Three Triggers That Will Send Oil Crashing Again

Tyler Durden's picture

Submitted by Charles Kennedy via OilPrice.com,

Oil prices bounced back on March 24 on a sliding U.S. Dollar, and then again overnight on Middle East turmoil, but the pain may not be over yet.

Oil storage capacity continues to deplete. Storage levels at Cushing, Oklahoma, home to the crucial WTI benchmark, are at record levels. As of March 13, Cushing oil inventories hit 54.4 million barrels, the highest ever, according to the Energy Information Administration. That means that Cushing’s storage is now 77 percent full, up from just 27 percent in October 2014. The glut of oil has led to a flood of crude being diverted into storage tanks. As storage nears capacity, it becomes more likely that prices could drop significantly below current levels. That, of course, depends on if drillers cut back production enough to slow the storage build.

 

CushingCapacity

 

Yet another reason to suggest that oil prices could fall over the next two to three months is the annual planned maintenance that takes place at many U.S. refineries. Spring maintenance often leads to a significant volume of refining capacity temporarily closed down for several months. As that occurs, demand for domestic crude in the United States will decline, potentially pushing down prices. That also would force more output into storage, again exacerbating the shrinking ability for U.S. storage to handle more oil.

WTI could drop to $35 per barrel in the coming months, and Brent may fall to just $51.30 per barrel, according to projections from Facts Global Energy and Societe General.

The predictions echo those made by Goldman Sachs earlier this month, which forecasted oil prices declining to $40 per barrel. Goldman cited weak demand coming from Japan and Korea, which could rely more and more on LNG to offset oil in the electric power sector. Cutting even deeper into oil demand is the possibility that Japan will restart two nuclear reactors, easing the island-nation’s dependence on imported oil to meet power demands.

A renewed bout of weakness in the oil markets, notwithstanding this week’s price gains, was further backed up by comments from the Saudi Arabia’s OPEC governor Mohammed al-Madi, who said on March 22 that a return to $100 per barrel would be hard to reach. Saudi Arabia’s Oil Minister Ali al-Naimi reiterated that position, blaming non-OPEC producers for their unwillingness to cut back on production. He said that OPEC will not do it alone, and even revealed the fact that Saudi Arabia recently boosted its oil production to 10 million barrels per day. “The production of OPEC is 30 percent of the market, 70 percent from non-OPEC...everybody is supposed to participate if we want to improve prices,” al-Naimi said.

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BullyBearish's picture

What a joke...never see $100/BBL again...who benefits when it does?

RockRiver's picture

What the hell is a fundamental anyhow?

CrazyCooter's picture

If there wasn't a big war firing up in MENA, then yes, oil would keep going down.

But, if your an insider, nothing is more profitable than buying vast ranges of assets with the insider knowledge of a coming conflict that could easily take 10% to 20% (or more depending) of global oil production off the market.

The only folks that should be in futures are insiders and actual businesses which need the end product and have to plan (e.g. airlines, refineries, fuel distribution, etc).

Everyone is gonna end up with a backside that looks like an xmas turkey.

Regards,

Cooter

KnuckleDragger-X's picture

They are rolling the dice and assuming they'll win the throw but that pesky reality is still hanging around, waiting for its turn.....

Hippocratic Oaf's picture

Ain't nothing a little war couldn't correct.

Canadian Dirtlump's picture

the thousands of people who work in the industry and the millions who use the tax money generated by it I would guess.

 

Either way I had 3 thoughts for a short term geo political cure for this and they were: more fighting in libya, fighting in yemen, and a false flag attack on oil storage.

 

2 out of 3 seem to be on the table.

 

This ignores obviously the biggie in a Russia conflice or a direct iran conflict which is orders of magnitude bigger.

 

Either was until we see some producers go bust or a solid mix of the above, as I said to my safety guy last night - we're going ot go from the low 50s to the low 40ssloshing back and forth, in my mongoloid opinion.

daveO's picture

The banksters' current game plan is to take out Putin and replace him with a puppet. This means a deal with Iran to drive down prices. When Putin gets pushed out, or killed, watch out! 

SheepDog-One's picture

Saudi princes would benefit, poor fellas have had to settle for crappy chrome wheels on their new Mercedes instead of diamond encrusted solid gold wheels...$100 oil will get their standard of living back to normal.

Chad_the_short_seller's picture
Chad_the_short_seller (not verified) BullyBearish Mar 26, 2015 9:53 AM

What fucking bullshit, "will be hard for oil to get back to $100."

Bullfuckingshit. They could cause oil to go to $100 next month if they really wanted to.

thecrud's picture

I do not see what is so hard to understand about their reasoning to not cut production.

Every bit the cut no longer goes to OPEC.

So We have what we have they are maxed out and trying to put more wells on line making side deals with Asia bypassing the market price and stiffing everyone even OPEC countries who too will start selling all they can and hold back nothing.

Why will they cede to Saudis or anyone else for that matter.

The game changer and this is going to get hard to get use to as it side steps market prices every man for himself.

daveO's picture

Banksters, of course. Notice how inventory started skyrocketing in Oct. '14 just as QE ended.

Kaiser Sousa's picture

prepare for v-ramp goin into the last hour of trading in London...

they will not allow the Dow to fininsh down today let alone another 100 plus drop....

watch.

chiswickcat's picture

Of course, this was all predicated prior to Saudi going to war.

observer007's picture

#4u9525

Facebook account Andreas Lubitz shows Islam Hero?

more here

http://homment.com/lubitzfbaccount

Jameson18's picture

Andreas Lubitz

http://www.hebrewsurnames.com/LUBITZ

The vast majority of Argentine Jews are descended from immigrants who arrived from Europe. These ashkenazic Jews migrated from small towns or shtetels of Poland, Lithuania, Russia, Germany, Romania or Ukraine, leaving behind most of their Jewish relatives. After two or three generations, those Jewish families lost track of their relatives, having been saved from the war, emigrated to other countries like USA, England or Australia.

Muslim????????

wrs1's picture

Looks to me like OPEC is going to be the first participant as it's going to be difficult to sail ships around with missiles and bombs flying.  If they do step on their own dicks, we in West Texas won't hold it against those who shorted and denigrated shale but don't blame us when you are paying $7/gallon for gasoline as oil imports drop to 3m bbl/day................

highandwired's picture

Your precious shale revolution is going to die a slow and very painful death.

wrs1's picture

You don't know what you are talking about.

prodigious_idea's picture

Don't try to sound humble.  It doesn't match the Texan reputation.  And since US companies are prohibited from exporting oil (until next August?) the import metric gets funky.  But then perhaps you're predicting prices above $150/bbl because when it was that high in 2008 we didn't hit $7/gal.

wrs1's picture

I was projecting, not predicting imports being cut in half which didn't happen in 2008.  I think that was more of a speculative boom than a supply bust.  This would be a supply bust if it were to happen.  Obviously a shooting war in that area is going to constrain shipping which will constrain imports.  Iran has already threatened that the bombings will cost SA elsewhere.

http://www.bloomberg.com/news/articles/2015-03-26/why-bombing-the-39th-b...

The strikes are a “very dangerous development” and contradict international law, al-Jazeera reported, citing the Iranian foreign ministry. The attacks will haunt Saudi Arabia as the war won’t be contained in one area, the state-run Fars news agency cited Alaeddin Boroujerdi, head of the Iranian parliament’s national security and foreign policy committee, as saying.

cn13's picture

This crude oil storage problem in the U.S. is real.

According to the EIA, there is approximately 521 million barrels of crude oil storage capacity in the U.S.

And yesterday's EIA report showed current crude oil stocks of 466.7 million barrels meaning U.S. storage is 89.6% full.

With U.S. production currently at a 30-year high of just over 9.4 million barrels per day, refinery demand must increase or storage could top out over upcoming weeks.

wrs1's picture

So what happens to the storage when ships quit leaving the ME?

CrazyCooter's picture

That is looking like a reality, but no one but the insiders know for sure.

Many people don't realize how much of oil production that transports on carriers goes through the Red Sea/Persian Gulf.

If this goes hot, those carriers are going to belong to one flag or another and are basically big, floating fuel bombs.

And history has no insiders that would attack/sink commericial cargo so they can make good on bets made at home.

Regards,

Cooter

wrs1's picture

The Yemen thing has been brewing for a while.  I know I posted a few links to this over the months and pointed out it's going to be a security issue for SA even before they had the leadership changeover.  I just don't believe that SA is nearly as stable as so many were willing to believe.   The US needs it's own oil at it's own market price.  The current price is a result of SA and the gulf states basically giving their product away for free.  This little war is costing SA a fair amount of money they probably didn't plan to spend and so their rainy day fund just became smaller.  The net out is that the price of oil will need to get back to $90 sooner than later.

highandwired's picture

If it wasn't for FREE money from the FED, you wouldn't have a job drilling shale (which btw makes no economic sense whatsoever)

wrs1's picture

I don't have a job drilling shale,  I own shale.  Furthermore, it isn't free money from the Fed that funded the wells. The price of oil brought plenty of money into the market and the wells that are coming in now are what would have been considered gushers under conventional terms.  I own both types of well and I can tell you I would rather have more of the shale wells than the conventional ones.  Let's see how long they produce out in the Permian compared to other locations. 

daveO's picture

Cutting a deal with Iran guarantees ships will get thru. That's even if all of the US naval fleet left. DC and Iran are on the same team.

new game's picture

bets are made,

markers placed

plan is laid

faces misplaced...

 

 

 

 

 

orangegeek's picture

WTI oil daily continues up in the face of record inventories

 

http://bullandbearmash.com/chart/wti-oil-daily-32-increased-inventory-ye...

 

oil remains inside the longer term bear channel - as USD moves higher, oil should head into the 30s

wrs1's picture

Record inventories driven by imported oil.

fremannx's picture

Oil wil find some temporary support at these levels but the major trend remains down...

 

http://www.globaldeflationnews.com/oil-light-sweet-crudeelliott-wave-upd...

juicy_bananas's picture

Did you really think oil was going to stay down forever?  The Saudis are not going to lower their standard of living anytime soon.  They prepared to glut the market to rid themselves of their competitors and now that they are the last ones standing, they are going to fleece you all.

akrainer's picture

Hmm... not sure I agree. Oil price collapse since 2014 simply changed the narrative to bearish - facts about dramatically falling production around the world (and inability of fracking to cover the shortfall) are left out of the discussion. Fact: oil extraction is becoming increasingly expensive to society in real terms. Central banks can't print energy. That oil got cheaper in nominal terms ($$) can only be a temporary abberation. Here: https://thejubilee.wordpress.com/2015/03/25/our-energy-predicament/

daveO's picture

Solar farms are still being built around here. The oil producers know it, too.

RealistDuJour's picture

I'm just shocked to not see the usual Zerohedge string of oil-related articles when Oil makes a volatile shift. My bad, it was a volatile shift up. Just brush it under the carpet.

thecrud's picture
thecrud (not verified) RealistDuJour Mar 26, 2015 1:27 PM

Not one fundamental has changed in oil sense it crashed that is why and the start of a war changes nothing.

Now when there is actually damage say Iran rockets hit Saudi oil fields 200.00 in hours.

thecrud's picture
thecrud (not verified) Mar 26, 2015 1:25 PM

I am going long I think the proverbial 200.00 oil will be with us hours after the first Iranian rockets hit the Saudi oil fields you know the rockets did not all stay in Iraq that were sent there.