UAE Offers India Free Oil To Ease Storage Woes

Tyler Durden's picture

Submitted by Charles Kennedy via OilPrice.com,

In an oil sector first, the oil-rich United Arab Emirates (UAE) has offered free oil to India in return for a storage deal at India’s planned underground facility as the supply glut worsens and some analysts predict that ‘’peak storage” could sending prices crashing further.

The UAE’s Abu Dhabi National Oil Company (ADNOC) has agreed to store crude oil in India's maiden strategic storage facility, sweetening the deal by saying India could take two-thirds of the oil for free.

It’s a great deal for India, which is almost fully reliant on imports to meet its crude oil needs.

India has lured Abu Dhabi in with the building of a massive underground storage facility system that will be able to take on 5.33 million tons of crude as a bulwark against global price shocks and supply disruptions.

ADNOC is eyeing half the storage capacity at one of the new underground facilities, Mangalore, which has a 1.5-million-ton capacity on its own. Abu Dhabi plans to stock 0.75 million tons, or 6 million barrels of oil, here, and 0.5 million tons will belong to India.

The deal is reflective of a wider, global storage panic and talk of what could happen when we reach ‘’peak storage’’. A number of analysts have suggested that oil prices might crash to $20, or even $10 a barrel, if storage tanks become full.

Storage is now at the highest level in at least a decade.

In the U.S., crude storage levels hit 487 million barrels in early November, closing in on the 80-year high of 490 million barrels hit earlier this year.

According to the U.S. Energy Information Administration (EIA), about 60 percent of the U.S.’ working storage capacity is filled.

Globally, the picture isn’t much better, with the International Energy Agency (IEA) saying that 1 billion barrels were added to storage in 2015 alone. OPEC has reported that crude oil stockpiles in OECD countries currently exceed the running five-year average by 210 million barrels.

This has given impetus to more creative storage ideas and will at least be a boon to massive storage projects such as India’s.

Floating storage—a more expensive option—is now looking more attractive as well. But to make this work, the math has to be in order, which means that front-end crude spreads would have to be wide enough to cover the cost of storing oil in pricey floating facilities.

Late last month, Bloomberg reported that trading giant Glencore had chartered four very large crude carriers (VLCCs) to store oil off Southeast Asia. But there’s still onshore storage capacity, and we’re not quite to the point where the floating option is widespread.

The U.S. still has 100 million barrels of available storage, and we should see more storage capacity by the end of this year. The Middle East is also slated to add capacity in the coming years, with the UAE specifically planning to expand its capacity to take on another 10 million barrels.

The analytical panic is perhaps premature. We’re not facing ‘’peak storage’’ just yet, but Abu Dhabi is playing it smart and safe.

Still, the UAE estimates the oil glut at 2 million barrels a day and growing, and its own storage expansion plans will benefit from this. After all, it houses the biggest oil storage port on the Persian Gulf—Fujairah Oil Terminal FZC—on the Hormuz Strait.

Fujairah received its first shipment just this month of 1 million barrels, and storage capacity is slated to increase 75 percent this decade.

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peddling-fiction's picture

This ain´t rigged... /lol

Durrmockracy's picture
Durrmockracy (not verified) peddling-fiction Feb 15, 2016 12:53 PM

NIRP meet NWTI!  Hey can I crash at your place?

Looney's picture

India should wait until the UAE throws in a toaster and a Spiderman towel for each barrel of crude.  ;-)

Looney

chicaboomboom's picture
chicaboomboom (not verified) Looney Feb 15, 2016 1:03 PM

Why can't all countries behave like this? Bravo UAE.

NoDebt's picture

So.... it's better to pump the oil out of the ground so that it can be given away for free in order to put it back underground... than it is to just leave it in the ground in the first place.

Got it.  Keep digging them ditches and filling them back in.

Only 2 reasons I can think of for this "deal":

1.  Keep oil workers in UAE emplyed a while longer to help quell internal unrest.

2.  It basically become's UAE's storage facility OFFSHORE while the entire ME is being engulfed in WWIII.

BigRedRider's picture

You got some good points there... You could make the Trumpster blush...ever think of running for Prez?

. . . _ _ _ . . .'s picture

War in the ME means 3-500 dollar barrels.

Don't need to fire all those workers and re-hire them in just a few months.

Someone knows something we don't.

 

SuperRay's picture

So wait... they're taking it out of the ground in the UAE, then transporting it a few thousand miles...then putting it back in the ground in India?  And India doesn't have to pay a penny for it?  I think my circuits just overloaded.

Boxed Merlot's picture

taking it out of the ground...then putting it back in the ground...

 

This isn't much different than owning gold in a Brinks depository in Hong Kong.  They take a small percentage of your holdings for each day you have it in their custody.  It's all done on paper of course but the theory still holds as your ownership of the physical in their vaults is not to be allocated to any other "depositor".

Given enough time it will all transfer to the physical holder of the material for "services rendered".

Now, how do we shorten that time?

StychoKiller's picture

Some folks are not familiar with an old robot saying:  "Does NOT compute!"

DutchR's picture

Am i wrong in thinking Earth is a good place to store oil....

_ConanTheLibertarian_'s picture

They should just pump the oil back. Problem solved.

/s

tarabel's picture

 

 

Works great for Los Angeles.

KesselRunin12Parsecs's picture
KesselRunin12Parsecs (not verified) peddling-fiction Feb 15, 2016 12:54 PM

It's rumored that they have some extra storage capacity in Bhopal.

open-range's picture
open-range (not verified) peddling-fiction Feb 15, 2016 2:11 PM

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... www.wallstreet34.com

JustObserving's picture

If Western banksters can conjure up trillions in free money, why can't India get some free oil?

U4 eee aaa's picture

because no one is paid interest

KnuckleDragger-X's picture

Dante couldn't write a better circle of hell than what we have here......

FX223's picture

How in the hell is this possible?  The free market is a huge cluster fuck and CB around the world just won't let things rebalance on their own terms...just win win win at all cost and in the end the bubble gets so huge it wipes us all out and the only options is wars.

For fucks sake, crash and burn already and let's start from scratch again.  Oh and we need to Iceland some banker folks.

U4 eee aaa's picture

This is possible because no debt was defaulted on in this transaction. The only time this non free market is declared failed is when debt is defaulted on

Haole's picture

Now holes in the ground are worth more than oil...

U4 eee aaa's picture

It reminds me of a depression era make work project. One guy digs a hole, the other guy fills it. Only this time they are using two holes and an oil pump

Anopheles's picture

1 billion barrels of oil is only 11 days of worldwide demand.

In the US, the 490 million barrels that's stored is 23 days of consumption. 

tarabel's picture
You are correct, so far as I know.  This talk of vast oil storage capacity is the same sort of boob bait that environmentalists use when they start yapping about gallons of water on a wholesale level.
Boondocker's picture

Guess that ends the whole peak oil discussion....

Other lies we have been fed:

  The BRIC will save us.

  The seas are rising. 

  The Fed knows what it is doing...

GooseShtepping Moron's picture

No, Peak Oil is very real. The fact that oil producers are currently surging their production in an all-out battle for market share does nothing to alter the fundamental fact that the supply of economically recoverable oil is limited. As a matter of fact, this is just one oscillation in the long, slow wind down of the oil age. The Saudis are draining their treasury to support this madness, and the US fracking industry has already gone bust.

Oil over $80.00/bbl makes fracking profitable, but the global economy stalls due to the high price. Then the overcapacity that was built up during the boom goes into liquidation mode to in order to maintain market share (i.e. where we are now). Overproduction exacerbated by poor demand drives prices into the basement and shutters preexisting production while scuttling funding for new projects. This deflation will last until oil becomes dear again in spite of the lack of growth, at which point it will be much more expensive in real purchasing-power terms. The net result of each oscillation is the liquidation of a huge amount of wealth, order, and living standards. That is the countering force that acts to damp the oscillations until a new, stable plateau is reached at a much lower intensity of oil use.

The system, instead of crashing all at once, wobbles between producing what it cannot use and needing what it can't produce. It's like the death of an ancient oak tree in a primeval forest. Once the tree reaches a certain size, the root system can no longer gather enough water to provide for transpiration through the massive leaf canopy. The tree responds to this pressure by dropping leaves and branches, but that impairs its ability to photosynthesize and feed its root system. At this point the tree enters an irreversible spiral of decline. Eventually the heartwood rots away and the main bole collapses. What's left in its place is a massive hollow stump with only a few strips of living bark and shaggy, epicormic leaf growth giving it a ragged appearance. It is a retired tree, awaiting only a final push to bow out gracefully.

The mighty oak stage of our industrial civilization is over, at least as far as oil is concerned. Unless we want to reinvigorate ourselves by massive investments in coal and nuclear (both imminently doable, but seemingly impossible in today's political climate), our fate will be the same as the tree.

Ms No's picture

I think that some people are being misdirected with peak oil because they accurately uncover situations where oil scarcity is falsely created and they think that is the whole picture but it's not.  That combined with the trouble in predicting the timing has people throwing the baby out with the bathwater.  The decline rates on shale combined with the price per well is just more evidence of peak oil in my opinion but many will disagree.  The low hanging fruit is becoming more scarce.

dumb_funded's picture

For those who don't follow ZH twitter:

"LOL: SAUDI, RUSSIAN OIL MINISTERS SAID TO PLAN TALKS IN DOHA TUESDAY"

"Perception is reality"

Strode2's picture
Strode2 (not verified) Feb 15, 2016 1:04 PM

In return are they getting dots, not feathers?!?

SimplePrinciple's picture

As I recall, India has been buying oil from Iran.  Economic warfare anyone?

Dapper Dan's picture

would it not be prudent to keep the oil very deep in the ground where bombs and missiles can not destroy it?

 

as in don't pump it out.

https://www.youtube.com/watch?v=N5YGH_k1lPY

BigRedRider's picture

...and up from the ground came a'bubbling crude...oil that is...

moleson1965's picture

So the UAE reckon that the price per bbl might fall beiow approx. 18 USD, hence the 3:2 share of the oil. 

Ms No's picture

Everybody remember how they were giving away oil later when we are paying through the nose for it.  Mismanagement and easy money fiascos at their finest.

PleasedToMeatYou's picture

Interesting that with prices this low the US Strategic Petroleum Reserve is close, but not quite full. 

Maybe the strategic objective is buy high, sell low. 

http://energy.gov/fe/services/petroleum-reserves/strategic-petroleum-res...

http://www.spr.doe.gov/dir/dir.html

695/714 million barrels. 

May we could get 19 million free barrels, too - about 5 ultra large tankers?   

Red Raspberry's picture

Congress passed legislation last year to start selling the oil out of that.  Buy high sell low.

Lumberjack's picture

Don't do it India.

rhotbr's picture

A Oferta NAS alturas Gerando hum Novo Mercado, via Moeda de Troca, Espaço x bruto.hilario petróleo, e necessario ..


Sokhmate's picture

The dinosaurs are turning in their graves.

SweetDoug's picture

'
'
'
'
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DWTI!!! Here I's come!

•?•
V-V

assistedliving's picture

I've got a 250gallon tank on my farm i'm not using just now...

U4 eee aaa's picture

Wait, so we are pumping oil out of the ground so that we can put it in the ground somewhere else?

Didn't they say that when we did this with gold it was stupid or something? But it is an OK thing to do with oil?

Hongcha's picture

The bumblefuckery is breathtaking.  They are trying to bankrupt Russia.  That is what this is all about.  Allies of the Great Whore are lining up to lick her hand in order to be spared.  They won't stop pumping at all.  That's what makes this ploy so obvious.  But if you are not with her, you are against her.

"She who has made all of the nations drink of the wine of the wrath of her fornication (i.e., fornicating or fucking illegitimately with the natural process)".

Please return to your seats and make sure seatbelts are securely fastened.  Seats and tray tables in a secure & upright position.

ThroxxOfVron's picture

<--- It's free!

<--- It's a trap!

onmail1's picture

Hah ha
it couldn't be better
free oil !

. . . _ _ _ . . .'s picture

We know who's taking theirs out of the ground, but which countries are leaving theirs in the ground while buying everyone else's supply? Who is cutting back on production? They will be the new sultans soon enough, if they can guarantee delivery.