The Department of Energy described interest in the tender of crude from the US strategic reserve as “very high and oversubscribed,” he said. “We can therefore expect that all of the 30.2 million sweet bbl offered will be taken, and the question now is where do we find the spare storage tank capacity to hold all those barrels?”I am surprised. There will be costs associated with storing oil in off-shore tankers.
Jakob said, “We count five large international oil-trading companies taking floating storage options in tankers (a mix of very large crude carriers and Suezmaxes). Some oil might have to stay on the water while some room is made in the onshore tanks.”
He noted, “A few investment banks had been expressing doubt that there will be any takers for the SPR barrels, but the DOE’s comments of yesterday indicate this was wishful thinking while those institutions rant about market manipulation.
I assume the asking price for DOE SPR oil closely matches the "crawler" price, or the spot price one can find linked in the Data Page.
I noted earlier that if oil was taken from the US strategic petroleum reserve, it would be headed overseas. Maybe I was too hasty when I said that I was talking metaphorically since oil is fungible. Maybe it really will be headed overseas. Wouldn't that be something: the US exporting oil to Europe?
For shippers, is this a windfall? Tracking shipping rates and/or share prices of such companies as NAT might be interesting.
The big trading firms, represent client money. Crude on Carriers has been building for many years, the strategy by the Bidders for the SPR release may well be hedgers who lack the commodity in size, to match thier bets in the futures.
ReplyDeleteThe willingness of large players to begin taking delivery establishes another layer too the supply distribution matrix. This serves to Obfuscate current supply demand data. Once Oil is on these Suez Max VLCC it becomes part of the fungible oil in the market,but it is a limbo status due to its changing futures contracts status. In this way it may only serve the hedgers who derivative positions. Nothing is simple because of derivatives......
Great post, great comments.
ReplyDeleteI can see why some folks feel that "speculators" keep the price high when there is so much oil sloshing around.
I got a kick out of the SPR being oversubscribed; I never would have guessed it. Since our own tanks are full (onshore), it suggests to me, those who have asked for withdrawals assume they can sell it back within six months for a profit.
I doubt most such folks are looking out much farther than six months.
Should have said above In this way it may only serves the hedgers, whose derivative positions are linked to futures that are constantly rolling over. Nothing is simple because of derivatives.....
ReplyDeleteContracts are rolling over and being adjusted at all times, the leverage in this market is profoundly greater than the supply demand matrix entails. Which means some % of the excess contracts are wrong, or mal invested.
Because prices are being correlated under disconnected supply and demand, by derivative obfuscation.
These hedges are designed to offload risk, there are inumerable ways to do this, some of which is to secure physical supply and pay for storage as a tactical defense mechanism.
Others are hedging a declining dollar.
Me thinks that when the price broke in mid April, Speculators on the side of National oil companies, got lambasted. They were counting on Lybia dynamics to drive the price way higher...these traders are deep pocketed but margined out the wazoo. Their willingness to sop up excess market supply is just another vehicle to use, when anticipating a contrived higher price.
Systemics main goal is to set price without Supply or demand actually being characterized....this is fundamental to derivatives. if its viewed that dollars being paid for crude, are declining in value, crude itself must rise as compensation.
This is a construct that is enabled by cartels and thier respective zero sum derivative goals.
Me thinks that the currency / crude relation is one of limited shelf life....as market prices for available supply will discount the attempted S&D disconnect, as has happened in the spread between WTI and Brent.
Because Team USA has such an incredible base of recoverable New Supply, the constructs that were foundational under Peak OIL, are on the ropes, and thus the Market price is in a state of flux as the base line constructs of 40 year dialog about peak oil are being deconstructed.... We are already seeing this in the Commercial trader data.......which has reversed course, from net long to short.
If folks bought oil with outbreak of Libya (and higher prices did not materialize), and now they are buying up reserves, it sounds like they "are "trying to corner the market."
ReplyDeleteNot going to work.
$60 - $80: supply and demand; cost of producing that last bbl.
$80 - $100: weakness/strength of dollar
>$100: major disruption, fear, anomaly.
Bruce....a better way of stating the current conditions is; with all the derivitives, they have only succeeded in contriving the market, because they have no chance of cornering it.
ReplyDeleteThank you. Yes, there is no way anyone (except Saudi, OPEC, I suppose) can "corner the market" in oil. Thank you.
ReplyDelete