank in a BK case.
In the end, the outcome of Sunday’s summit of 16 oil ministers at Qatar’s Sheraton hotel turned on one country that wasn’t there.
Iran’s decision, on the eve of the meeting, not to attend signaled things wouldn’t go well. When ministers assembled the next day, Saudi Arabia stunned some of them by insisting every OPEC member, including Iran, must subscribe to the deal to freeze oil production. Scheduled to end with an early afternoon press conference, proceedings dragged into the evening.
When the meeting finally broke up without a deal just after 9 p.m. local time -- a failure that’s likely to see oil prices tumble -- it fell to the host minister, Qatar’s Mohammed Al Sada, to announce the result at a press conference for the dozens of reporters who’d flown in to cover the talks.
“The inclusion of all OPEC members would definitely help in reaching an agreement,” he said, promising more consultation before the group’s June meeting.
The freeze deal, mooted in February as the first coordinated action between OPEC and non-OPEC producers for 15 years, had fallen victim to tensions between Saudi Arabia and its main regional rival, a relationship soured by proxy conflicts from Syria to Yemen.
Mohammed bin Salman, the young Saudi deputy crown prince who’s taken control of economic policy in the world’s top oil producer, had publicly warned twice that no deal was possible without Iran’s participation. In turn, Iran insisted on its right to boost crude production to the level it pumped before it became subject to international sanctions.
Iran had no intention of voluntarily sanctioning itself, the deputy oil minister said on Saturday.
The government in Tehran had decided there was no point in turning up to Doha on Friday after Qatari officials contacted Iran to say only countries intending to sign up to the freeze should attend, according to a person with direct knowledge of the deliberations. Unable to meet those terms, Iran took that as a withdrawal of Qatar’s invitation and decided to stay away.
Still, ministers gathered on Saturday evening in a positive mood. There was no indication Saudi Arabia had any problems with a draft text committing attendees to keep production at January levels, according to one of the participants. Russian Energy Minister Alexander Novak, who’d spoken to his Saudi counterpart by phone earlier in the week, told reporters he was “optimistic” about a deal.
You will be too poor tomorrow to even feed your hamster little man....good luck tomorrow an remember to close our your short before the opening bell. Cat food on the menu?
Here are highlights of Sunday’s top breaking stories:
After dragging on eight hours longer than planned, a summit in Doha aimed at freezing crude-oil production to stabilize prices ended without a deal. U.S. crude futures initially fell almost 7 percent. Russia blamed intractability from Saudi Arabia, and the discussion never really got back on track after Iran, which opposes any production cap, announced on Saturday that it wouldn’t attend.
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TOUGH SAUDI STANCE
The failure to reach a global deal could halt a recent recovery in oil prices.
"With no deal today, markets' confidence in OPEC's ability to achieve any sensible supply balancing act is likely to diminish and this is surely bearish for the oil markets, where prices had rallied partly on expectations of a deal," said Natixis oil analyst Abhishek Deshpande.
In December, OPEC failed to agree on output policy for the first time in years after Iran disagreed over a production ceiling proposed by Saudi Arabia, arguing again that it wanted to boost output post-sanctions.
"Without a deal, the likelihood of markets balancing is now pushed back to mid-2017. We will see a lot of speculators getting out next week," Deshpande said.
Brent oil (LCOc1) has risen to nearly $45 a barrel, up 60 percent from January lows, on optimism that a deal would help ease the supply glut that has seen prices sink from levels as high as $115 hit in mid-2014.
Amrita Sen of Energy Aspects said oil prices could fall below $40 on Monday in a knee-jerk reaction.
"While today’s lack of a freeze deal has no negative impact on balances - since Iran is really the only country likely to raise output substantially - it has a huge negative impact on sentiment especially as the deal had been hyped up so much," she said.
Saudi Arabia has taken a tough stance on Iran, the only major OPEC producer to refuse to participate in the freeze.
Deputy Crown Prince Mohammed bin Salman told Bloomberg that the kingdom could quickly raise production and would restrain its output only if Iran agreed to a freeze.
Iran's oil minister Bijan Zanganeh said on Saturday OPEC and non-OPEC should simply accept the reality of Iran's return to the oil market: "If Iran freezes its oil production ... it cannot benefit from the lifting of sanctions."
The world's top oil producers walked away from a marathon negotiating session on Sunday without an agreement to freeze crude production, a failure that could #$%$ investors and send tremors through the oil market.
The oil ministers of most OPEC member countries, along with a handful of outsiders including Russia, spent more than 12 hours in consultation on a potential freeze. Together, they supply more than half of the world's oil.
The idea was that a freeze would help put a floor under crude prices, which have risen from $26 per barrel in February to above $40 on expectations that a deal would happen.
The failure of major producers to take steps to bolster low oil prices reflects a schism within OPEC between its biggest member -- Saudi Arabia -- and Iran, which is increasing production after years of international sanctions.
Related: India and Iran renew oil bromance
The day started with hopes that the coalition would quickly agree on a deal to freeze production at January levels for a period of roughly six months. But a series of delays made it clear by late afternoon that the talks were in danger of falling apart. Talks concluded just before 9 p.m. in Doha.
Qatar's oil minister said that the countries "need more time" to agree on a production freeze and suggested that recent price gains had improved the overall position of producers.
It's not clear when major producers will again meet to discuss a potential freeze, suggesting there will be further delays in their efforts to reverse a historic price collapse that has lasted nearly two years.
Last week, Prince Mohamed bin Salman, who is Saudi Arabia's defense minister and second in line to the throne, said during an interview with Bloomberg that his country would not agree to a freeze without a reciprocal commitment from Iran.
March 29th, 2016 filing...about how much SUNE needs in place of a DRIP financing...very interesting timing.
Finally, for those who missed it on Friday, here again is Citi's one minute assessment of how the market will react to the "gentleman-like agreement"
If there is no agreement, then expect a sharp oil market sell-off on Monday. If there is an agreement in name but market participants realize it has no teeth, except a slower sell-off.
1.Iran will be absent as it wants no part of a production freeze
2.Saudis have confirmed no production freeze unless Iran also freezes
3.A gentleman-like agreement to cap production until October (or another 5 months of headline-driven algo stop hunts higher) at what are already record production levels for the top oil producing nations.
4.No enforcement mechanism.
We fully expect the algos to fall for it again, especially with an early momentum jolt higher courtesy of 1 or 2 central banks.
According to Tass, the agreement in Doha to freeze oil output will be "gentlemen-like" as the draft stipulates no control mechanisms, Aliyev went on to say.
Aliyev said that "the agreement is gentlemen-like as the countries realize that the maintained norms of output will suit the joint interests. It does not envisage any control mechanisms and each country should observe its implementation." Which, incidentally, is decidedly false as Saudi Arabia clearly has had its own unique interests ever since the November 2014 OPEC meeting which saw Saudi Arabia break out on its own and in the process effectively end the OPEC production cartel.
"There is no need in a supervisory body," he said. "No proposals have come since it will have no influence on the countries." So... why is OPEC even pretending to freeze production? Oh yes, in hopes the algos will be dumb enough to attempt another forced short squeeze.
Meanwhile, OPEC has already set its price target as a result of tomorrow's farcical agreement.
The oil price will be climbing up slowly but persistently to $50 per barrel by the end of 2016 after big oil producer countries seal a deal in Doha, Azerbaijan's Energy Minister Natiq Aliyev told TASS on Saturday.
"The higher is the price the better," Aliyev said. "But we expect that it will be slowly and gradually increasing towards $50 per barrel by the year's end. The next year we will be satisfied with the price of $60 per barrel."
Natiq Aliyev may be quickly disappointed with his $50 forecast, unless he is of course right, in which case US shale producers who have been taking every opportunity to hedge future production around $40, will promptly resume pumping at maximum capacity and add to the global oil glut which as of this moment is between 2 and 3 million barrels per day, and where the real problem remains a lack of demand to force the excess supply into equilibrium.
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Finally, for those who missed it on Friday, here again is Citi's one minute assessment