You can talk about shale oil and rig counts all you want but you must also talk about oil in storage or the lack there of. My buddy Matt Smith, at Clipper Data, points out that home to one of the world’s largest crude storage facilities, in Saldanha Bay in South Africa, has seen its supply almost emptied out. Smith points out that various trading houses were selling crude from the storage hub after the market had flipped into backwardation (when near-term prices are higher than those further into the future), dis-incentivizing crude storage – be it onshore or offshore (aka floating storage).
Smith cites an article from the Financial Times that reported two weeks ago that Saldanha Bay storage had been emptied, according to Vitol’s Chris Bake, quoting him saying “stockpiles at important oil storage hubs, such as Saldanha Bay in South Africa, have been “emptied” and crude stored on tankers at sea, such as off the coast of Iran and Singapore, is “all gone.”
Smith says that, while we concur that floating storage off the coast of Iran has been drawn down (something that was almost complete by April of last year), the reports of the demise of floating storage off Singapore appear greatly exaggerated. Although it has more than halved since mid-last year, we still see around 30 million barrels of crude waiting offshore in the region.
Still the big drop in supply there and over the last few months in the U.S. should raise concerns about how well future oil demand will be supplied. We keep hearing that shale oil will be the savior and bring OPEC to its knees, but the actual supply data is telling a much different story.
Global oil demand obviously is much stronger that people think it is or maybe shale oil production is not as prolific as the International Energy Agency (IEA) keeps telling us it is. Of course, the IEA represents the consuming nations. At the CERA energy week the IEA says that rising oil production from the U.S. alone will need to cover 80 per cent of the world’s demand growth over the next two years. They say that the U.S. production will grow by 3.7m barrels per day (bpd) over the next five years. If they are wrong and the U.S. misses that growth target it is likely the globe will be woefully undersupplied. The IEA acknowledged that it is a bit concerned about underinvestment, as well they should be.
City AM writing that “The United States is set to put its stamp on global oil markets for the next five years,” said Fatih Birol, the IEA’s executive director. “But as we’ve highlighted repeatedly, the weak global investment picture remains a source of concern. More investments will be needed to make up for declining oil fields – the world needs to replace 3m bpd of declines each year, the equivalent of the North Sea – while also meeting robust demand growth.” The IEA expects global oil demand to increase by 6.9m bpd by 2023 to 104.7m bpd, with China leading demand growth.
Oil products will be very tight this spring. Strong global demand as well as increased cost due to steal tariffs. Diesel and gasoline buyers should use the market’s weakness to lock in their needs as there is a strong probability of a seasonal price upswing soon.
The Northeast winter blast is not helping Henry hub prices. Nat gas needs to rally soon or it could see a major selloff. The Fox Business Network is where everyone is turning to get their business news!
— Phil Flynn
Markets Quiet Before the Storm
We start off this March Monday with ISM Non-Manufacturing Index at 9:00 A.M. and Export Inspections at 10:00 A.M. On the Grain front the complex looks real quiet after last week’s mover and shakers had woken up a sleepy market. The May Corn is currently trading at 385 ¼ which is unchanged. The trading range has been 386 ¼ to 38 in very quiet trade in the overnight electronic session. The market may be looking ahead to Thursday’s Export Sales and Crop Production USDA Supply/Demand. Also monitoring weather concerns in South America as we move closer to plantings.
On the Ethanol front the April contract is currently trading at 1.468 which is .004 of a cent lower. The trading range has been 1.486 to 1. 468. The market is currently showing 1 bid @ 1.471 and 2 offers @ 1.474 with 27 contracts traded and Open Interest at 1,190 contracts.
On the Crude Oil front the market is attempting to divorce itself with the usual cause and effect of the Stock Market and U.S. dollar with the wild swings we have seen the past few weeks. It looks like a fundamental turn is going to take place with large demand and tightness in supply that is catching investors eyes. In the overnight electronic session the April Crude Oil is currently trading at 6135 which is 10 points higher. The trading range has been 6197 to 6110.
On the Natural Gas front the market just can’t buy a sustainable rally. Winter’s last punch is coming at us now and with cash prices where they are at is sending vibes to the bulls this could be the last chance to dance as we move closer into shoulder season. In the overnight electronic session the April contract is currently trading at 2.705 which is 1 cent higher. The trading range has been 2.726 to 2.673.
— Daniel Flynn
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