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Crude Supertanker Rates Collapse As VLCC 'Traffic' To China Lowest In 13 Months

Tyler Durden's picture




 

A few days ago we warned, confirming Goldman Sachs' earlier analysis that the world was running out of space to store crude distillate products, that China was running out of storage space for crude oil as it dramatically ramped up its Strategic Petroleum Reserve 'buy low' plan. While the brightest indicator at the time was "about 4 million barrels of crude oil stranded in two tankers off an eastern port for nearly two months," this week, the dial went to 11 on the oil-demand-fear-o-meter, as Bloomberg reports supertankers sailing to Chinese ports plunged to its lowest in 13 months, sending the daily rate for shipping crashing. The marginal demand-er of last resort just left the market.

 

As a reminder, this is what Goldman said: "the build in Atlantic distillate inventories this year has been large, following near-record refinery utilization in both the US and Europe, only modest demand growth, especially relative to gasoline, and increased imports from the East on refinery expansion and rising Chinese exports."

As a result, and despite a cold winter in both Europe and the US last year, European and US distillate storage utilization is reaching historically elevated levels, driving a sharp weakening in heating oil and gasoil time spreads.

 

 

Such high distillate storage utilization has two precedents, leading in both cases to storage capacity running out in the springs of 1998 and 2009, pushing runs and crude oil prices and timespreads sharply lower. This raises the question of whether today’s oil market oversupply can rebalance simply through financial stress – prices remaining near their current low level through 2016 – or if operational stress – breaching storage capacity constraints and forcing prices below cash costs like in 1998 and 2009 – is ineluctable.

And then something very unexpected happened: the world quietly hit a tipping point when, according to Reuters, China ran out of space to store oil.

In a report explaining why "oil cargoes bought for state reserve stranded at China port" Reuters notes that "about 4 million barrels of crude oil bought by a Chinese state trader for the country's strategic reserves have been stranded in two tankers off an eastern port for nearly two months due to a lack of storage, two trade sources said."

And now, as Bloomberg reports,

VLCCs sailing to Chinese ports at lowest since Sept. 19, 2014, according to ship tracking data compiled by Bloomberg.

 

As China began its Strategic Petroleum Reserve build in Oct 2014: 89 VLCCs inbound for China...

 

 

and after ramping up its buying (and VLCC traffic and thus tanker rates),  just 59 ships are now signalling Chinese ports, down by 13 from week earlier...

And this has sent the daily VLCC rate from Mideast Gulf to East Asia crashing to less than half this year’s recent peak...

 

And just like that China has, if only for the time being, run out of storage facilities. As we concluded previously,

How long until this translates into an actual drop in oil purchases, and even more importantly, how long until the U.S. itself finds itself in a comparable "overflow" bottleneck, leading to the next, and sharpest yet, drop in oil prices?

Charts: Bloomberg

 

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Sat, 10/31/2015 - 21:09 | 6735849 Ajax_USB_Port_R...
Ajax_USB_Port_Repair_Service_'s picture

And the US is going to sell off its Strategic Petroleum Reserves at bargain prices. Great! Makes me think that we already sold our gold reserves.

Sat, 10/31/2015 - 21:10 | 6735852 JoeySandwiches
JoeySandwiches's picture

And Iran's oil supply is coming online in a number of weeks, too.

It'll be fun to see the Sauds and the fracking companies squirm.

Sun, 11/01/2015 - 00:32 | 6736225 tarabel
tarabel's picture

 

 

Venezuela and Russia. Brazil and Nigeria. The list of people with ants in their pants is a long one.

Bringing Iranian oil back onto the market at a time of massive glut can only hurt all of the current producers. Typical Obama move-- to fuck everybody.

But the bottom line is that Iran's most parallel competitor is Russia. Makes me wonder how long the geopolitical cohabitation between the two of them will last. Unless they can jointly come up with some strategy for artificially elevating crude prices and then carry it out in tandem, they will have to play a round of devil-take-the-hindmost.

So what sort of event could artificially elevate crude oil prices other than the two of them shutting down production entirely?

Hmmmm.

 

Sun, 11/01/2015 - 00:54 | 6736256 Man-Bear-Pig
Man-Bear-Pig's picture

The only people that care if oil producers are hurt is Wall Street and those that work in the industry.  I am enjoying low prices at the pump -- as are the rest of us on Main Street.  It allows us to save money and pay off dept.

Fracking is here to stay.  As is the slowdown in the economy.

Welcome to the new normal!

Sun, 11/01/2015 - 03:05 | 6736389 OldPhart
OldPhart's picture

This time it's different.

Sun, 11/01/2015 - 08:21 | 6736598 Arnold
Arnold's picture

Buy high and sell low, it's the American Way.

Sun, 11/01/2015 - 06:45 | 6736528 Al Tinfoil
Al Tinfoil's picture

I thought Saudi Arabia was Russia's biggest competitor for crude exports.  Maybe Russia and Iran will cooperate to flood the market while the Saudis and their allies bleed and US fracking and Canadian Tar Sands go bankrupt.  Low prices do not hurt Russia as much as might be thought, since they get paid at the World price and convert this to Rubles and their expenses are in Rubles.  The Ruble has been pushed down so low that they are getting a lot of Rubles even at low Dollar prices.  

At the same time, Iran is at war with the Saudis in Iraq and Syria, with Russia providing the expertise and high-tech machinery for Iran and Assad in Syria.  The US, NATO and Israel with Al Nusra/Daesh/Al Qaeda/ ISIS/ISIL and Sunni Saudis and Turkey are competing for political control of the Middle East against Russia and Shia in Iran and Iraq and the Kurds.

The Saudis have been exporting like mad, and seeking to increase exports to China, but it seems the China market is now in a glut and their domestic demand decreasing.  And now the Saudis' credit rating has been downgraded as they are running a fiscal deficit and cashing in investments.  Reportedly, the Saudis have been selling to China for Yuan, not Dollars, an increasing trend Worldwide, weakening the support the US Dollar has received from being the currency of choice for oil purchases. 

Venezuela and Brazil are getting bruised and have to sell their souls (to China?) for life support.  Venezuela has huge untapped reserves but has alienated the World majors so they are starving for development and capital investment, so it seems unlikely that V. will increase exports.  V. and Br. may have to make nice to China and Russia to get help from the BRICs Development Bank.  Nigeria? - political chaos threatens from a huge and desperately poor population.  The oil majors (Chevron for example) are reporting low or nonexistent profits, laying off thousands of workers, and cancelling investment projects.  This may open up room for Iranian exports.  Iran may be willing to accept low oil prices since some income beats none.  

At the same time, China and Russia are working on pipelines to carry Russian crude and natural gas to China, and China is developing domestic production, so China's demand for imports from elsewhere may well be much lower in coming years.  The threat of the US pivot to Asia exposes China's vulnerability to choking off seaborne imports, hence China is building military bases on artificial islands and building up its naval forces.

The game is afoot.

 

 

Sun, 11/01/2015 - 14:34 | 6737426 Monk
Monk's picture

They will likely do more than just squirm, and the results will not be fun.

 

Sat, 10/31/2015 - 21:16 | 6735867 knukles
knukles's picture

Gordon Brown already did.  Remember, we shipped all of Ft Knox to the Brits when they ran out of gold years ago and then Brown sold the dental scrap.

 

Hail!  All Hail the great Hokey Pokey, the Fiddiddling About and Machinations.  Rehypothecation Forever! 

Sat, 10/31/2015 - 21:16 | 6735871 TheBoyPlunger
TheBoyPlunger's picture

US crude supplies still at record highs and are beginning to reaccelerate to the upside:

 

http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WCESTUS1&f=W

Sat, 10/31/2015 - 21:30 | 6735904 RopeADope
RopeADope's picture

Aren't there a bunch of VLCC already sitting off China because the storage space isn't fully built out yet? Of course more are not going to go to China with that kind of offloading backlog piling up..

Sat, 10/31/2015 - 21:37 | 6735916 CHoward
CHoward's picture

Yesterday - for the first time is YEARS I was able to get gas for less than $2 a gallon.  I was almost topped off anyways but just wanted to buy gas for $1.99 a gallon - got a full five dollars worth - felt awesome!!

Sat, 10/31/2015 - 22:21 | 6736011 cpgone
cpgone's picture

1.71 to 1.80 in Tx.

Sun, 11/01/2015 - 03:07 | 6736393 OldPhart
OldPhart's picture

2.49 in Commiefornia.  Each time it drops, the fucking state increases the fuel tax to offset the drop.

Sun, 11/01/2015 - 15:43 | 6737549 11b40
11b40's picture

Dup

Sun, 11/01/2015 - 15:42 | 6737564 11b40
11b40's picture

Ha. $1.65 in SC.

Sat, 10/31/2015 - 22:40 | 6736056 agNau
agNau's picture

Bottom line:
The UEMI is about is about to rise sharply as well.
(Useless Eaters Misery Index)
Simply put. Energy translates into economic activity directly.
*other variables are at work, but demand shift looms large in the big picture.

Sat, 10/31/2015 - 21:49 | 6735933 Cloud9.5
Cloud9.5's picture

Demand destruction is a two headed hydra.  On the one hand you have cheap gas on the other the reason that gas is cheap is because so many would be consumers have been slaughtered by this on going contraction.  At some point there will be a systemic collapse.  The Germans Army surmised that the systemic breakdown will come somewhere between 2015 and 2020.

Sun, 11/01/2015 - 00:03 | 6736178 damicol
damicol's picture

This the moment I have been waiting for.

Now all the wankers and MSM assholes have been coming up with every fucking half wit excuse why oil is low and why it will go higher, have fuck all connection with reality.

Demand demand demand is the only fucking thing as far as oil is concerned.

Now the storage is at 95% plus where is demand.

OK , will tell you, demand is  when oil is now low enough to factor in build out rapidly of more storage.

So oil will now keep going down and down until it gets low enough to factor in storage build costs and then it starts to stabilize again.

Wail for oil to git around 28 - 32 then watch a frenzy of mad capacity build.

it cant be a slow build, it has to be fast to make sure the price doesn't start to rise again in anticipation..

But this will be the final leg down, and later storage company's will all go bust as wall street financed by junk bonds storage company's bleed to death just as frackers are doing.

And fucking idiot investors will get shorn again

 

Sun, 11/01/2015 - 01:05 | 6736262 roddy6667
roddy6667's picture

Those two tankers are offshore from Qingdao, where I live. They are waiting to unload to the pipeline that goes to a refinery 120 miles inland in Weifang. China would like to scoop oil at today's bargain prices, but they have no more room to store it.

That's why shipping is "off". Who would pay to ship anything to a place where they can't receive it?

Sun, 11/01/2015 - 01:30 | 6736300 scatha
scatha's picture

For many years now there is secular collapse of the world demand and trade and now they began to run out of the ways to covering it up by means of holding the goods in warehouses or storage while faking the sales all over the world before they dispose it or recycle it while booking fake profits. The speculators holding on to billions of barrels of oil betting that Saudis blink.

More on that can be found at:

 

https://contrarianopinion.wordpress.com/economy-update/

Sun, 11/01/2015 - 11:43 | 6736977 ThanksIwillHave...
ThanksIwillHaveAnother's picture

Very similar happened 1929-1938.  Replace America in that narrative with China today.  The twist today is the MASSIVE government debt build and CB coordination globally to to prevent collapse.

Sun, 11/01/2015 - 03:10 | 6736397 OldPhart
OldPhart's picture

Tyler Durden, is there an update on where all the unused shipping is parked?  Seems like you had the images in 2008 or 2009.    Where in the world is all that excess shipping capacity sitting?

Sun, 11/01/2015 - 04:32 | 6736458 katchum
katchum's picture

Instead of lower oil prices to increase demand, you can also cease production, which will lead to lower supply and higher oil prices.

Sun, 11/01/2015 - 08:08 | 6736587 wizteknet
wizteknet's picture

Was offered job in oil industry month ago, glad I waited. Rained for 2weeks on gulf coast, then china plunges 70%. Offering me 60hr a week is bs! Keep my ac day job... Get 2nd easy job equals twice pay less moving for, since I didnt get per diem.

Sun, 11/01/2015 - 08:20 | 6736596 Mewa
Mewa's picture

Nice to see the US dollar continue to erode in trade....Iran/Russia/China no longer value oil in US dollar terms but in Yuan and barter...that means the $ price setting no longer matters and is not relevant...

These countries continue to quartine the US from international trade while temp. capital flows prop up the dollar, sov. nations and sov. wealth funds dump treasuries and buy up any remain productive assets and gold....

Wont be long before you here Walmart et all having to pay for all goods in Yuan and or gold....that is physical not the paper crap that isnt worth anything.....

The western banking system has corrupted all markets and distorted pricing mechanisms....Gold has been distorted by JPM and HSBC at the behest of the US/UK central banks to keep their ponzi schemes going....thing are now breaking down heading towards a major reset.....

Get the fuck out of papper assets or you will be wiped out....

 

 

Sun, 11/01/2015 - 08:51 | 6736639 rsnoble
rsnoble's picture

Odd you can still go to an auto parts store in some areas and pay $5+ for a quart of oil.  Not to mention the oil change shops seem to upped the price on the cheaper changes.  Probably cause they couldn't keep help at min wage.

Sun, 11/01/2015 - 11:54 | 6737017 Midas
Midas's picture

The price of lower fuel is nice, but like you I have been waiting to load up on petroleum derived products that are more expensive than they were ten years ago.  I haven't seen any reductions yet.  Antifreeze is still $10 a gallon...

Sun, 11/01/2015 - 08:55 | 6736644 AE911Truth
AE911Truth's picture

Who needs Crude Oil?

Here is a much cheaper source of energy:

Which anyone can build from copper wire and caustic.

Detailed instructions included:

http://blueprint.keshefoundation.org/blueprint.html

 

Sun, 11/01/2015 - 09:19 | 6736678 papaswamp
papaswamp's picture

Harpex has been nose diving for weeks now. Dove below 1,2 and 5 yr averages. Never recovered from the 10 which really shows what a farce any claimed recovery is.
http://www.harperpetersen.com/harpex/harpexRH.do?timePeriod=Years10&&dat...

Sun, 11/01/2015 - 09:50 | 6736719 craigh01
craigh01's picture

I thought I remember Gartman on Fast Money saying the way to play the oil glut was buying the tankers. 

Which, despite all the jokes about Gartman here on Zero Hedge, seems to make sense to me...   If there is too much oil and no place to put it, and the tankers are at high capacity, wouldn't it make sense that tanker rates would go up, not down?

Just trying to understand...

 

Sun, 11/01/2015 - 11:33 | 6736949 ThanksIwillHave...
ThanksIwillHaveAnother's picture

If you owned an oil ship would you rather store oil like warehouse with inventory costs or be shipping oil and other back and forth?   

Sun, 11/01/2015 - 20:10 | 6738151 honestann
honestann's picture

Gradually moving from DEPRESSION to COLLAPSE.

Thanks to decades of fiat debt and Keynesian insanity.

-----

The Paul Krugman solution:  build a fleet of spaceships to haul oil to the moon and store in lunar craters.  Yeah, that's the ticket.  /sarcasm

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