Idle Rambling -- This Happens When It's A Beautiful Day With Nothing Else To Do -- April 30, 2020

Someone compared those photos of the ULCCs and VLCCs off the coast of California to our "sitting ducks" at Pearl Harbor in 1941.

Perhaps it is the exact opposite.

The following is completely random, unlikely, impossible to be true, but it would be fun to bring this up at the deli at Cash Wise Foods in Williston, where I always had lunch with my dad when visiting.

Some random data points, some likely to be accurate, some likely to be inaccurate. Crazy thinking. But it's been a crazy year.

At less than $20/bbl every country in the Mideast is in deep, deep trouble, but perhaps Iran is in the most danger of imploding. Wouldn't it be in Iran's best interest to do whatever it takes to see a surge in oil prices?

What might drive the price of oil up the fastest? A significant disruption in supplies. 

Three "regions" involved in meaningful production: Russia, Mideast, and US.

We're not going to see "warfare" or disruption in supplies/logistics in two of those three "regions."

I don't think anyone has really satisfactorily answered the question why Saudi launched upwards of 45 oil tankers full of oil when they did, as fast as they did.

When Iran struck the oil fields/terminals back in November, 2019, it took months for Saudi Arabia to repair the damage (my understanding is that the damaged infrastructure has not yet been completely repaired).

Reminder: The 17-minute strike on two Aramco installations by 18 drones and three low-flying missiles revealed the vulnerability of the Saudi oil company, despite billions spent by the kingdom on security. Fires erupted at the company's Khurais oil installation and at the Abqaiq oil processing facility, the world's largest.

I still maintain that Saudi Arabia emptied their storage tanks in March/April, 2020, for one of three reasons:

• economic / market share -- their public statements
• they saw the coming glut that would max out global storage (see today's RBN Energy blog)
• destroy US shale

Whatever the reason, they needed to get that oil out of on-shore storage to make room for all that oil that was going to be produced from their fields in a world "drowning" in oil.

Previously posted: shutting in wells in old, old oil fields may damage the wells beyond repair. Anyone following the Saudi Arabian oil story knows that two or three years ago, they were spending a lot of money on new off-shore exploration. There was no need to do that if their fields are in as good a shape as they say they are.

So, assume MbS is discussing this with his "best and brightest." 

What might be Sauid's worst-case scenario? Another attack on its storage facilities? That certainly needs to be near the top of their worries.

Pearl Harbor?

That on-shore storage? Sitting ducks.

There are only so many ULCCs and VLCCs out there. The early bird gets the worm. Shipbuilders don't build oil tankers overnight. Epstein didn't hang himself. Buy up or lease as many tankers as possible (that solves one problem) and get the oil out of Dodge (that solves the other problem). 

Russia and Saudi Arabia were getting more and more irritated with each other. Putin is certainly as unpredictable as any world leader. Putin was certainly getting more cozy with Syria/Iran. 

Twenty million bbls of oil off the west coast of the US may not be that much oil in the big scheme of things, but it did a number of things -- if nothing else, the "optic," as they say, was quite stunning.

Now we hear that Saudi Arabia plans to leave those ships there as floating storage, not planning to off-load that oil. They had to have known that going in -- that the oil would not be delivered.

They say there is as much as 160 million bbls of oil in offshore storage. One would assume most of that is from the Mideast, and most of that would be from Saudi Arabia.

I don't know but when I look at those 20 oil tankers (with more to come) sitting off the coast of California, I can't help but think MbS had Pearl Harbor on his mind when he made the decision. 

Just idle rambling. 

No oil producer can survive on $20 oil, least of all Iran. 

Two hundred million bbls of oil in offshore, floating storage gives Saudi Arabia a bit of breathing room.