Home / Business / Behind the fluctuations in the oil market: only a few places where unwanted crude oil can be stored

Behind the fluctuations in the oil market: only a few places where unwanted crude oil can be stored



During his daily walk along Seal Beach in Southern California, film industry manager Josh Haynie usually sees only surfers and occasionally marine mammals. These days, the view also includes around 20 oil tankers.

He fears that the intruders could collide with the private yachts that sail these waters. “We are not Galveston, Texas,” he says.

The world may need to get used to the fact that oil appears in unusual places. The global distribution system was overwhelmed by an enormous flood of crude oil, which was triggered by the coronavirus pandemic and the resulting slump in demand. Oil markets collapsed this week as buyers disappeared due to lack of storage space. At one point, the pressure was so great that oil vendors at a major US delivery location in Cushing, Oklahoma, paid buyers to take the stuff off their hands.

Prices have stabilized somewhat since then and traded at around $ 1

6 a barrel for the US benchmark on Friday afternoon. However, storage at Cushing is well on the way to being fully utilized by mid-May and threatens to see similar price cuts if buyers don’t find alternatives.

The Chemtrans Cancale oil tanker waits for the dock in Port Everglades, Florida on April 20.


Photo:

Joe Raedle / Getty Images

The math is unforgiving. The world normally produces 100 million barrels of oil a day. With much of the industrialized world blocked to fight the pandemic, daily demand could drop to 70 million barrels.

Global onshore storage facilities with a total volume of 4.4 billion barrels are currently 65% ​​full, said Antoine Halff, chief analyst at Paris-based raw materials analysis company Kayrros. But he added that they filled at a “monster rate” of 10 million barrels a day in early April.

“It’s like there’s a fire and everyone hurries through the exit door,” says Halff. “At current rates, the storage could be full within 100 days.”

Without a market, the oil industry is staring at a financial catastrophe. According to the oil consultancy Rystad Energy, more than 70 debt-ridden US oil producers are currently at risk of bankruptcy. Analysts say roughly half of it is in Texas. Major oil producers Nigeria, Algeria, Iraq and Iran are considering or applying for emergency funding from the International Monetary Fund, while others like Saudi Arabia are looking for ways to make savings.

A April 23 screenshot from MarineTraffic showing the activity of tankers off the coast of Malta.


Photo:

Maritime transport

The lack of storage tanks and the unprecedented oil spill are directly related. Even potential buyers who want to benefit from bargains cannot jump because they cannot shop anywhere.

“A lack of physical memory is forcing the oil market economy to fall to a closed level,” said Jason Bordoff, a former Obama administration energy advisor who is now the founding director of Columbia University’s Center for Global Energy Policy. “Incredibly low prices, which will continue for some time, reflect the fact that the offer must be withdrawn from the market at unprecedented speed and volume.”

Offshore oil drilling has started to close wells in the U.S. Gulf of Mexico, and some executives fear that the region’s production may take years to fully recover.

Since only a few storage spaces are available on dry land, producers, dealers and buyers are turning to the sea. A group of ships full of crude oil are in the turquoise waters of the Hurd Bank off Malta in the middle of the Mediterranean this week. Others swim in the coastal waters of South Africa.

This increases the financial burden. The cost of renting a super tanker, according to Rystad, is approximately $ 4.50 per barrel per month, or $ 9 million for a medium-sized tanker with 2 million barrels.

According to the oil data company Kpler, the volume of oil stored on ships at sea rose by 76% from March 1 to 153 million barrels, which corresponds to global production of about 1½ days before the crisis.

Increased shipping activity, including tankers and some cruise ships, off the coast of Long Beach, Calif. Left: December 15, 2019. Right: April 15, 2020.


Photo:

Maxar Technologies

Homeless oil appears in places like Seal Beach, which is known for its long wooden footbridge and the best surf spots. The armada of around 20 tankers on the horizon – at least 35 of them idle on the U.S. Pacific coast – have come to the Los Angeles area from ports in Vancouver, Rotterdam and Basra, Iraq, according to FleetMon.

When people in the second largest metropolitan area in the United States were blocked in response to the pandemic, people left their cars in the garage. The nearby Marathon Petroleum Corp. refinery in Martinez, California was temporarily closed. Others, including Chevron Corp.’s El Segundo refinery, have restricted crude oil processing.

On the other side of the world, Malta is becoming a popular destination for ships storing oil. For years, the Hurd Bank has been known in the Mediterranean as a place where illegal oil loads can hide in sight.

Stranded

Dozens of tankers sit idle while the world is blocked

Restricted maneuverability

Restricted maneuverability

Restricted maneuverability

Restricted maneuverability

Ships carrying illegal Libyan fuel on their way to Italy have moored in international waters near Malta. Buyers of controversial Iraqi Kurdish oil have also used the sandbar as a transit point, and Venezuelan sanction blasters have recently done so, according to shipping prosecutors. A spokesman for the Venezuelan oil ministry did not respond to comments.

Now mainstream tankers flock with oil that was originally destined for Italy and Turkey, attracted by the easy parking and proximity to Maltese ports, a constant source of food and fuel.

Many of the ships idle in the Hurd Bank offer their own story about the destruction of demand that is currently devastating the oil market.

Crude oil storage tanks at the Cushing Oil Hub in Cushing, Okla., On April 21.


Photo:

Drone base / Reuters

Beneath the crowd sits the front tiger flying the Marshall Islands flag, which left South Korea with 850,000 barrels of jet fuel on March 1, shortly before European demand collapsed amidst the airlines. According to the oil analysis company Vortexa. It stopped off the coast of Malta 20 days ago and was waiting for orders.

With most ports refusing to let crews board and flights canceled everywhere, Captain B. Murthy and his crew spent their free time playing bingo and table football, and singing Bollywood classics on a karaoke system. Now they are wondering when they will make it back home.

From the deck: “I can see a lot of tankers. We’re all stuck here, ”said the captain in a telephone interview. “We don’t know what the next port is.”

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Next to him, chief engineer Samir Gulwadi became seriously homesick. “When I come back, I wonder if my kids will recognize me,” he says.

Another ship had arrived from Italy with 250,000 barrels of gasoline – where some regions have been closed for almost two months; One was a Monaco-based tanker loaded with Russian refineries.

Nearby was a Greek tanker that had loaded 580,000 barrels from a Libyan oil platform on March 3. Trader Vitol Group PLC chose to store the freight instead of reselling it, and hoped for better prices later, one with the transaction. Vitol declined to comment.

The corona virus pandemic brought factories to a standstill and business around the world ceased, leading to a historic decline in oil demand as production peaked. WSJ explains the oil price crisis, which could change the energy markets. Photo illustration: Carlos Waters / WSJ

South Africa’s Saldanha Bay is home to around 8 million barrels, a number that Kpler says will double in the next four weeks.

According to the data provider, around 2.5 million barrels are stored in five tankers in the Caribbean near Curaçao. “It’s a hot potato,” said Marcelino de Lannoy, interim managing director at Refineria di Korsou. “People call me from all over the world,” he said, citing the United States, China, and Middle East countries.

Some companies store excess oil in tank cars like this one in Krasnodar, Russia.


Photo:

Igor Onuchin / TASS / Zuma Press

The state refinery has a storage capacity of 15 million barrels, but has been closed for two and a half years since it was leased from the Venezuelan government-approved oil company. Refineria di Korsou regained control of operations in January and is now carrying out security checks and maintenance. Mr de Lannoy said the facility would not be operational until June.

The memory challenge is a blessing for the few players who have invested in storage capacity. Royal Vopak, the world’s largest independent tank storage company, says its facilities are almost full. According to Eelco Hoekstra, Chief Executive, the company has seen a significant increase in space requests recently.

“The only tanks we don’t rent are those that are out of order,” he says.

Some memory points are not physically full, but essentially not on the market. About 30% to 40% of the US storage is empty, but everything is fully booked and in the hands of dealers and operators, “said Chris Midgley, head of analytics at S & P Global Platts.” We can probably do the same for all storage around the world. There is storage space that cannot be rented. “

Until the world starts moving again and the excess oil starts to burn off, control of storage is power – and Saudi Arabia has become king of it. Oil stored in the country rose 8 million barrels to 79 million barrels in two and a half weeks before March 26, according to Kayrros, who uses satellite imagery to analyze commodity markets. The Saudis booked the remaining capacity in an Egyptian warehouse. However, demand declined faster than it was possible to lease storage.

The Saudi strategy was: “Ours should be the last tanks to be filled – the last tanks to stand,” said Mr. Midgley of Platts. “Everyone wants to be the last.”

The tanker for chemicals and oil products, Gisela Essberger, is anchored on April 21 in Rotterdam, the Netherlands.


Photo:

Yuriko Nakao / Bloomberg News

Write to Benoit Faucon at [email protected] and David Hodari at [email protected]

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