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Biggest Glut In Recorded Crude-Oil History Taking Shape
The world is on the brink of the longest-lasting oil glut in at least three decades and OPEC’s quest for market share makes it almost unavoidable, according to Bloomberg.
Oil supply has exceeded demand globally for the past five quarters, already the most enduring glut since the 1997 Asian economic crisis, International Energy Agency data show.
But as WolfStreet.com's Wolf Richter warns, if Iran and world powers reach an accord on the Islamic Republic’s nuclear program by their June 30 deadline, we’ll be watching the most magnificent oil glut ever building up into next year.
“The market is flooded with oil and everyone is desperate to sell quickly, so you have a price war,” a marine-fuel trader in Singapore, the largest ship refueling hub in the world, told Reuters as prices for bunker fuel oil are plunging.
OPEC, which produces about 40% of global oil supply, announced on June 5 to “maintain” output at 30 million barrels per day for the next six months. Six days later, the IEA’s Oil Market Report for June clarified that “Saudi Arabia, Iraq, and the United Arab Emirates pumped at record monthly rates” in May and boosted OPEC output to 31.3 million barrels per day, the highest since October 2012, and over 1 MMbpd above target for the third month in a row. OPEC will likely continue pumping at this rate “in coming months,” the IEA said.
“We have plenty of crude,” explained Ahmed Al-Subaey, Saudi Aramco’s executive director for marketing while in India to discuss with Indian oil officials supplying additional oil. “You are not going to see any cuts from Saudi Arabia,” he said. Saudi Arabia produced 10.3 MMbpd in May, its highest rate on record.
So forget the long-rumored decline of Saudi oil fields. For Saudi Arabia, it’s a matter of survival. It has cheap oil, and it won’t be pushed into the abyss by high-cost, junk-bond-funded, eternally cash-flow-negative producers in the US. It will defend its market share, and it can do so profitably.
Russian produced 10.71 MMbpd of oil and condensate in May, a hair lower than its post-Soviet record set in January, and within reach of the Soviet record of 11.48 MMbpd set in 1987. Russia is not cutting back either. It needs every foreign-exchange dime it can get. Its oil & gas sector is its economic lifeline.
And US oil producers aren’t backing off either. They idled 60% of their drilling rigs, slashed capital expenditures, laid off tens of thousands of workers, and shut some facilities. A number of companies in the oil patch have filed for bankruptcy. But US producers are pumping more oil than ever before.
Despite wild gyrations in granular production data that might point at a leveling off or even a decline in one or the other oil field, overall US production, based on the weekly estimates by the EIA, soared to 9.61 MMbpd in the week ended June 5. A new all-time record, and up 13.6% from a year ago! Note the relentless trend line:
With the world’s top three oil producers – Saudi Arabia, the US, and Russia – pumping at record levels and with OPEC producing above target, miracles would have to happen on the demand side to bring this into balance. But miracles are rare these days.
Over the past decade, China has absorbed 48% of the increase in global oil production. But now its economic growth is slowing and its economy is becoming more energy efficient. Demand in the US and Europe is not performing any miracles either. There is some growth: 1.4 MMbpd for 2015, according to the IEA. But not nearly enough to mop up the additional production from OPEC, Russia, and the US – not to speak of Iran when it rejoins the global oil trade.
So OECD crude oil inventories rose another 12.6 million barrels in May, despite the first draws in the US in nine months. According to Bloomberg, supply has exceeded demand for five quarters in a row, the longest glut since the 1997 Asian economic crisis. Eugen Weinberg, head of commodities research at Commerzbank in Frankfurt, put it this way: “Any expectations the oversupply will be gone by 2016 don’t look justified at this stage.”
If demand grows at 1.4 MMbpd in 2015, and if production remains at current levels – two big IFs – global oversupply would still run at 1 MMbpd in the third quarter and at 600,000 bpd in the fourth quarter, which, according to Bloomberg, would be “the eighth consecutive quarterly surplus, exceeding the current record of six quarters from 1997 to 1998.”
It would be the biggest glut in recorded crude-oil history.
But no production increases in the US may be unlikely. US shale producers can’t afford to keep production level. They’re loaded up with debt that is getting more expensive, creditors are getting antsy, cash flows are negative, and so they have to produce more to get more money and stay alive.
And then there’s Iran. Bloomberg:
The glut could swell further if Iran and world powers reach an accord on the Islamic Republic’s nuclear program by their June 30 deadline, Commerzbank predicts. The country could boost exports by 1 million barrels a day within seven months of sanctions being removed, Oil Minister Bijan Namdar Zanganeh said in Vienna on June 3.
If that happens, we’ll be watching the most magnificent oil glut ever building up into next year.
Oil producer Canada is feeling the heat from the oil-price crash, and manufacturing is getting hit hard, but not just because of the oil bust. Read… Manufacturing in Canada Sags, Triggers Chilling References to Financial Crisis
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As price at the pump continues to go up in the U.S.S.K. (United States Sociofacist Kleptoligarchy).
It must be Summer! Almost time to celebrate Freedum!
Remember all the oil bulls a few months back waiting for $100 oil to return? You'd think being a ZH reader would give people a better shot at understanding how the world really works and that prices are manipulated completely, as we see with oil sitting perfectly at $60 for weeks now.
$60, yes, high enough for the Saudis to make maximum profit without reaching a level where shale can make anything, the sweet spot. What a coincidence.
We're seeing a little irrational exuberance in the POO this morning.
Dup, hate that.
Remember all the oil bears a few months/years/decades back waiting for 20 fiatscos/bbl to return? You'd think being a ZH reader would give people a better understanding of how the world really works, and that while prices are most certainly manipulated they would also be aware that practically everyone, everywhere consumes oil either directly or indirectly all the time, and that there are real costs involved in extracting/refining/cleaning-up the stuff.
Is cushing full yet?
The problem is use related, are we using to capacity and for most of the world the answer is no. The market is gaming seasonal use to drive the price. The long term trendline doesn't look strong but the game must be played.....
What do you mean "long term"?
yes, games must be played.
Everyone uses computers either directly or indirectly, therefore prices for computers can never go down
And here's me thinking Moore's law only applied to computer processing. I confess that I did not know that every two years we have been doubling the useful energy packed into a single barrel of oil; Outstanding! Though it is only fair to tell you that even Mr. Moore himself has doubts about that perpetuating without limit (for your computers).
I can Zen Koan too:
Everyone uses air either directly or indirectly, therefore prices for air can never go down
"...most certainly manipulated..." - GoinFawr
I never say "never"; up or down, have it your way. I don't judge in a fiatsco derivative derived world. Regardless, real costs remain; and demand growth is not imaginary, neither is consumption, nor the growing number of people who make up "everyone". So, until the infinitely oily abiotic motherlode is tapped...
But still $60 per barrel, shouldn't it 60 yuan per barrel at this point????
since the yuan is pegged to the dollar, isn't it already?
All this Oil and my electricity bill keeps going up.
Yup, and the price of coal is down too. Must be nice to have a monopoly.
Coal has been banned for all practical purposes and is one of the main reasons your electric bill is rising (that and Al Gores A/C use at his homes), coal fired electrical generation plants are very efficient in their energy production. You can thank the leftist in chief...
have to pay Al Gore and other Cronies for the wind turbines and solar....which are abject absurdly expensive. I know a lawyer in NY...just bought a new house, land rover and mercedes wagon vacationing in Greece....he turns "renewable" deals...which are COLLASAL SCAMS that produce little useable energy
"the wind turbines and solar....which are abject absurdly expensive"
Hunh. If I interpreted your comment correctly then perhaps you can tell me what the net is, on a long enough timeline, of projects that have a high initial capex, but following that their inputs are essentially zero?
Hint: Short term thinking= a large part of the problem
So now oil should go back up to a $100.00 a barrel, right?
We don't need any miracles on the demand side, all we need is for GS to keep telling pension funds to buy oil futures and it will be nothing but onward and upward!
.........well, it works for a little while anyway.
All these big events and I'm in my basement sweating in a new shut-off valve for my water heater. And then replacing the water heater. Halfway done- just waiting for the last solder joint to cool before I start hooking up the lines. I like assembling without wearing gloves so I better feel on the thread engagement.
Cool, gas just topped $3.00 a gallon here. At this pace we should be around $5.00 a gallon when oil hits $25 a barrel.
Funny how those refinery bottlenecks work.
LOL, trying to find where to put all this crude oil.
This low oil price will turn out to be a big boost for Chinese economy. Chinese economy is manufacturing intensive which relies more on energy price.
Factories are already churning out overstock that no one buys. So, what you mean is, this will help the chinese create more stuff that neither domestic nor foriegn markets are ready to consume.
Saudi doesn't produce oil profitably, they are hemorrhaging money, just look at their deficits. They aren't any different than the shale producers in the US, in fact they are worse off because they bit off more than they could chew with this activiy in Yemen.
Deficits have nothing to do with whether or not the Sauds can profit from the current price of oil. It's a known fact that the Sauds can profit with oil at much lower prices. Deficits are a result of a spending problem.
LOl WUT?
How to achieve successful mindset https://www.youtube.com/watch?v=D-72O9GpKJs
Airline tickets going down are they? Nope.
Pump prices? Nope
Is the price of everything that oil goes into going down (pharamaceutical drugs, textiles, fertilizer, food)? Nope
Welcome to the land of Socialism and a Centrally planned economy run by an elected dictator and his friends.
While this will embolden those who call Peak Oil a myth, it seems to be playing right into the phenomenon of the undulating plateau described by Peak Oil analysts. Demand has been damaged by the spike in prices in June 2008 and is having a hard time recovering (to say the least); but in their quest for market share, the various players are pumping like crazy creating a glut. The glut is resulting in falling prices and knocking marginal players off the board (shale and bitumen, that have been supported by ZIRP). When and if demand begins to pick up again, those marginal players that were maintaining production levels won't be there to pick up the slack and prices will spike again, leading to more demand destruction. This cycle could repeat a number of times and for some length of time, who knows. At some point, however, production will not be able to keep up with demand and that's when we will really experience the consequencs of the end of cheap oil.
http://olduvai.ca
Demand has been artificially propped up by central bankers since 1999. When the global bubble pops you will see the real glut.
Not a good indicator of a healthy economy.
Our budget forecasting projected oil at $85-100/barrel. We cannot lose this revenue of stealth tax priced in. We’ll lose our fucking shirts. We need a good oil refinery explosion, tell the mindless peasants that the Strait of Hormuz has been shutdown to create a false supply shortage. We can sneak in the freights of oil sitting on the US water as surplus and make 10x profit margins.
Lies, after lies.
Oil is being artifically propped up while gold and silver is being artifically held down. May you live in interesting times.
From boom to bust; in God of petrodollar we trust.
Until the petro takes on the dollar to shake the house of cards of WS and bake the cake of of fractured shale like the baleful stare of a financial Medusa; nemesis of western empire.
The climate negro clown in WH and now the Pope haven't told the truth. They never have restored SPR oil levels and a safety measure. Have a look.
US Crude Oil in the Strategic Petroleum Reserve Ending Stocks: 692.94M bbl for Wk of Jun 12 2015
Obama to Dump 30M Barrels of Oil From Strategic Reserves| Jim Hoft Jun 23rd, 2011 6:14 am
Social engineering at its finest.
HA! The gas station up the street is raising it's prices every time I drive by it. I hear thay hired a guy just to work the gas price signs.
So why is my price at the pump not going down too? And BTW, I'm paying $.60 more per gallon (>3.00) to avoid the heavily subsidized corn ethanol.*
(*Fucks up vehicles and reduces mileage, not CO2)
My P200E gets 75 mpg compared to my Tundra at 15mpg... no rain please, geoengineers.
You are the problem. Destroying USD universal reserve currency under petrodallar recycling policy. Hint, as soon as you receive 75/MPG. They can raise gas to $12/gallon. You'll need to go out to buy a 100/MPG transportation source, they'll raise gas to $15/gallon.
I'll stick to my 7/MPG gas guzzlers. You can save the planet and become a debt slave for the rest of us. Duct tape a umbrella onto your helmet and keep it under 2 MPH during rain, or snow storms.
Edit: I didn't down vote you.
I gave you a down vote for your 7mpg ostentatious, in your face to the rest of the world, holier than thou, lifestyle. And you say "I'm the progblem?". Greed and selfishness are running rampant...right is wrong and wrong is right, justifying your shit, where you please, attitude. Ahhh. life in Kali Yuga. Duc tape your keyboard and reduce your "carbon finger prints", Gore jr.
Mr. Andersen: For Maersk Oil, $55-$60 per barrel is the break-even point.
I would not exclude oil prices going down again, something like $55 in the short term.
FROM: Maersk bets that smaller shippers can't compete 17 June 2015, by Costas Paris - Copenhagen (MarketWatch)
http://www.marketwatch.com/story/maersk-bets-that-smaller-shippers-cant-...
Dry Bulk Shipping: Lowest fleet growth in 10 years may not prove enough as demand is not keeping pace 17 June 2015, (Hellenic Shipping News)
http://www.hellenicshippingnews.com/dry-bulk-shipping-lowest-fleet-growt...
Oil is global.
But there is a delay in global price transmission.
Oil that is not bought in the US may have to be refined in the US for sale elsewhere.
The increase in US supply initiates a set of dominoes... and the delay can be seen in the divergence in price between WTI and BRENT.
As WTI lowers, BRENT and the emerging DUBAI oil must follow...
One domino undermines the basis of the PetroDollar.
Another domino is the lie that the national social insurance and benefit programs funded by nationalized oil companies are not actual bookable expenses for their relevant oil enterprizes. That domino will fall as ISIS grows and the middle east goes from 'DISORDERED' to 'FULL-ON CRAZY-TOWN'.
That domino will also but less visibly fall as Russia becomes increasingly beligerent, essentially telling the world "You'll buy our energy OR ELSE!!!!"
And finally...it is just icing that the sharp drop in oil price undermines asset prices, sticking a knife in the bellies of international bankers, who had bet on 'Peak Oil'.
In addition, the foreign tax and regulatory burden paid at the pump overseas acts as a price-move-accelerant in either direction. When the price is going down, the relative portion of that price originating in government increases, further dampening demand. When the price is rising, the portion of the price originating in government decreases, effectively making a 'government discount' as the price rises...and further fueling demand, and making unproductive bureaucrats chase their tails!!!
What's not to love?
The "bad hurricane" in Texas (60mph winds) is the reason for the latest price increase.
Looks like part of the economic war against the Russians.
-Captain Obvious
no doubt, wonder why the price of gasoline is so decoupled from the price of oil???anyone. . . anyone. . . Bueller?