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Overflowing Global Oil Storage Leads To Soaring Supertanker Rates

Tyler Durden's picture




 

One month ago when oil was attempting another break out above $50, we wrote that the black gold had officially reached its "tipping point" when as we noted China had finally reached the limits of its onshore oil storage capacity.

This followed rather dire warnings by both us earlier in the year...

... and Goldman more recently, that US oil storage is also rapidly approaching it own tipping point, something which the oil market has finally priced in with the collapse in crude to levels not seen since the financial crisis.

Fast forward to today, when none other than the PIRA Energy Group warned that the oil market is set to exhaust onshore crude storage some time in 1Q 2016, which considering there are just 23 days left in 2015, could be as soon as 4 weeks from today, and judging by the way oil is trading, that's increasingly what the market (if not so much Andy Hall) thinks.

PIRA adds that global oil stocks seen 500m bbl above normal by end-2015, and that Brent will "continue to struggle" because of surplus. 

To be sure, if land storage is exhausted, even Goldman's rather dire prediction of $20 oil may prove optimistic.

But while ongoing soaring supply in the face of sliding demand is terrible news for the price of oil, it is great news of oil tankers, which courtesy of contango have become the equivalent of offshore storage platforms in which to store oil until better times emerge. Only... the contango trade is no longer working for one simple reason - oil tanker rates have gone stratospheric to the point where it is no longer economic to store oil in ships.

According to Bloomberg, oil tanker rates soared to the highest in seven years amid an acceleration in the number of bookings and signs that the ships are being delayed when unloading due to a lack of space in on-land storage tanks. This means that day rates for 2 million-barrel carrying ships sailing to Japan from Saudi Arabia, the industry’s benchmark route, surged to $111,359, the highest since July 2008, according to the Baltic Exchange in London.

This chart was as of last week: in the aftermath of the latest epic fiasco from OPEC, which has sent the price of oil even lower, we are confident that supertanker rates are set to surge even higher, especially as more and more land-based oil depositories fill up.

As Bloomberg adds, oil tankers are increasingly having to store cargoes while they wait for space to clear in on-land storage tanks that are too full, according to Erik Nikolai Stavseth, a shipping analyst at Arctic Securities ASA in Oslo. Vessels able to hold more than 100 million barrels of crude were waiting days or weeks at a time off the coasts of oil consuming countries in mid-November, vessel-tracking data compiled by Bloomberg show.

We wrote about this a month ago when we showed an unprecedented build up of more than 39 crude tankers w/ combined cargo capacity of 28.4 million bbls anchored near Galveston (Galveston is area where tankers can anchor before taking cargoes to refineries at Houston and other nearby plants), according to vessel tracking data showing that vessels now had to wait an average of 5 days, compared with 3 days May.

We are confident that the build up of tankers off the Texas coast will only get greater with every passing day.

“We’ve seen the number of vessels for storage move higher,” Stavseth said. “There have been several reports of congestion in Chinese ports” while the flow of cargoes being transported toward the U.S. Gulf is also rising, employing a growing number of vessels, he said.

Some more details on route costs from Bloomberg:

Rates measured in the industry’s Worldscale pricing system jumped 6.7 percent to 91.18 points on the Saudi to Japan route, the highest since at least the start of the year, according to the Baltic Exchange. The Worldscale mechanism helps oil companies calculate and negotiate dollars-per-ton freight costs on thousands of different trade routes.

Meanwhile, the trend continues and the number of available ships is shrinking as a result of extra cargoes.

As a result of the soaring rates, chartered contango trades have become unprofitable virtually across the board.

Furthermore, there will be 12 percent more tankers than cargoes in the next four weeks for loading in the Persian Gulf, according to a Dec. 1 Bloomberg survey of owners and brokers involved in the trade. That’s the smallest excess in seven weeks.

Part of the rates surge is because of increased shipments going into winter, said Per Mansson, a shipbroker at Affinity Shipping LLP in London, who’s worked in the industry for more than four decades.

 

“When the market has been high and there is a thin balance of vessels available, even a small spark in activity can lead to a spike in rates,” said Eirik Haavaldsen, an analyst at Pareto Securities ASA in Oslo.

And while we are confident that tanker operators around the globe will rush to put as many tankers as are available into operation imminently to capture the soaring rates, this may not be sufficient to normalize the situation: after all if OPEC has indeed entered full meltdown mode, and the cartel has devolved into an "every insolvent petroproducer for himself" mode, not even a surge in tanker supply may be enough to offset the more than equivalent increase in oil production.

Which means that only one potential "renormalizing" near-term catalyst exists: if central banks, or China, openly announce they will monetize oil, although unlike digital fiat 1s and 0s, it is not exactly clear just where this monetized physical oil will be stored, as the world is about to hit its global oil infrastructure "tipping point."

 

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Tue, 12/08/2015 - 19:13 | 6896361 i_call_you_my_base
i_call_you_my_base's picture

One of the most interesting parts of this round of central planning is the realization that you can create a scenario in which the combination of capital misallocation and credit drives producers to keep producing indefinitely even though it's unprofitable.

Tue, 12/08/2015 - 19:28 | 6896418 CPL
CPL's picture

Somewhat, it's an indicator of another situation that's related to something else that's happened.  There is only one way a glut happens in inventory.  Just one way on a planet with 7 billion.  Sadly the metrics highlighted match an obvious answer....things are not as they appear.

http://www.paulchefurka.ca/World%20Population%20and%20Oil%201900.JPG

 

Tue, 12/08/2015 - 19:33 | 6896444 Beam Me Up Scotty
Beam Me Up Scotty's picture

Pull it out of the ground, put it in a tank, and then try and charge us high prices for it.  Just like pumping it out of the ground in ND and pumping it back into the ground in LA in the SPR should make prices rise.  We paid $4 for a gallon of gas for NO GOOD REASON......other to enrich the Wallstreet Elite.

Why not build moar storage facilites??

Tue, 12/08/2015 - 19:36 | 6896467 NoDebt
NoDebt's picture

Jewish lightning coming soon to a tanker near you.  When the value of the cargo (and the vessel) is less than the insurance pay-off.

Tue, 12/08/2015 - 19:42 | 6896495 SILVERGEDDON
SILVERGEDDON's picture

You didn't make that oil.

If you want your oil, you can keep your oil.

And, you can keep a lot more of it.

it's gonna be all Waterworld all over again.

All the cool kids are gonna have a tanker, and a crew of invading Viking pirates on board.

Tue, 12/08/2015 - 20:43 | 6896858 Doppelganger71
Doppelganger71's picture

Bloody Vikings! :)

Tue, 12/08/2015 - 20:44 | 6896861 Doppelganger71
Doppelganger71's picture

Bloody Vikings! :)

Tue, 12/08/2015 - 20:05 | 6896569 CPL
CPL's picture

Again, another issue indirectly related to the output and supply of oil.  Lack of knowledge on how to built one on prime, dry real estate that isn't a soupy mess.  Doesn't it strike you as odd that there have been no real feats of engineering done in the past couple of years.  The fact that the 'latest' CPU for most server models is the exact same CPU that's been on the market for nearly a decade.  Literally no new medical practices have happened.  Even given the baltic dry index.  The single index that illustrates the world commerce reflects a world of around 2 - 2.5 billion...not 7.5 billion.  See the gap in the chart below where "it" happened?  Falling knife patterns in a stock are indications of 'zomfuckinggawdsomethinghappened!!', in a Baltic Dry index, the same answer is roughly approximate.

https://upload.wikimedia.org/wikipedia/commons/a/a6/BDI.png

Anycase, unless 5 billion people magically disappeared given the presentation of the Baltic dry index, the entire shipping industry is being run by people in inflatable rafts not cargo ships.  There are two possible situations given the information of the glut of oil and the lack of shipping.

1)  There is a new energy source other than oil has been developed, and everyone but jew backed governments are using it thenfore causing the energy consumption to fall like a stone.

2)  The world population shrank considerably in 7 years.

Which scenario is more likely given the idea of the information presented as it reflects population trends?  What is going to blow your mind though is if given the presented data and all other situational pieces, it still means the price of oil is far too high and inflation is about to rip the world economy a new asshole.

Tue, 12/08/2015 - 20:09 | 6896644 Usurious
Usurious's picture

Mako and the 'unfunded liabilities'

Mon, 10/11/2010 - 17:27 | 641770 Mako

"Explain to me why the Fed will not act in a way to benefit their masters and destroy the masses?  For if they were to actually not print more it would end with liquidation but would be less ruinous then the hyper inflationary alternative."

If the Fed had all the power you claim they do, we wouldn't even be talking about this right now.  Things would just be super duper right now. 

There is no alternative.  The system will peak, collapse then liquidate.   Only thing the Fed does is try and see if the lemmings have one more shot at escaping the unescapable. 

"The Architect - Denial is the most predictable of all human responses. But, rest assured, this will be the sixth time we have destroyed it, and we have become exceedingly efficient at it."

The unfunded liabilities will be liquidated in mass, eventually a low will occur from which a new base can be formed so the scam can be recycled once again... we have become very efficient at liquidation.  Humans always seem to want a bite of the Apple.

Tue, 12/08/2015 - 21:35 | 6897166 CPL
CPL's picture

It is what it is because people accept the odd attitude of infinite growth given finite resources. 

There was a psychology professor by the name of John Calhoun that discussed the situation of how paradise can be built and what makes a paradise.  In his last experiment he introduced 8 rats to rat utopia.  The rats were fed as much as they liked, given space and they fucked a lot.  And by day 560 there were 2200 rats.  The rat utopia turned into a rat hellhole.  It isn't a question of a fair distribution problem either, researcher notes indicate that many of the research staff did in fact attempt to distribute more fairly but it was fruitless.  Rats tend to bite the hand that feeds it eventually once a certain population volume approaches.  Even the most liberal of the bunch of hippy researchers were given by disillusionment through the entire affair after numerous bites, scratches and the smell in general.  If anything the researchers were just as much part of the study as the rats in the rat utopia were.

There is a silver lining to this depressing bit of trivia with a bit of long running history. 

There is a single culture that managed to operate in balance for thousands of years without much incident and when there were upheavals or turn overs or natural disasters, all of which happen regardless of planning, the society itself could contain and repair the social fabric quickly.  Usually putting the business rationale, situation and solution into the history books and continue managing life in a steady manner that kept everyone occupied.  That country would be China.  Their single idea of Tao applied to a society, the simple idea that 'this is enough, we have what we need and everyone has something to do/learn'.  The only society to take a bite of the apple and enjoyed the spoils of a single bite for nearly 5000 years until someone invented the gunship and bombed Hong Kong from the shoreline because they were attempting to corner the opium trade for export.

Tue, 12/08/2015 - 22:11 | 6897309 mijev
mijev's picture

Thanks CPL, that was an interesting read.

Tue, 12/08/2015 - 19:23 | 6896403 buzzsaw99
buzzsaw99's picture

nirp can fix this /s

Tue, 12/08/2015 - 19:28 | 6896424 Slimjimmy
Slimjimmy's picture

And you thot $37 oil was low

Tue, 12/08/2015 - 20:08 | 6896637 CPL
CPL's picture

Indeed.

Tue, 12/08/2015 - 19:28 | 6896428 Youri Carma
Youri Carma's picture

La-di-da, la-di-da. Oh no, that was Annie Hall. https://youtu.be/gdr30UZ_0Dk?t=1m8s

But he could have said it. Losses at Andy Hall’s Oil Fund Deepen http://www.wsj.com/articles/losses-at-andrew-halls-oil-fund-deepen-14495...

Tue, 12/08/2015 - 19:30 | 6896436 CTG_Sweden
CTG_Sweden's picture

 

As far as I understand shale oil wells produce far less oil after just one or two years unless you drill a new hole. A more exact figure was mentioned on Zerohedge a few weeks ago. Does anyone who is more familiar with the oil industry than me know how fast the production rate of shale oil wells drops (on the average) unless you drill a new hole?

Tue, 12/08/2015 - 19:37 | 6896473 StarfishPrime
StarfishPrime's picture

Shale wells drop off at a rate of anywhere from 50-80% per year (exponential decline for the first few years), although it is a bit more complicated than that over the long term (hyperbolic exponential).

Basically, they drop off fast to only 10-20% of original production, and then they will most likely slow the decline after that for 20-40 years according to current theories.

Tue, 12/08/2015 - 19:55 | 6896555 CTG_Sweden
CTG_Sweden's picture

 

StarfishPrime:

"Shale wells drop off at a rate of anywhere from 50-80% per year (exponential decline for the first few years), although it is a bit more complicated than that over the long term (hyperbolic exponential).

Basically, they drop off fast to only 10-20% of original production, and then they will most likely slow the decline after that for 20-40 years according to current theories."

 

My comments:

Thanks.

Doesn´t that mean that by mid-2016, excessive oil production shouldn´t be a problem, provided that others oil producers don´t increase their oil production?

And shouldn´t the Saudis feel that $50 a barrel is low enough to prevent shale oil producers from drilling new holes? As far as I understand, shale oil producers need at least $60 a barrel, and some even more, for breakeven?

Tue, 12/08/2015 - 21:49 | 6897224 Omen IV
Omen IV's picture

drilled and completed Niobrara Shale - 10,000 feet  - in Converse County Wyoming  - Fall 1979 - without directional drilling and fracking was not todays technology

Notwithstanding  - 700 Bbl./ day for 18 months then dropped  and continued production until I sold in 2011 at 15 Bbl/ day which was maintained for most of the life of the well

I made all my money back based upon costs at that time in much less than 7 months -  we made $40 Bbl - Shah of Iran upended in Fall of 79'  - price went up - luck of the oil patch!

Tue, 12/08/2015 - 20:39 | 6896833 MSimon
MSimon's picture

Refracking can restore flows.

 

 

 

Tue, 12/08/2015 - 19:39 | 6896483 NoDebt
NoDebt's picture

THere is disagreement on that subject but around here it's generally assumed the wells run dry about 2 weeks after sinking the pipe in the ground.  Peak oil and all that.

 

Tue, 12/08/2015 - 20:04 | 6896614 Youri Carma
Youri Carma's picture

It's not only about that but also about oil hedges and when they expire.

Tue, 12/08/2015 - 19:38 | 6896479 agNau
agNau's picture

No container ships moving.
Soon no ocean tankers moving.
And Vlad is doing his part on the land based tankers.

I guess my question is, can an oil well be turned off and on again? Is there a valve on there to shut them off til another tank of some form arrives?

I think I know the answer.

Tue, 12/08/2015 - 22:47 | 6897500 Still Losing Money
Still Losing Money's picture

share prices of various tanker fleets went DOWN on this news. so thenews is expected to have little to no effect 6months out 

Tue, 12/08/2015 - 19:41 | 6896491 THE DORK OF CORK
THE DORK OF CORK's picture

Where is the oil demand destruction happening?  

It certainly is not Europe .

Brazil maybe but where the fuck else? 

Tue, 12/08/2015 - 19:43 | 6896499 agNau
Tue, 12/08/2015 - 19:58 | 6896576 devo
devo's picture

It's weird we have so much surpluse oil given we've hit peak oil and given that the US/global economy is booming. Oh wait.

Tue, 12/08/2015 - 20:35 | 6896813 MSimon
MSimon's picture

At what price is the oil in storage valued at? Could this be a part of cooking the books?

Tue, 12/08/2015 - 20:54 | 6896919 Anopheles
Anopheles's picture

Whatttt??? 

Since oil is now at it's lowest point in the past 7 years, it means the owners of the oil are losing money on the oil if they bought it from suppliers.   And they are losing even more money, at the rate of $110,000 a day, for the oil just sitting in a tanker. 

Tue, 12/08/2015 - 20:49 | 6896898 Anopheles
Anopheles's picture

What they didn't mention is that the owners of all that oil sitting in those tankers want to get them unloaded as fast as possible.

Every 9 days the tanker sits with it's cargo of 2 million barrels of oil, they lose $1 million dollars for "floating storage", so 50 cents a barrel.   It's one thing when the price of oil is going up, but adds to losses when the price drops. 

Tue, 12/08/2015 - 21:27 | 6897125 post turtle saver
post turtle saver's picture

folks, they can't refine this shit fast enough... even then, the refiners have to find a buyer for finished petroleum products... more coming out of the ground every day and already at 3 billion bbls in storage... where can it go, what can be done with it, the world is awash in oil and gas...

you are watching one trick pony oil economies race to the bottom as fast as they can to fund their programs and pay their bills, with each barrel demanding less in return as they all chase each other's tails... KING DOLLAR stands high above all, and will continue to do so for at least the next five to seven years if current conditions in the energy markets continue...

the other edge of this sword is that oil prices and stock prices are usually tied at the hip... the other shoe hasn't dropped in the markets yet to reflect what is one of the, if not THE, primary indicators of deflation... which is KING DOLLAR... we're talking "nickle steak" strength, hombres... leverage is not your friend, clean up your books and bunker down, it's going to be a doozy...

expect to see these crowned and sceptered USDs travel abroad in greater and greater numbers in the near term... the backdraft of dollar strength into the world markets is going to be breathtaking to behold, I assure you...

Tue, 12/08/2015 - 22:49 | 6897509 Still Losing Money
Still Losing Money's picture

how can we be awash in oil and gas and still supposedly be running out cause of peak oil? I guess chicken little bettr recheck her oil sky is falling prediction

Fri, 12/11/2015 - 00:25 | 6908660 GotGalt
GotGalt's picture

One of 2015's best investment classes has been going long the various oil tanker names like FRO, DHT, EURN, NAT, TNK, NNA.  Not only are the dividends rolling in but the share prices are increasing.  Amazingly, even after spot rates shot up like 50% the past two weeks, the share prices of the tankers has not moved much.  I anticipate some good capital gains to be had investing in these.  At the least, likely a good hedge for someone who has money tied up in oil producers or midstream assets.

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