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Saudi Optimism Trumps Storage Concerns, Sends WTI Crude Surging

Tyler Durden's picture




 

A constant stream of hyprocrisy from Fed officials (will print "moar" money if stuff happens), the EIA (storage is getting fuller and fuller, but production will be lower than expected and forecast prices are higher even though lifting Iran sanctions will trim $5-$15 from the price of oil), and Saudi Oil Minister Naimi's idiocy (increased production, demanding non-OPEC cooperation, but optimistic on prices recovering in the short-term) has sent crude asymmetrically rocketing higher,  which is now apparently a good thing for US equities and umabiguously gooder for the US consumer (where is Larry Kudlow?)

 

 

We assume this is just repricing on the basis that the "deal" was "no deal" and in fact it's clear that Iran sanctions will likely never be lifted - despite the Chinese already negotiating.

Goldman is less sanguine, and in its note released yesterday notes that "implied" storage across various regions is at or over 80% already, and in the case of PADD 2 (excluding Cushing) has already surpassed 100%!

From Goldman:

Our analysis of EIA data suggests that there remains crude spare storage capacity, in the range of 7-21 mb in PADD2 and 42-99 mb in PADD3. While wider domestic crude differentials and weak WTI timespreads are in our view pricing the incentive to shift crude stocks to the US Gulf Coast and even potentially onto floating storage, the uncertainty on spare capacity is high. As a result, while we view the risk of running out of US crude storage capacity as a low probability event, it cannot be ruled out and would likely have a significant price impact given US producers’ low operating costs.

 

Implied capacity: We take the maximum observed tank farms and refinery stocks at the PADD level between 2008-10 and let this effective capacity proxy grow at the rate of storage capacity expansion reported in the EIA’s semiannual survey. This method points to much lower storage capacity in PADD2 (particularly ex-Cushing) and PADD3, with combined capacity of 49mb currently. It is worth noting, however, that our calculations do not remove crude by rail, so our results may overestimate utilization.

 

The only loophole is if Oil is either being "stored" underground now (unrealistic):

A large enough contango and low outright crude oil prices create the incentive to not drill or not complete wells, keeping crude oil in the ground. As we discussed previously, a higher deferral rate could lead to a fast decline in US production, although we remain far from shale shut-in economics near $10-15/bbl.

Or barged:

Although the Jones act specifies that “No merchandise […] shall be transported by water […] between points in the United States […] in any other vessel than a [Jones Act] vessel […]”, this does not prevent crude oil from being loaded on non-Jones Act vessels as long as it is loaded and unloaded at the same dock. This is consistent with Ruling H169017 from the US Customs and Border Protection Agency. Therefore, there is the opportunity of using floating storage for US crude, although loading facilities would be a constraint for larger vessels.

 

Coastal or inland barges could also be used for storage although: (1) capacity is uncertain6, (2) barge economics are expensive, and (3) coastal barges could face hurdles from regulators to store crude near the coast (ruling H169017 applied for storage off the continental shelf). Nonetheless, a wide WTI contango could create an incentive to store crude instead of barging it to Louisiana. In Exhibit 19, we compare the Houston Light Sweet - Louisiana Light Sweet crude differential, net of an indicative $2.50/bbl barge fee from Corpus Christy to the LOOP (and its long-run average), to  the WTI contango (a reasonable proxy for the contango of light crude in Houston given set pipeline tariffs). This suggests a greater potential return for using a barge to store rather than ship crude to the LOOP since late February, although we reemphasize the potential variability in barge rates. Interestingly, this would contribute to the recently observed LLS backwardation with fewer inflows as inland barges down the Mississippi to St. James could be used too.

Does the math of floating storage work now? Well, after today's surge probably not, but Goldman thinks it just may... perhaps.

 

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Tue, 04/07/2015 - 14:35 | 5967400 LawsofPhysics
LawsofPhysics's picture

That old question;  'What is the price of something that you need, but that no one will actually sell to you?"

 

or  "What is the price of oil when no one accepts your paper money"

 

Water, water, everywhere and not a drop to drink.

Tue, 04/07/2015 - 14:41 | 5967428 4shzl
4shzl's picture

More boring, survivalist drivel.  Spare us you bunker mentality, PUHLEEZ! 

Tue, 04/07/2015 - 14:45 | 5967439 ukspreads
ukspreads's picture

Oil has bottomed - $20 is never going to happen !!!

Tue, 04/07/2015 - 14:47 | 5967446 Pinto Currency
Pinto Currency's picture

 

 

Maybe the Sauds know something about an Iran/China oil-for-gold deal.

Tue, 04/07/2015 - 15:40 | 5967624 macholatte
macholatte's picture

 

 

Oil gains 3% after Saudi Arabia raises Asian prices

http://rt.com/business/247065-saudi-arabia-oil-prices/

 

Tue, 04/07/2015 - 14:54 | 5967474 ukspreads
ukspreads's picture

Ha, I pity the FOOL who is short and for marking me down for suggesting that oil isn't going to 20 bucks

Tue, 04/07/2015 - 14:58 | 5967490 Hero Protagonist
Hero Protagonist's picture

This is what happens when there's no longer a market or price discovery.

 

The insanity is that major market participants no longer see a difference in price discovery vs. a headline.

Tue, 04/07/2015 - 15:33 | 5967597 PartysOver
PartysOver's picture

Oil has bottomed - $20 is never going to happen !!!

So not in line with the peeps here.  I was mega down voted when I mentioned I was starting to nibble on oil related stocks some time back.

Tue, 04/07/2015 - 15:46 | 5967647 ukspreads
ukspreads's picture

I'm sorry I don't fit in with the concensus Party, but right or wrong I'm not a Sheeple, like your goodself

Tue, 04/07/2015 - 16:35 | 5967819 Squid Viscous
Squid Viscous's picture

Cramer? welcome aboard!! now go fuck yourself "ukspreads" another know nothing calling a bottom in oil...lol

and that's really bold call "$20 not gonna happen"... how about $35? $40?

Tue, 04/07/2015 - 18:21 | 5968339 ukspreads
ukspreads's picture

Got your tentacles in a twist have you "Squid viscous" because you lost your money betting on the wrong side?

You of all people should recognise a bottom when you see one, given you're such an ARSE

Tue, 04/07/2015 - 15:05 | 5967491 LawsofPhysics
LawsofPhysics's picture

Then put your money where your mouth is and make a fucking call asshat.

Do you really think international trade partners don't care how they settle trade accounts?  LMFAO!!!!

Thu, 04/09/2015 - 04:01 | 5974402 ukspreads
ukspreads's picture

Wanker!

Tue, 04/07/2015 - 16:23 | 5967798 sun tzu
sun tzu's picture

Which oil companies or exporters have stopped or threatened to stop accepting paper money? What will they accept in its place?

Tue, 04/07/2015 - 16:43 | 5967893 chilli sauce
chilli sauce's picture

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... http://goo.gl/9YqZBb

Tue, 04/07/2015 - 14:39 | 5967413 Hohum
Hohum's picture

On storage:  Aren't the only requirements some barrels and a warehouse?

Tue, 04/07/2015 - 14:48 | 5967449 Redneck Hippy
Redneck Hippy's picture

Millions of barrels, or one large salt mine.

Tue, 04/07/2015 - 16:13 | 5967755 sun tzu
sun tzu's picture

How many 55 gallon drums do you have and is that the most efficient way to store and later retrieve the oil? I'm sure the EPA and state officials might need some paperwork too. 

Tue, 04/07/2015 - 14:40 | 5967420 Longduckydong
Longduckydong's picture

and now we know why oil sector multiples remained elevated the past few weeks. 

Tue, 04/07/2015 - 14:47 | 5967444 thecrud
thecrud's picture

I think the real point is that well America is as well of as she has ever been just not everyone shares in it the same.

No amount of other properity make you think yours is going up.

We know better than that.

If Republicans wont even losen the purse to fix infrastructure how else will money get to the bottom.

Gonna build another hoover damn.

I know. Charging it for a new car did not help only made us more in dept.

And now when there FICO is actually good they wont qualify for or have the down for a home.

Guess that was so the rich can own all the houses and rent them no more poor owning anything.

And now the real poor mark is under 100,000 a year. the price of everything is so jacked up.

 

 

Tue, 04/07/2015 - 14:47 | 5967445 NoDebt
NoDebt's picture

When Cushing reaches 100% capacity, the war starts.

Tue, 04/07/2015 - 17:45 | 5968182 Wahooo
Wahooo's picture

Nah, they'll just start serving it in school lunches. #ThanksObama

Tue, 04/07/2015 - 14:50 | 5967455 henry chucho
henry chucho's picture

The blatant manipulation of oil prices through financial media websites is drawing to a close.GS is net long WTI,but keeps churning out the negative news (a call for $20 a barrel,LOL) to sucker in shorts,who believe that a gallon of Gatorade should be worth as much as a gallon of gasoline

Tue, 04/07/2015 - 15:00 | 5967498 847328_3527
847328_3527's picture

After they lure millions of suckers into their nets, they'll drop the price to $30.

Tue, 04/07/2015 - 15:18 | 5967549 disabledvet
disabledvet's picture

Yep

Tue, 04/07/2015 - 15:56 | 5967689 ukspreads
ukspreads's picture

Not by $25 overnight suckers

Tue, 04/07/2015 - 16:37 | 5967864 Squid Viscous
Squid Viscous's picture

what? are you the same guy who bets on Tiger Woods to win it all every year?

Tue, 04/07/2015 - 18:17 | 5968321 ukspreads
ukspreads's picture

Why would I do that sucker - I'm just a guy who trades his opinion, you're merely someone who voices one

Tue, 04/07/2015 - 18:51 | 5968427 frankly scarlet
frankly scarlet's picture

ever wonder how the derivatives based on oil will make out with a drop to thirty? they are the other half of the market....

Wed, 04/08/2015 - 14:07 | 5971822 MrSteve
MrSteve's picture

The Gatorade should be worth more than gasoline because Gatorade powers WINNERS!!! doncha know!

Tue, 04/07/2015 - 14:53 | 5967461 ebworthen
ebworthen's picture

Sure, as long as global central banks maintain ZIRP and flood markets with free money (future debt that can't be paid) the price of everything will be too high - and constantly jiggered and gamed by the banks and their machines and croupiers in their casinos.

Tue, 04/07/2015 - 14:57 | 5967486 Inthegreen
Inthegreen's picture

I've been reading this page fort he last 2 months and I can't believe how many people are shorting this market.  Feel bad for the ones who said oil wasn't at the bottom - Go UWTI

Tue, 04/07/2015 - 15:04 | 5967501 John Law Lives
John Law Lives's picture

UWTI is okay for a quick trade on oil price surges, but I would not hold it for long.  Look at its performance over the past 2+ years.  It has done very poorly.  Be careful with it.

Tue, 04/07/2015 - 15:50 | 5967666 Uber Vandal
Uber Vandal's picture

When the bottom fell out, DWTI was quite a ride.

Tue, 04/07/2015 - 15:03 | 5967503 First There Is ...
First There Is A Mountain's picture

$75+/Barrel by December. Bank on it. Whether there is truly a glut or not, you think those in control of what is arguably the greatest natural resource the world has known are going to continue peddling it for $45 when history has shown that the world will pay 3 X plus that? Wake up. Besides, there are billions to be made in the middle by people in $3K suits. 

Tue, 04/07/2015 - 15:51 | 5967671 adr
adr's picture

More like $75 by June if this keeps up.

Summer driving season will be the excuse and then we'll be paying $4.00 a gallon on $80 oil instead of what would have been $2.50 gas on $80 oil if last year's price collase never happened.

 

Tue, 04/07/2015 - 16:18 | 5967771 sun tzu
sun tzu's picture

They peddled it for $5-10 from 1986 to 2003. They can only sell it for what the market will bear. Oil at $200 will cause a worldwide depression and demand will drop and pull prices down. Manipulation only works for short periods when it comes to commodities. You have to find buyers who are willing to park their money possible for years while the commodity is in storage and pay for the storage. 

Tue, 04/07/2015 - 15:15 | 5967539 Mister Delicious
Mister Delicious's picture

http://www.counterpunch.org/2015/04/02/saudis-bomb-russian-consulate-in-...

Personally, I think Salafi Arabia is a gentle push or two away from its own "spring."

Or at least a substantial interruption in oil production.

dum dee dum.

Tue, 04/07/2015 - 15:15 | 5967541 Spungo
Spungo's picture

I'll go all in if oil hits $40. Not oil itself, but oil companies. The good ones. Not the stupid shale ones.

Tue, 04/07/2015 - 15:48 | 5967658 adr
adr's picture

Oil price recovering means reverting to the historical mean around $20-30 a barrel, not $100.

Doesn't matter how much of the stuff actually gets used, the price is based on what commodity futures manipulators are willing to pay. The price of every commodity has been so disconnected from the reality of consumption that what truly happens in the world is of no consequence.

FUCK THE MONEYCHANGERS AND ECONOMIC MANIPULATORS IN THE ASS WITH A TEN FOOT WIDE RUSTY IRON POLE!!!!!!

Tue, 04/07/2015 - 15:53 | 5967682 The Shape
The Shape's picture

Goldman's analysis of storage. Is that like their analysis of rig counts not slowing production when it has been falling since January.

Why don't you just report the monthy when it arrives instead of this weekly algo driven shit?

Tue, 04/07/2015 - 16:06 | 5967715 roadhazard
roadhazard's picture

You can be as "optimistic" as you want but that should not make the price of gas go up. Don't you just love speculators.

Tue, 04/07/2015 - 16:08 | 5967725 henry chucho
henry chucho's picture

The question now is what comes next,$60,or $40?..I don't believe we'll have to wait long to find out

Tue, 04/07/2015 - 16:20 | 5967781 sun tzu
sun tzu's picture

$60 before $40

but $40 will come next fall unless there is a major middle east war

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