"Bloodbath" In Black Gold - Buffett's Phillips 66 Dumps Oil In Cushing, Crashes Crude Spreads To 5 Year Lows

Tyler Durden's picture


The canary in the coalmine of an increasingly desperate energy industry just croaked. With "unusual timing" and at "distressed prices," Reuters reports that Phillips 66 - the major US refiner owned by Warren Buffett - dumped crude oil for immediate delivery into Cushing storage tonight. This sparked heavy selling of the front-month WTI contract (to a $26 handle) and crashed the 1st-2nd month spread to 5 year lows.

It was just last week when we said that Cushing may be about to overflow in the face of an acute crude oil supply glut.

“Even the highly adaptive US storage system appears to be reaching its limits,” we wrote, before plotting Cushing capacity versus inventory levels. We also took a look at the EIA’s latest take on the subject and showed you the following chart which depicts how much higher inventory levels are today versus their five-year averages.


graph of difference in inventory levels as of January 22, 2016 to previous 5-year average, as explained in the article text


And now with Reuters reporting on major US refiners dumping crude, sparking speculation that the move reflected advance warning of looming output cuts amid sluggish winter demand and record inventories...

Front-month WTI collapsed to a $26 handle...



The unusual sales of excess oil crashed the March/April WTI futures spread... One trader described the market as a "bloodbath."



It was unclear how many barrels one of the largest U.S. independent refiners sold, but three traders confirmed at least two deals traded at negative $2.50 and $2.75 a barrel. Two sources said a second refiner was also looking to offload barrels but transactions were not confirmed.


These deals drew notice among traders, who said the prices were distressed and the timing unusual... sending the cash-roll to 5 year lows...



The so-called cash roll, which allows traders to roll long positions forward, typically trades in the three days following the expiry of the prompt futures contract. The trading period for February-March contracts concluded almost three weeks ago.


Since then, however, oversupply has pressured refined products prices lower, and now some grades of crude are yielding negative cracking margins, traders say.


"Midwest margins turned negative after operating expenses last week and forward cracks suggest margins will remain in the doldrums for some time," said Dominic Haywood, an analyst for Energy Aspects in London.

If Phillips 66 does cut refinery runs, it would be the third refiner to capitulate amid record gasoline inventories and negative margins.

Earlier on Wednesday, sources said Delta Air Lines' Monroe Energy refinery near Philadelphia had decided to cut output by 10 percent at its 185,000 barrels per day (bpd) refinery due to economic reasons.


On Tuesday, sources said that Valero Energy Corp was planning to cut gasoline production at its 180,000 bpd Memphis, Tennessee, refinery by about 25 percent.

U.S. Energy Information Administration data on Wednesday showed inventories at the Cushing, Oklahoma delivery hub hit a record 64.7 million barrels last week - just 8 million barrels shy of its theoretical limit - stoking concerns that tanks may overflow in coming weeks.


And so, with the news that Phillips 66 is dumping in apparent size, it appears, as we detailed previously, that BP's warning that storage tanks will be completely full by the end of H1

"We are very bearish for the first half of the year," Dudley said at the IP Week conference in London Wednesday. "In the second half, every tank and swimming pool in the world is going to fill and fundamentals are going to kick in," he added. "The market will start balancing in the second half of this year.”

May be coming true a lot sooner.

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Thu, 02/11/2016 - 00:57 | 7169333 waterwitch
waterwitch's picture

Poor poor Warren.

Thu, 02/11/2016 - 01:03 | 7169358 Stainless Steel Rat
Stainless Steel Rat's picture

Twenty frickin 6. Stab me in the face with an icepick and fuck my dead corpse. :-(

Thu, 02/11/2016 - 01:08 | 7169368 quintago
quintago's picture

The "fill up" at Cushing usually STARTS in March/April. 

Go long vopak!

Thu, 02/11/2016 - 01:12 | 7169387 Stainless Steel Rat
Stainless Steel Rat's picture

I'm upside down until May according to the CME...

Thu, 02/11/2016 - 01:28 | 7169427 I MISS KUDLOW
I MISS KUDLOW's picture

There is this theory that ive never seen on cnbc or fox that oil and gold can not move in the same direction LOL,,,,,i think we are days away from adding several 00000's to the gold price and finding the bottom in crude oil,,,,,These will be lifetime highs and lows in dollar terms......im thinking either 65k gold or 365k gold. with maybe pump prices making there way back up to 4 dollars the 2008 high in 5-10 years,,,,,,,,,TLT is ripping higher and utilites ready to make possible double top,,,,,,,looks like the ultimate safety trade is on like donkey kong


Joe Biden defeats Donald trump(trump will get out more than likely) rand paul or cruz in november,,,,,,,all the people who have been in office will be getting the boot


Havent heard from pelosi in  a while, see Barney Fwank on cnbc daily, where have you gone chris dodd? and everyone else who oversall the collapse?

Thu, 02/11/2016 - 02:09 | 7169455 Stainless Steel Rat
Stainless Steel Rat's picture

Trump will win.  No true progressive will vote for Hillary.  She is a psychopath.  This is the Nader factor x2.

Not that Trump isn't going to be a tyrant, but progressives would rather return to the GWB resistance days then having a fraud like OBombin' justify the tricorner tinfoil hat resistance while they get fucked in the ass by a pseudo-liberal pushing a neocon agenda like Obombin'/Hillary would.

Thu, 02/11/2016 - 04:59 | 7169761 Keyser
Keyser's picture

Alex, I'll take SCO for the win... 


Thu, 02/11/2016 - 05:54 | 7169805 OldPhart
OldPhart's picture

Anyone else so full of the bullshit that they skip the entire article just to get to the freakin' comments?

Thu, 02/11/2016 - 06:13 | 7169821 new game
new game's picture

that could be me. ha but i read it. my son got laid off about a year ago in ND. luv'd his job of 3 years. I got fucked over in RE business by the wall st fiascp of 08. so i have some serious anger i could direct towards dc and fuck st.. the whole thing riles me because it is our lives they are messing with. i just hope the day the average american can link the two together and get angry enough to join me upon marching to change at the federal reserve building. surround it and light it on fire for starters. these pussy ass politicians that won't investigate who the fuck is the fed and their priveldge and hold them accountable for the carnage they leave behind with their open market policies. it is so fucking bullshit...

Thu, 02/11/2016 - 06:28 | 7169841 OldPhart
OldPhart's picture

I'll gladly stand in front of you holding the rope.  Lotsa streetlights in the Urban areas, let me know when you got one cornered.

Thu, 02/11/2016 - 06:45 | 7169858 VinceFostersGhost
VinceFostersGhost's picture




Gotta love it when a plan comes together.


Just so you know......I was never here.

Thu, 02/11/2016 - 07:22 | 7169901 Isy
Isy's picture

A good friend of mine just told me about this incredible

developer, a TOP secret binary formula and $236,708.43 

per month all in the same sentence...


Thu, 02/11/2016 - 07:27 | 7169905 VinceFostersGhost
VinceFostersGhost's picture





OK....your friend is a freakin idiot.

Thu, 02/11/2016 - 08:20 | 7170009 Gazooks
Gazooks's picture

..easy for you to extradimensionally say, ..already clipped by Hill/Bill, as it were



..so does her however luciferian forced election prospects, (hehehe), spook you from where you stand, float or whatever the fuck ghosts of murdered or missing Clinton associates do, Vince?  


just wondering

Thu, 02/11/2016 - 01:16 | 7169389 The best Sun
The best Sun's picture

No problem.

Open the entrances to some of those D.U.M.Bs and pump them full of crude.

Add some nitroprils and then light the bitches up with some current.

Win all round if they already have a heap of elitists ensconsed there.

Thu, 02/11/2016 - 06:36 | 7169849 spdrdr
spdrdr's picture

Well, all I can say at the moment is "Welcome to Armageddon!"

Thu, 02/11/2016 - 11:14 | 7170453 Antifaschistische
Antifaschistische's picture

I rest easy, knowing that Warren would never allow any of his friends, family, goons to front run this dump...

Thu, 02/11/2016 - 00:58 | 7169335 iggenFlot
iggenFlot's picture

I love it!  Crash, crude, crash!!

Thu, 02/11/2016 - 01:52 | 7169481 Market Rage
Market Rage's picture

Crash?   It's down 75% from June 2014.

Thu, 02/11/2016 - 03:34 | 7169676 Mintcoin
Mintcoin's picture

Doesn't mean it can't or won't go lower. Prices need to go lower to purge the supply glut...all the taxes and other bs going on keeping pices up as much as possible (call them price controls) are just going to make it even worse. If you can't store any more then it will crash, to as low as necessary to meet equilibrium. This could mean $10 per barrel oil, and $20 oil for a few years. The Piper is going to be paid. 

Thu, 02/11/2016 - 06:52 | 7169864 VinceFostersGhost
VinceFostersGhost's picture



I love it!


Oh yeah! Suck it bitchez!




Thu, 02/11/2016 - 07:26 | 7169909 nmewn
nmewn's picture

The great thing about percentages is, even after losing 75% it can still drop another 75%.

Hey! I bet if governments & central banks started printing oil it would increase its demand!!!...lmao!

Thu, 02/11/2016 - 01:03 | 7169353 Youri Carma
Thu, 02/11/2016 - 01:13 | 7169361 Yen Cross
Yen Cross's picture

 CL, does look ugly.

  The DAX looks even uglier. I mean, that trade has pretty much closed the, "Draghi bullshitting" from yesterday.

 I gotta pull up some other charts, but this looks nasty. "What ever it takes" and " Lie when it gets serious"...


  Gold is a prime example of why the markets can wipe out your margin. What should happen, doesn't, always happen.

  People were range trading oversold monthly charts, and thought they were smart. They didn't cover their trades, to fight another day.

   Look at the gold COT charts. There's some decent macro action, going on there?

 Lot's of hedging



Thu, 02/11/2016 - 01:15 | 7169392 I am a Man I am...
I am a Man I am Forty's picture

do you know what the most straight forward, purest, no bullshit way to go long oil that tracks crude to the penny, does it exist?  gracias

Thu, 02/11/2016 - 03:26 | 7169665 Mintcoin
Mintcoin's picture



Thu, 02/11/2016 - 01:18 | 7169404 matermaker
matermaker's picture

ya know?  all my simple assets and properties are paid off.   I actually count my chickens when I feed them.  must suck to feel the need to compete.

Thu, 02/11/2016 - 01:58 | 7169488 Yen Cross
Yen Cross's picture

 Top 16 Agriculture ETFs

 There's absolutely NOTHING wrong with raising some chickens and poultry.

  Don't forget Beta can't drop under (1). Otherwise we wouldn't have Alpha ;-D

Thu, 02/11/2016 - 02:05 | 7169507 matermaker
matermaker's picture

Haha... city dwelling lacluster... ther is ALWAYS something to be said about Tertiary wealth....be it from deeds or shotguns.

Thu, 02/11/2016 - 02:19 | 7169533 Yen Cross
Yen Cross's picture

   You like to bounce around. Tertiary, equates to one third in Latin.

  Arguably, through multiple taxation, even the serfs, are paying higher rates.

 Poor NORK chicken ranchers, like yourself?


Thu, 02/11/2016 - 06:14 | 7169825 DownWithYogaPants
DownWithYogaPants's picture

what about turdiary wealth?

Thu, 02/11/2016 - 06:22 | 7169833 Tinky
Tinky's picture

haha! That's a play on turds, isn't it?

Thu, 02/11/2016 - 07:56 | 7169946 nmewn
nmewn's picture

I think he meant turdtiary ;-)

Thu, 02/11/2016 - 08:12 | 7169986 northern vigor
northern vigor's picture

I looked up "tertiary wealth" on wikipedia...lol, it must have been written by zerohedgers.

You have to see it to believe it.

Thu, 02/11/2016 - 06:17 | 7169827 new game
new game's picture

nice, it is our dna to one up everybody else, yen is one of them...

Thu, 02/11/2016 - 03:42 | 7169687 WezTheJuic
WezTheJuic's picture

While the play is a feeder to another play.


Keep it cool.  For gold is not the play that so many might think.


I did not make those rules.

Thu, 02/11/2016 - 01:09 | 7169375 Sky flyer
Sky flyer's picture

Off topic but is anybody else listening to the live feed of the FBI standoff in Oregon? It's about to get real there I believe.

Thu, 02/11/2016 - 09:01 | 7170210 nscholten
nscholten's picture

They fucked up that whole operation.  I mean you have to at least have a plan (A).  It is a step, however.  Perhaps, it was just a test.  Maybe there are smarter people behind the scenes evaluating the government response.  Hopeful thinking...

Thu, 02/11/2016 - 01:09 | 7169376 Ms No
Ms No's picture

Getting close to blood in the streets now....before war... hmmmmm..

Thu, 02/11/2016 - 01:10 | 7169381 scintillator9
scintillator9's picture

And UWTI reverse split not that long ago.....

Thu, 02/11/2016 - 01:13 | 7169388 sixsigma cygnus...
sixsigma cygnusatratus's picture

Goog thing Obama is raising taxes and Yellen will raise rates into this deflation...that should work out just fine.

Thu, 02/11/2016 - 01:15 | 7169397 matermaker
matermaker's picture

Look upon Caeser!   His dollar pays interest and his cup runneth over with oil.

Thu, 02/11/2016 - 01:23 | 7169414 matermaker
matermaker's picture

I'm about a hundred miles east of Cushing.   It's worse than growing up on the Houston Ship Channe, if you ever see itl.   If Buffet is flooding the tanks, he's shorting the hell out of his choo choo trains... should be prosecuted but won't be.

It takes 24 hours for the back up to become epic from every point in the supply line.   One memorable dump.

Thu, 02/11/2016 - 01:28 | 7169426 matermaker
matermaker's picture

you probably saw that color coded graphic of gasoline prices that ZH had up earlier?   Notice the flush of green low prices flowing out of Oklahoma and the general area?   There are almost ZERO refineries up here.  I worked in the petrochem biz down in Houston before i relocated.  No refineries, all storage.   It's going to be a bleed out.

Thu, 02/11/2016 - 08:27 | 7170046 Jethro
Jethro's picture

I saw $1.16/gallon yesterday in the OKC south metro area.

I was in Cushing yesterday, doing some work.  The town is still pretty busy. 

Thu, 02/11/2016 - 01:23 | 7169416 starman
starman's picture

"The market will balance in the second half of the year" Right! 

Becasue. .................exactly!

Thu, 02/11/2016 - 01:27 | 7169423 MayIMommaDogFac...
MayIMommaDogFace2theBananaPatch's picture

Back up the pickup!  I got a special deal where I only have to keep three barrels at my house!

Thu, 02/11/2016 - 01:34 | 7169440 matermaker
matermaker's picture

Operating refineries

Oklahoma has five operating petroleum refineries with a combined daily capacity of more than 500,000 barrels per day, about 3 percent of the total U.S. operating capacity.

• ConocoPhillips Co., Ponca City: 198,400 barrels per day

• Holly Refining and Marketing Co., Tulsa (East): 70,300 barrels per day

• Holly Refining and Marketing Co., Tulsa (West): 85,000 barrels per day

• Valero Refining Co. Oklahoma, Ardmore: 85,000 barrels per day

• Wynnewood Refining Co., Wynnewood: 70,000 barrels per day

Source: U.S. Energy Information Administration

Thu, 02/11/2016 - 01:47 | 7169468 matermaker
matermaker's picture

right now, cushing is at 65k barrels..[end of week 2-5 2005]  and with the old burlington northern not shipping coal?  i suspect that black gold is going to come down the kansas city railroad just as quick as it comes up from the gulf. fresh from the liquidations of Canada.

Thu, 02/11/2016 - 01:47 | 7169469 jcdenton
jcdenton's picture

Sooner than later?




Let's illustrate ..


It took some 70 years to build this great credit edifice, when it goes it may take less than 48 hours to take it ALL down.



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