WTI Slides As Goldman Warns $20 Oil Looms, Crude Storage "Too Full For Comfort"

Tyler Durden's picture

Despite spoiradic algo-crazed ramps, crude oil prices continue to slide back towards a $34 handle (in Jan '16 contract) this morning following a reiterated downbeat note from Goldman warning that storage levels are "too full for comfort," that positioning is not as stretched short as some believe, and confirming that this will not end until prices near cash costs to force production cuts, likely around $20/bbl.



Positioning still not stretched short

The move lower was amplified by positioning, with short covering and new ETF long positions ahead of the OPEC meeting providing sufficient ammunition to push prices to new lows. This move was also likely exacerbated by a negative gamma effect around the large WTI Jan-16 $40/bbl strike option open interest. With Brent positioning still off its lows, continued weak oil fundamentals can still push prices lower. Beyond oil, it is also important to note that oil net speculative short positions have tracked dollar long positions closely this year...


OPEC and storage concerns weighing on oil prices

The decline in oil prices has resumed, driven by the aftermath of the OPEC meeting, renewed weakness in distillates and exacerbated by positioning. Although prices are now below our 3-mo $38/bbl WTI forecast, we still see high risks that prices may decline further, as storage continues to fill.


In further confirmation of these concerns, Genscape data saw a 1.4 mm barrell build at Cushing.


The canary in the coal mine

For now, the European distillate market is showing the most acute symptoms of nearing storage capacity with gasoil timespreads, cracks and cash basis falling sharply.


Tank tops not our base case, but too close for comfort

Our oil price forecast remains anchored by the view that high producer financial stress and shut funding markets near $40/bbl can halt the oil surplus by 4Q16, mainly through declining US production. Our base case remains that the global oil stock build will on aggregate remain shy of storage capacity, although the storage buffer has once again narrowed, to 340 kb/d on average for 2016. But this rebalancing is far from achieved:

(1) the US rig count and E&P guidance remain too high to achieve the required supply decline,


(2) we see risks to our OPEC production forecast of 32 mb/d next year as skewed to the upside (Iran),


(3) storage continues to fill with the odds of hitting storage constraints by the spring rising.

As a result, we reiterate our concern that “financial stress“ may prove too little too late to prevent the market from having to clear through “operational stress” with prices near cash costs to force production cuts, likely around $20/bbl.

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Bill of Rights's picture

Its a recovery dammit!

Stackers's picture

News Headline 2020

World in Panic from Oil Shortage due to forced reduction in production levels from the 2015 price collapse

Experts say it could take 5-10 years for marginal oil resources to be brought back online

VinceFostersGhost's picture



Where are our $150 oil guys today?


You guys doing OK?

Mr.Sono's picture

Baby boomers are all in in oil. There retirement does not look rosy

Government needs you to pay taxes's picture

Oldest trick in the book:  Goldman uses its muppet-hunters (they'd be their vaunted sellside analysts) to jawbone/test the lows, at which point their prop desks BUY BYE BYE!  Lamp posts - I want to see some Goldman-logoed Gucci loafers swingin' from em!

Master_Blaster's picture

They will make up the price difference in volume....

OilCaptain's picture

OK?  No.  Laying people off left and right.  Oil is the lifeblood of a healthy economy.  The more it flows, the more macroeconomic activity flows.  This should scare the shit out of you.

boattrash's picture

Where's Saddam Hussein when ya need him? He sure as hell knew how to get rid of that excess oil.

Vlad the Inhaler's picture

Oil is the lifeblood of the oil industry.  It's flowing now and macro is going to shit.  Which goes to show that consumer demand is the lifeblood of a healthy economy.

boattrash's picture

If we were to close that "oil spigot" for two weeks, you might see things differently. If I was operating a business at a loss every fucking day, that's exactly what I would do.

Vlad the Inhaler's picture

Saudi can break even at $15/barrel and they are solvent until 2020, so closing the spigot is exactly what they are going to force on US companies.  When it comes to oil we are OPEC's little bitch.  The only way we are going to ever reduce dependence on foreign oil is to reduce our depence on oil period.

Tunneler's picture

Mainly pointing out that this drop in pricing has not spurred demand or economic activity other than people buying trucks when they might have bought a prius.  that's the behavior change - the economy is saved.

RockRiver's picture

Crude slides becuase the dollar is on a f'ing moonshot.

boattrash's picture

"Crude slides becuase the dollar is on a f'ing moonshot."

The dollar is a fucking concrete boat.

Inflation is on a fucking moonshot.

arbwhore's picture

"Goldman warns".... 

buzzsaw99's picture

the speculators can just store it on paper /s

btw - thanks janet /s

NoDebt's picture

Why would we build all that storage capacity if we never intended to use all of it?

cougar_w's picture

Someone is gonna blow up. Give it a couple months and there will be blood in the water.

semperfi's picture

but the rate hike fixed that

IridiumRebel's picture

Lord knows the fucking price won't dip below 2 bucks no matter how low the shit goes.

Set those CDS in motion?

MopWater's picture

Where are you at? North central USA has regular unleaded at $1.81 last I filled up.

boattrash's picture

Clarksville AR. Reg. Unleaded, $1.67 (Cash price). add .02 if you want to use plastic...

Hohum's picture

Prices ARE below cash costs.  Oil extractors just keep getting financed for some reason.

Vlad the Inhaler's picture

In real life, cash costs include debt service.

arbwhore's picture

So the world has about 4 days of extra storage (outside of China). 

Ms No's picture

It's a complete banker induced oil tsunami, banda aceh style.  The layoffs industry wide will be kicking hard come the new year. 

scintillator9's picture

From almost a year ago:


U.S. commercial crude oil stocks last week hit their highest level since 1931 - when the opening of giant oil fields in the United States coincided with the Great Depression to create an enormous glut and sent prices tumbling to just 13 cents per barrel.


The rush of new discoveries put an end to the peak oil fears which dominated the industry between 1919 and 1922 (“Petroleum Resources of the World” 1920).

But it also caused prices to plunge from $1.88 per barrel in 1926 to just $1.27 in 1929, $1.19 in 1930 and just 65 cents in 1931, according to the BP Statistical Review of World Energy.


Odd how history rhymes.

Mark Mywords's picture
Mark Mywords (not verified) scintillator9 Dec 17, 2015 10:18 AM

Odd indeed.

Great gem you dug up there. I never realized peak oil stupidity had been parroted back then, too.

Deeper I go down the rabbit hole...

Hohum's picture

Everything I see indicates net energy from oil extraction (energy put over energy in) peaked years ago.  Contrary information welcome (but not just ideology).

Battle Beagle's picture

Goldmans Business Plan 

Step 1: Leverages Oil Short Positions 100 to 1 

Step 2: Buy A Couple of Tanker Loads of Oil Offshore or From Non Publicly Counted Storage 

Step 3: Flood Official Storage Areas With Oil

Step 4: Release Negative News About Oil Prices

Step 5: Profit When Oil Prices Fall 

Step 6: Repeat    

MopWater's picture

Long overpriced SUVs and Pickups.

GM, FoMoCo, and FCA must be licking their chops to sell more 'mericans more trucks to cruise the mall parking lots and show off how rich they are.

Bangin7GramRocks's picture

No money down! 120 month 0% loan. Come one, come all!

John Law Lives's picture

Fedspeak isn't fixing this growing crisis in the oil and gas sector.

Conax's picture

Storage is full so the price drops.  Ok.

Where will they store all the $20 oil? 

MopWater's picture

Hard to ask more money for a good no one wants.

firstdivision's picture

That's when they start to just burn it.  I'm going to position long on some contracts myself as I don't see this lasting much longer.

Tunneler's picture

I sometimes think that's why they decided to start bombing IS oil tankers

Montani Semper Liberi's picture

The oil producers will be forced to cut production when the storage problems eventually backs up to the wellhead.

Doubleguns's picture

One would assume that enough producers would have shit the bed by then and the remaining producers would just be producing the daily consumption but that means one has to "assume" and we know how that works out....

Montani Semper Liberi's picture

 I know my municipal water system stops pumping from the treatment plant once the storage towers are full, even though they are capable of producing much more.

pemdas's picture

Yes, and the same with my sanitary district.

Panic Mode's picture

The world is shorting ISIS.

firstdivision's picture

Over production just cause loans be cheap leads to bankrupt energy companies and banks holding bad loans...but not to worry us as taxpayers will pay it cause god forbid a bank take a write-down.

MopWater's picture

Sounds like a glorious opportunity for some cheap buying by big oil and big banks in the coming months. I had heard a number of the major oil corps weren't in on the oil sands boom...too bad that the oil is so low that they're gonna fold up./sarc

Ahh yes, failure by the many means even greater power, money, and influence by the few.

franzpick's picture

And $999 Au, $12 Ag and $30 crude are just days away:


Stacking cash to buy more PMs, lower, later - is still working.