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Just as Global Oil Glut Deepens, China Cuts Oil Imports

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Wolf Richter   www.wolfstreet.com   www.amazon.com/author/wolfrichter

“We don’t want to lose our share in the market,” Kuwait Oil Minister Ali al-Omair said on Thursday. OPEC had to maintain production despite the plunge in price since last summer, he said, underscoring Saudi Arabia’s position. OPEC would not cut production to goose prices. It would not let the American fracking boom off the hook.

The price of oil promptly dropped, annihilating much of the Fed-inspired rally the day before.

No one wants to cut production. In the US, production is still soaring. Demand is lackluster. What gives? Crude oil is piling up around the globe.

Commercial inventories across all OECD countries can now supply 28 days’ of OECD demand, near the very top of the range, the EIA reported.

In the US, the amount of oil in commercial storage facilities (not counting the Strategic Petroleum Reserve) is at historic highs. Another 9.6 million barrels were added during the latest week. To put that in perspective: the US produces 9.3 million barrels per day. So in one week, the US added nearly one day’s production to its already high crude oil stocks! According to the EIA, stocks now amount to 458.5 million barrels, up 22% from a year ago.

By another measure, at the end of February the US was sitting on 29 days’ supply, the most since the 1980s when the last big oil bust was wreaking havoc in the American oil patch.

Speculation is now running wild that the US will run out of crude oil storage capacity. Some voices are claiming that storage in Cushing, Oklahoma, which accounts for 14% of the US total and serves as delivery point for WTI futures contracts, could be full by April.

These speculations have dollar signs at the other end. When storage gets scarcer, or when the perception can be stirred up that it will get scarcer, storage fees jump, boosting revenues and profits of the storage companies. There’s money to be made, as long as the speculation can be maintained. And so the insiders came out all guns blazing.

“Demand for our storage services in Cushing has been robust,” said Robb Barnes, senior VP for commercial crude oil at Magellan Midstream Partners LP, according to Bloomberg. The company has 12 million barrels of storage capacity in Cushing, and all its tanks had been leased, it said.

Fees have been rising “fairly rapidly over the last six months,” Blueknight Energy Partners CEO Mark Hurley told investors. The company has 6.6 million barrels of capacity at Cushing.

All publicly traded storage companies have told investors that profits in 2015 would be higher than in 2014. At least someone is making money during the oil bust.

And it’s not just in the US.

“You’ll find all the locations around the world that can store crude now, like Saldanha Bay or the Caribbean, are going to be full,” said Jared Pearl, commercial director of VTTI in Rotterdam. The group includes Vitol, the largest independent oil trader. “It would be crazy if they weren’t.”

And just when we might be tempted to think – cynical as we are about these sorts of things – that they were just talking their book, China, second largest oil consumer in the world, chimes in.

China has been buying cheap oil since August to fill its Strategic Petroleum Reserves. This buying has been one of the demand drivers in Asia and has provided some support even while prices crashed. The government keeps largely mum about the SPR. But the plan is to increase it to around 600 million barrels, which would be about 90 days’ worth of imports. According to Reuters, most estimates place current storage levels at 30-40 days’ worth of imports. In December, China imported an all-time record of 7.2 million barrels per day. Alas…

“I don’t think there is much space left to fill,” a Chinese storage executive told Reuters under the condition of anonymity. He said that in the Zhoushan area of Zhejiang province, where two SPR bases and major commercial storage facilities are located, tanks “are so full that one VLCC tanker owned by a state refiner has had to wait for almost 15 days to discharge.”

Then there is the demand issue. The Chinese economy is growing, according to government figures, at the slowest rate in 25 years. And now there are expectations that refiners could process less crude in the second quarter. So China will likely curtail its purchases, at least temporarily.

Including China, Asian crude oil imports overall have dropped 5% from the peak in December, according to Thomson Reuters data. Imports by India were down 20% in February from a year ago; imports by Japan were down 11%, largely due to the approaching refinery maintenance season.

Even if these folks are talking their book to goose storage fees, one thing is clear: storage levels are high around the globe, and they’re still rising, while demand is nothing to write home about. It adds to the picture of a worsening global oil glut that will continue to pressure prices, bloody up producers, and maul investors and lenders.

The fracking boom in the US started with natural gas. And now it’s destroying its investors. Read…  Investors Crushed as US Natural Gas Drillers Blow Up

 

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Sun, 03/22/2015 - 03:18 | 5914858 Fred123
Fred123's picture

Peak Oil....rofl....what we really have is Peak Oil Price.

Sat, 03/21/2015 - 23:48 | 5914690 disabledvet
disabledvet's picture

Don't know where people keep getting the twenty million barrels of oil consumed in the USA.

 

I think that includes how much is imported then refined then exported.  The US has been a net oil producer for well over a year now.  Why else would the oil lobby demand oil exporting as the solution?

 

Also the USA is by far the world's largest producer of natural gas now.  "So cheap its wiped out the Chinese coal industry" (meaning China no longer allows for the importation of coal from anywhere but China.)

 

Obviously the US coal industry has been annihilated so I think when it comes to debt issues I would start there first and not natural gas.

 

The up front costs for natural gas drilling are pretty much zero relative to oil or coal.  I really fail to see the problem with the natural gas industry.  The processing facilities in Ohio that have just been finished are massive.

 

Bankruptcy doesn't mean the asset suddenly stops being made.

Sat, 03/21/2015 - 20:22 | 5914271 q99x2
q99x2's picture

Maybe the bankers need that oil for the upcoming war.

Sat, 03/21/2015 - 15:43 | 5913454 OpenThePodBayDoorHAL
OpenThePodBayDoorHAL's picture

Everybody blathering about how much oil has dropped, very few talking about how it got up to the stratosphere in the first place, um hello do you think it might be due to free money for everybody from drillers to consumers? 

Sat, 03/21/2015 - 18:19 | 5913878 sun tzu
sun tzu's picture

I can assure you there was no free money for consumers. Oil going from $35 to $110 was mostly due to QE. As QE3 started to wound down and end, oil prices crashed back to where it belonged. 

Sat, 03/21/2015 - 13:44 | 5913040 Pasadena Phil
Pasadena Phil's picture

Regardless of your narrative, and I am not dismissing it, the key to all of this is for America to go energy independent. I won't into the numbers because it is too complicated to post in a comment but with everyone building up their SPRs, were we to become energy independent while also being the largest of oil producer AND consumer, we could freeze our reserves and start exporting again at an equilibrium price based on supply/demand. We have 727 million barrel capacity (almost full) and about 525 million storage capacity in the channel. That's more than twice China's target. They import. We are THIS CLOSE to being an exporter. What would they do when prices rise and we are exporting out of production while freezing our reserves at 1.25 billion barrels? Sell the "excess reserves" at a profit? If war is the objective, we win. If war is NOT the objective, we win.

That is the long and short of why we MUST become energy independent ASAP and why I believe our frackers keep upping production confounding the "experts" who advised the Saudis about setting their target at $75. The cost of fracking is so far below the $100 minimum needed for almost all OPEC countries to meet their countries' budgets that the Saudi calculus has been blown up. Last Novemver, they declared that they were comfortable at $75 and had the reserves (sovereign wealth fund) to weather that price for 2 years. Well the price went from $105 to $60 in a flash and has kept dropping in a desperate attempt to drive out the "expensive" frackers believing that first $80 was their break-even price. Quickly, $80 dropped to $70, then $60, then $45 and now $25???? and the frackers are still profitable while everyone celebrates another report of diminishing rig counts which will THIS TIME mean that production is being slashed. But it keeps going up.

No, I think the end game is a complete restructuring of the global energy industry. We have for too long allowed 3rd world terrorism-sponsoring nations to use petroleum as a political weapon. The quickest and most obvious first step to restoring global economic stability would be for returning to a world of stable oil supply with prices set by those who have real skin in the game. And having the US being the largest producer AND consumer pretty much guarantees that stablility.

 

I think we spend too much time looking for someone to blame in this chaos while we might be better served looking for someone to credit. I believe that the powers that be have "conspired" to force this crisis on us to flush out the weak players in the world: OPEC (our mortal enemies). The damage being wrought by the demise of the petrodollar game is a small price for the US to pay for regaining control of the world stage without fighting a world war.

Sun, 03/22/2015 - 03:24 | 5914863 Fred123
Fred123's picture

Nice post and I have to agree with you. We are in a different world now and we better be making some smart moves (even tho 0bama is trying his best to thwart us) to ensure our global safety.

Sat, 03/21/2015 - 18:22 | 5913883 sun tzu
sun tzu's picture

In order to become a net exporter, we would have to more than double our oil production from 9.5 mbpd to 20 mbpd or cut our oil consumption from 18 mbpd to 8 mbpd. Not likely to happen within the next 10 years.

Sat, 03/21/2015 - 08:59 | 5912624 lakecity55
lakecity55's picture

Nobody thinks it is because of dollar strength or Saudi desire to eliminate shale competition?

Russia also suffers which is an added bonus for the Ziocons.

Petrol may be cheap in USDs, but it is not cheap in Euros!

Sat, 03/21/2015 - 06:52 | 5912482 One Eyed Jack
One Eyed Jack's picture

WAR ISN'T A RACKET?

All of the worlds governments are facing the same crises, illegitimacy, insolvency, and ultimately failure. Many if not all of these governments are in trade treaties or at the least share similar views.

I know this may come as a shock but what if this potential war with Russia, discord with China etc. is merely a ploy by all governments working together against all citizens in every country in a common goal to start another world war to achieve their collective goals.

Establish world dominance and world government.
Regain control of populations
Reduce world population significantly.

This done by any other means than war would be unacceptable and unachievable. But done under the guise of war all of these and more would be easily attained actually begged for with the near religious fervor of nationalism and jingoism.
I don't believe the narrative that all the world governments are at odds just look at the U.S. Congress they are allegedly sworn enemies of the either party or the president depending upon whom is in power., and yet they dine, golf and are often seen lolly gagging on one another. This is kabuki theater for public consumption. Don't believe it.

Every age needs a monster under its bed to be frightened into compliance and coerced into submission, this time is no different.

Peace like anything worthwhile is not free or easily attained but is achievable through hard work and the steadfast desire to end oppression in all its forms. This includes the oppression of the mind from those who would try and control you, and to have you kill someone 7000 miles away that you've never met and who poses no threat to you in order to achieve their agenda.

THINK CRITICALLY. Be suspicious of any narrative that all media is pushing no matter what their politi/religious slant is. iIfthey're all on the same sheet of music then obviously that is the direction that those in power want to move. It is called programming for a reason.

Sat, 03/21/2015 - 11:23 | 5912852 Crocodile
Crocodile's picture

I hear few voices out there such as yours; refreshing. 

Just as Republican & Democrat are "good-cop vs bad-cop" in the national arena; likewise this East vs West is the globalist "good vs bad cop" displayed publicly.  This has been one of Satan's tools used since man rebelled and the strategy is to "divide & conquer" and it is very effective because the very nature of mankind is the same no matter where you are geographically, historically or financially.  Russian soldiers have been training on American soil for several years now; just Google it; it won't take long to recognize the truth of the global agenda as written in Agenda21.  We are being lead to a massive slaughter, but do not fear man who can kill the body, but the Lord who can kill both the body and the soul.

Historically wars have been started on false pretenses and the ones who send the young people to fight the battles will and have never lead by example and the result is always the same.  Millions dead or maimed and the elite from both sides get more power and wealth while the people are set against each other. 

Without men being enslaved there are no people to lead and make no mistake "freedom" is a grand delusion; just look at Mr. Websters definition and tell us who has real freedom.  Only the dead in Christ have freedom from the bondage of one's enslavement to the lusts of their flesh, the lusts of the world and the influence of evil forces.  That is why Christ said that if the Son sets you free, then you are truly free; free from what?  Free from the penalty of sin and rebellion against a just and holy Creator who made you in his image, which our sin nature has marred that image as it relates only to people.  Look at the list on Romans 1:18-32 and you will see what sin looks like from heavens perspective and each of us are on that list; we are all guilty and do not think I am not as bad as that person, for that may be true, but it does not relieve the truth that we are ALL guilty before the one who will judge the entirety of humanity.

There is only one Cure; recognize your personal problem of rebellion (sin) against your Creator and turn from it and to Him, then trust Jesus that He indeed bore your sin and you can be cleansed from all unrighteousness; He paid the ultimate price to set you free...do not turn away for many have come and gone only to die in their sin, unforgiven.  Forgiveness is available..take hold of it while you can, for it is appointed for men once to die, then the judgment.

Sat, 03/21/2015 - 08:35 | 5912594 GuusjA
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Doordat de rechtsorde doorlopend psychosegelovig is gemotiveerd, met verwijzing naar een godheid die het beste met de MensHeid voorheeft, kunnen de (centrale) banken doen wat ze doen. Wat in netwerk WitteGejT wordt beslist komt niet onder de aandacht van het volk, maar verdwijnt in een zwart gat, zoals dit filmpje laat zien.

 

https://www.youtube.com/watch?v=E-0ujdgWoBw

 

Paus Franciscus is door een @CP_sME geïnformeerd dat Nederland is begonnen met de voorbereidingen om het ministerie van 'Veiligheid en Justitie' om te vormen naar het ministerie van 'Waarheidsvinding en Verzoening'. 

 

http://www.volkskrant.nl/buitenland/paus-bezoekt-maffiawijk-in-napels~a3...

 

Uiteraard is minister Lodewijk Asscher (Integratie) hiervan nog niet op de hoogte en blijft hij redeneren volgens de waarden van het systeem 'Liegen om te Leven'. In de optiek van de 'Logica van de 1' moet iedere (rechts)persoon goed leren 'hoe te oordelen'. Asscher spreekt nog niet over de invoering van het systeem 'Leven en Laten Leven', maar wil wel 'een gezamenlijke aanpak van kabinet, werkgevers en werknemers'?!!??

 

http://www.volkskrant.nl/dossier-kabinet-rutte-ii/asscher-discriminatie-...

 

De paus bracht al een bezoek aan de Napolitaanse wijk Scampia, om te zeggen dat 'de georganiseerde misdaad en de corruptie in de stad' binnenkort is afgelopen, wanneer netwerk Juncker het GELD=ZUURSTOF-paradigma gaat uitrollen.

 

Sat, 03/21/2015 - 07:27 | 5912509 negative rates
negative rates's picture

@It is called programming for a reason.

Laws of nature must STILL be followed, even if people in power don't want to move in that direction.

Sat, 03/21/2015 - 12:26 | 5913016 One Eyed Jack
One Eyed Jack's picture

I agree

Sat, 03/21/2015 - 06:02 | 5912458 Wahooo
Wahooo's picture

Well, the whiplash is going to leave a lot of heads laying around. Nat Gas prices are about to kick up - from less drilling, even as we move into spring and summer. While the price decline in oil has taken 9 mos and counting, the move up will come so fast that "no one saw this coming" will again be the headline.

Sat, 03/21/2015 - 18:23 | 5913887 sun tzu
sun tzu's picture

What about the demand part of the equation?

Sat, 03/21/2015 - 01:34 | 5912324 Consuelo
Consuelo's picture

The Chinese are going soft...   They need to start thinking more Chinesee and put up for tomorrow, not a piddly 90 days worth.    The West will not hesitate to use oil as a 'weapon' to a nation like China should the situation call for it.   Gee, I can't of anything at the moment that would precipitate such a hostile response from the West, can you...?   There must be something, no...?

Sat, 03/21/2015 - 18:24 | 5913893 sun tzu
sun tzu's picture

That's why the Chinese signed a deal with Russia to have two huge oil pipelines built from the Russian oilfields to China. No, they're not going to transport the oil by rail.

Fri, 03/20/2015 - 21:50 | 5911948 Lmo Mutton
Lmo Mutton's picture

The planet is going hot.

Fri, 03/20/2015 - 15:50 | 5910964 Perimetr
Perimetr's picture

“I don’t think there is much space left to fill.”

 

Oh yeah?  Bend over

Fri, 03/20/2015 - 15:44 | 5910945 Uber Vandal
Uber Vandal's picture

For a while there, I was starting to think that the low oil prices may be related to a demand issue......

Which may be related to an economic issue...

Which means the stock market should be at a permanent forty five degree to 90 degree angle depending on the day or what word is not uttered by Mr. Yellen.

Why did I quit drinking again?

Sat, 03/21/2015 - 09:51 | 5912687 Winston Churchill
Winston Churchill's picture

Because you caught your liver trying to escape ?

Fri, 03/20/2015 - 17:24 | 5911307 SmedleyButlersGhost
SmedleyButlersGhost's picture

Whoa what - you quit drinking? How for the love of God can that be helping things? I'm sad

Fri, 03/20/2015 - 13:37 | 5910403 bluskyes
bluskyes's picture

Any publicly traded storage facilities out there?

Perhaps some underground natgas facilites could be used to store crude. What a day in age, when one can borrow at negative interest, buy oil, and use the interest income to pay storage fees.

Fri, 03/20/2015 - 13:16 | 5910327 khaproperty
khaproperty's picture

Enough is enough - even for the Chinese. The other possibility is to wait for cheaper oil - may be it will go to something around 20$.

Fri, 03/20/2015 - 20:21 | 5911770 Osmium
Osmium's picture

Cheaper oil?  That's deflationary.  We Can't have that!

Fri, 03/20/2015 - 12:51 | 5910226 KnuckleDragger-X
KnuckleDragger-X's picture

Things are going great though that is subject to change if Yellen farts.....

Fri, 03/20/2015 - 17:23 | 5911302 NotApplicable
NotApplicable's picture

I wonder what the global tanker capacity is?

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