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Ahoy! Oil Tankers Form Four-Mile Line In Persian Gulf As Iran Talks Stoke Supply Glut Fears

Tyler Durden's picture




 

With the US set to run out of on-land storage in the space of just three months and with the Iran nuclear deal still stuck in “tentative,” “maybe/maybe not,” purgatory (i.e. “we agree on the outline of a plan which will pave the way for an agreement but aren't sure how much of the plan or hypothetical agreement we want to share”), interesting times lay ahead for crude which, in a likely preview of what’s to come, traded in “deal or no deal” mode throughout Thursday’s session. With Tehran sitting on 9% of the world’s proven reserves, the lifting of sanctions and opening of the country’s oil fields to foreign investment could trigger a dramatic decline in crude prices as an extra million bpd gets set to be unleashed on an already saturated market

Meanwhile, crude exports from from Iraq are hitting three-and-a-half decade highs while production, at 3.7 million bpd, is humming along at a 50-year high despite the ISIS presence in the country. As Bloomberg reports, 5% of the world’s VLCC fleet is currently parked in the Persian Gulf outside the Basra Oil Terminal, where tankers are now waiting an average of 16 days driving shipping rates to multi-year highs in the process. Here’s more:

Iraq’s biggest oil exports in more than three decades and winter winds are helping to keep shipping rates at a six-year high as a four-mile line of supertankers waits to load the nation’s crude.

 

There are 22 of the industry’s biggest tankers, or almost 5 percent of the fleet, waiting to collect cargoes from the Basra Oil Terminal in the Persian Gulf, from where most of Iraq’s crude is shipped. The daily rate for supertankers transporting crude from the Middle East to Japan rose to $51,042 on Thursday, bringing the average for this year to $61,306, data from the Baltic Exchange in London show.

 

Iraq’s oil output is rising faster than any other nation in OPEC as supplies from its southern oil province expand even as Islamic State fighters seize parts of the north.

 

Tankers leaving Basra in the past week waited an average of 16 days, ship tracking data compiled by Bloomberg show. That compares with about 10 days normally, said Odysseus Valatsas, chartering manager at Dynacom Tankers Management in Glyfada, Greece.

 

“The fact is it will definitely affect the market,” Valatsas, whose company’s biggest tankers can transport about 28 million barrels of crude, said by phone Thursday.

 

“The more ships that are missing in the market, the higher the chance the market has to go up.”

 

Iraq’s crude exports jumped 15 percent last month to 2.98 million barrels a day, the highest in 35 years, Oil Ministry spokesman Asim Jihad said by phone from Baghdad on Wednesday. The nation pumped 3.7 million barrels a day in March, the most since at least 1962, according to data compiled by Bloomberg.

And supply from Iraq isn’t going to slow…

Iraq will increase its crude production capacity to 4.7 million barrels a day in 2020, from 3.7 million last year, the International Energy Agency said in a report on Feb. 10.

Against this backdrop, Deutsche Bank considers what happens to demand in the event a concrete deal with Iran is reached...

A potential deal could allow insurers to cover tankers transporting Iranian oil, thus paving the way for Iran to increase exports which have fallen 150% (from 2.5 mmbpd in mid-2012 to 1.0 mmbpd currently). 

 

The implications for crude tankers, while difficult to quantify, could be significant in our view. Best case is we estimate an incremental 1.5 mmbpd of seaborne supply would translate to demand for 40 VLCCs on a voyage adjusted basis, equal to over 6% of the world’s VLCC fleet and having the effect of making an already tight supply picture even tighter. 

...and then goes on to comment on the implications of this dynamic for crude prices and the floating oil storage play:

Another potential outcome from an Iran deal would be implications to oil prices. A sharp decline in spot and front month oil prices and potential resulting widening contango in the oil market could render the global floating storage trade profitable once again. So while we have said floating storage is very much “icing on the cake” rather than the central thesis to our positive view on the tanker space, the “risk” is very much to the upside in our view given the potential impact relatively minor levels of floating storage can have on spot rates (given already tight supply). 

This echoes what we said last month: "...the important point here is that Soc Gen believes finding the level where this becomes economically viable (i.e. profitable) can serve as an important guide for where crude is headed. In other words, the bank is looking for the front end of the curve to fall until the contango is wide enough to make the floating storage play enticing." 

*  *  *

All of the above comes at a time when, as a recent policy brief from Stanford points out, crude prices are likely to be constrained for the long haul by a confluence of factors including surging U.S. shale production, a weakening OPEC, the shale revolution spreading globally, efficiencies in drilling, and more natural gas substitution for oil. 

Whatever the case, what all of this suggests is that volatile times lay ahead for crude. 

 

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Fri, 04/03/2015 - 19:16 | 5957474 Millivanilli
Millivanilli's picture

Layoffs, bankruptcies, bad loans,junk bond market, property mbs- already happening and hard realizations about the future of shale.

 

However, one big geopolitical event in Saudi Arabia or Iran and all bets are off.  

 

 

 

Sat, 04/04/2015 - 01:05 | 5958048 lakecity55
lakecity55's picture

If they need it to keep the Ponzi going, the Event will happen.

Too much riding on that hand.

Fri, 04/03/2015 - 18:08 | 5957257 lbrecken
lbrecken's picture

Still spouting same stuff over and over? By 2020 oil demand which as accelerated to 1.3m barrels this yr and has been growing by 1m per year. Somin 4 yrs that would add 4m barrels to OPEC call so why spoutnon Iraq adding capacity i ask while not commenting on this? Cause this site never has a balanced views......u better hope opec is adding capacity. Why not reach out to Cornerstone Analytics in NJ to see how IEA is underest demand? are unafraid to take the other view i ask? I challenge u to provide balance research not biased that only supports yr view. The media is driving oil down as u and everyone else dismissed US prod fell last week for first time this yr. You fail to account for depletion which is just now kicking in.....

Fri, 04/03/2015 - 20:33 | 5957657 thecrud
thecrud's picture

All this so called future demand is comming from what exactly?

Were in this situation for one reason and one reason only. We hit peak demand well before we hit peak oil.

And demand in the coming years just gets weaker and weaker.

Hydrogen is right now running in and deliverable to curent technology affordablely, Ramping up to scale is the next step.

Looks and acts just like good ole petro.

 

Fri, 04/03/2015 - 18:31 | 5957326 Werekoala
Werekoala's picture

That's a lot of awfully big sitting ducks right there.... just sayin'.

Fri, 04/03/2015 - 18:52 | 5957385 q99x2
q99x2's picture

Thar she blow. Aye mate, was that the whale or the Jamie Dimon?

Fri, 04/03/2015 - 19:11 | 5957463 I Write Code
I Write Code's picture

Iran gave in to Obama and agreed to stop all oil production, all that evil carbon so much worse than nukes.  Those ships must be full of pistachios and jihadis.

Fri, 04/03/2015 - 20:06 | 5957579 bilejones
bilejones's picture

I see we are living in a post numerate world:

"The daily rate for supertankers transporting crude from the Middle East to Japan rose to $51,042 on Thursday, bringing the average for this year to $61,306, data from the Baltic Exchange in London show."

 

How can a number that is less than the average Raise the average? Rising rates are still below the average? When did the average fall? When did it reach its high?

 

"paving the way for Iran to increase exports which have fallen 150%"

 

A physical quantity cannot fall more than 100%

Fri, 04/03/2015 - 20:37 | 5957667 thecrud
thecrud's picture

Confusing the dear readers with facts. Could you quit knocking down luck and bull shit with knowledge and skill.

Fri, 04/03/2015 - 22:26 | 5957885 bilejones
bilejones's picture

Is it my fault I can do sums?

Sat, 04/04/2015 - 10:59 | 5958550 shovelhead
shovelhead's picture

But don't understand what average means?

Pehaps lower number added with higher numbers for a longer duration = a sum average higher than the lower number?

Thinking. It works, even for 3rd grade arithmatic problems

Sat, 04/04/2015 - 16:41 | 5959252 bilejones
bilejones's picture

The whole point of the article is that rates are now rising which cannot be the case if the average is correct.

Fri, 04/03/2015 - 20:10 | 5957603 GotGalt
GotGalt's picture

It's not for the faint of heart, but I got some money invested in a few of the publicly traded dirty/clean tanker companies the past few months in anticipation that 2015 could be a banner year coming out of the doldrums.  DHT and EURN are probably the two best bets for VLCCs.  FRO is a wildcard here, I own a bit as a lottery ticket of sorts, but their debt situation is still onerous.  Playing the next step down, NAT and TNK are decent plays for Suzemax size tankers.  Then for the shippers that are more diversified towards clean shipping you have NNA and STNG to name two.

Owning these has allowed my IRA to outperform S&P, etc this year.  I know I know, I'm the ZH outlier who has not liquidated my retirement account, paid the penalties, and gone 100% goldbug.  Shame on me.

Fri, 04/03/2015 - 20:10 | 5957605 lbrecken
lbrecken's picture

Lets review of what was said here all of which turned out false: 1) Rigs being dropped are only verticle rigs, 2) Rigs being dropped are in non prod areas, 3) Rig count drop does not mean prd will decline, 4) cushing will fill and soon, 5) And now finally Iran will flood mkt---yet to be proven false.....now prd declines 36k barrels last week...lol:-).....the iran threat i repeat sanctions wont be lifted immediately it will take 6-12 mths to verify compliance and even then the 30m so called floating storage is a 3 yr old stat on iran floating storage.  Further again demand rises 1m barrels per yr so even if iran doubles output it will only keep up with demand....Tyler are u still there? Lol

Sat, 04/04/2015 - 02:15 | 5958073 Reality Cheque
Reality Cheque's picture

 

Sat, 04/04/2015 - 01:53 | 5958074 fel.temp.reparatio
fel.temp.reparatio's picture

"Oil Tankers Form Four-Mile Line..."

Given that an Ultra-large Crude Carrier (ie. supertanker) is more than a 1/4 mile long, and taking into account minimum separation between craft, that means a 'line' of about 5 ULCCs? hah!

Sensationalist click-bait...

Sat, 04/04/2015 - 02:33 | 5958103 dumdum
dumdum's picture

I was doing similar calculations in my head. An awsome attention grabbing headline. But no big deal in reality.

Sat, 04/04/2015 - 01:54 | 5958075 Reality Cheque
Reality Cheque's picture

Must be a left over from April-Fools Day!

Or whoever wrote this is a Fool and has no clue to what's really going on, and is only spouting propoganda from the US media complex.

Look...our oil storage is just fine. Nationwide our storage is less than 60% full. And that after years of the highest oil production we've done (though still significantly lower than our peak years decades ago), its still only 60% full. At todays prices they should be filling up!  But they are not. 

Last year we only produced 9 Million Barrels(Bbls) of oil a day in the US. But we consumed 20 million Bbls/day in the US. So do the math - we imported 11 Million Bbls a day! Every single day!

If our storage ever was close to filling up...and it is NOT...then all we would have to do is slow down our imported oil.

Are people brain dead to fall for this propoganda about an oil glut and full capacity oil storage? It is simple math, and the info is publically available. The lies the govt-media complex are expoudning prove that if you repeat a lie often enough then the public will eventually belive it. Time for a wake up call folks.

 

 

 

 

Sat, 04/04/2015 - 02:15 | 5958082 Reality Cheque
Reality Cheque's picture

 

Sat, 04/04/2015 - 03:17 | 5958136 XXL66
XXL66's picture

Reading this title, i would at least expect a picture.

 

https://www.youtube.com/watch?v=8r-e2NDSTuE

4'10

Sat, 04/04/2015 - 06:57 | 5958239 Md4
Md4's picture

Iraq’s crude exports jumped 15 percent last month to 2.98 million barrels a day, the highest in 35 years, Oil Ministry spokesman Asim Jihad said by phone from Baghdad on Wednesday. The nation pumped 3.7 million barrels a day in March, the most since at least 1962, according to data compiled by Bloomberg."

Swimming in oil, and soon, maybe dying of thirst...

m

Sat, 04/04/2015 - 09:19 | 5958374 fremannx
fremannx's picture

OIL has a long way to go before it bottoms. While there may be some short term bear market rallies, the overall trend is still downward with no foreseeable change in the near future.

 

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

 

Sat, 04/04/2015 - 11:19 | 5958581 shovelhead
shovelhead's picture

Numbers are such funny things

They come from here and there

But who's in charge of numbers?

Cant be found anywhere.

The Queen in England has her sums

The Welsh they have their own

But God will save the Irish

They get theirs straight from Rome.

Do NOT follow this link or you will be banned from the site!