How The East Coast Is Getting Rid Of Its Gasoline Glut

Tyler Durden's picture

One month ago, before the commodity trading world's attention turned to the unprecedented glut in gasoline stocks, we wrote "PADD 1 Is A Holy Mess" - Is This What Finally Drags Crude Oil Lower, in which we showed the historic excess of gasoline stocks on the US East Coast, known as the PADD 1 region. A week later, in a follow up article we explained that as a deluge of Chinese gasoline exports had flooded the world, the PADD1 glut was only getting worse, leading to a pile up of tankers in New York harbor. It got so bad, that gasoline stockpiles in PADD 1 rose to a record 72.5 million barrels in the week ended July 22.

Meanwhile, as crack spreads collapsed, concerns about both gasoline and oil demand emerged, leading to a sharp selloff in oil, and the recent bear market in WTI (at least until the subsequent OPEC-meeting driven rally). After all, the key bullish narrative for the oil long case was that with a strong summer driving season, gasoline was not going to be a production bottleneck, and yet this is precisely what happened. 

However, over the past three weeks, gasoline inventories finally dipped, and as we reported this morning, commercial gasoline stocks declined by another 2.7 million barrels according to the DOE, the third consecutive drop...

 

... with PADD1 gasoline inventories declining by 790,000 barrels to 70.125 million barrels.

To some this seemed that the much needed inventory drawdown in gasoline had finally arrived. We thought so too, and then we read something surprising: as Bloomberg reported, "gasoline has also shifted south amid cargo diversions and deviations. A 330,000-barrel tanker usually on the Houston-to-Jacksonville, Florida, run last month moved two products cargoes to Florida from New York Harbor, according to vessel tracking data compiled by Bloomberg. Since June, at least eight foreign import cargoes originally booked to supply. New York were sent instead to the U.S. Gulf Coast and Mexican West Coast."

This in turn helped explain what happened to the excess PADD 1 gasoline: it was either in a tanker en route to a different east coast location, or had found itself in a different region entirely, such as the Gulf coast.

However, while that helped alleviate the critical PADD 1 situation where the glut has eased by about 2 million barrels in the past month, it would not prevent another geographically contained problem, namely how to resolve the countrywide gasoline glut.

We now know the answer to that as well: with the East Coast at gasoline storage capacity, and quietly transporting unwanted excess gasoline to other parts of the country, it is no longer accepting inbound cargoes.

According to a position list reported by Bloomberg, the products tanker Torm Gyda will be open for charter Aug. 21 at El Palito, Venezuela, after discharging a cargo that was diverted from N.Y. Harbor.

Torm Gyda completed loading products at Porvoo, Finland, and showed deeper draft July 30. The ship is signaling El Palito as destination today after previously signaling Skaw, Denmark; London; and New York

The vessel, whose 3 prior cargoes hauled were gasoline, blending components and gasoil, and was rerouted away from New York, was booked to BP.

And that is how the East Coast gasoline glut is being "resolved" - by sending tankers full of product to different ports, while no longer accepting inbound gasoline. Meanwhile, the price of oil rises, leading to more gasoline production, and an even greater glut.

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JRobby's picture

I have a half tank but no where to go.

O C Sure's picture

I thought it was going to go glut free by selling arms to Saudia Arabia on their terms.

City_Of_Champyinz's picture

Nah we get Wahabist cunt mosques built around the world in exchange instead...

O C Sure's picture

For them, that may be the icing but certainly not the cake.

MalteseFalcon's picture

This is good.

Drivers on the East Coast would have just used it all.

TradingIsLifeBrah's picture
TradingIsLifeBrah (not verified) Aug 17, 2016 6:29 PM

If Black Lives Matter can have more riots they can burn through the surplus as they burn down their neighborhoods

wombats's picture

What makes you think BLM is interested in "buying" anything?

wombats's picture

What makes you think BLM is interested in "buying" anything?

wombats's picture

What makes you think BLM is interested in "buying" anything?

wombats's picture

What makes you think BLM is interested in "buying" anything?

wombats's picture

What makes you think BLM is interested in "buying" anything?

Knob Creek's picture

Heard ya the first time.......sure did

Goldennutz's picture

You can do ANYTHING in "the hood" with an EBT card.

Herdee's picture

The Chinese "tea-pot" refineries are flooding the globe with gasoline right now and there's no stopping it.

sinbad2's picture

But the companies that own the retailers, just pocket the profits.

PT's picture

and why is that a problem?  Just drop off all the excess at my place.  I won't complain.  I won't charge much for storage.  I'll only charge enough so I can buy some land to put it on ( and assoc. equipment of course ) plus a small fee.  I'll even help get rid of some of the excess (less oil to store means it costs even less to store!  Win-Win! )

mofreedom's picture

And how is Venz paying for that product?

I thought Citgo was a gas station.

Ignorant to crude trade flow I am, but willing to learn.

Offthebeach's picture

CITCO is where Massachu4 Democrat Congressmen go to get cash, teenage whores and pot, and in return sing the praises of Socialismo.

Add a couple 225 gallon tanks of heating oil for their summer houses. Just ask Joe.

mofreedom's picture

You should be crying for your father.

izzee's picture

That tanker looks like it's been long neglected.  A floating rusting hulk, an accident waiting.

heisenberg991's picture

Gas is 2.39 right now...What a load of BS

willwork4food's picture

Here in Virginia Beach I just paid $1.81/gallon for 87 octane.

sinbad2's picture

I just paid $1.17 a litre, that's $4.91 a gallon.

They closed all the refineries in Australia, saying it would be cheaper to import, yeah sure.

Norwegianfish's picture

haha its $6.92 a gallon in norway. about 15 nok a litre, or $1.83.

and ppl ask me why i dont own a car.

those dumb leftist greenies want to raise the co2 fees on gasoline and diesel. the polluters must be punished they said. #globalwarming

deimos178's picture

Sorry, but I am on a glut free diet.

Boondocker's picture

Oil should be less than 30 a barrel and gas well below 2 a gallon, amazing how they keep it propped up

 

sinbad2's picture

Supply and demand, where?

Eddielaidler's picture

It is about time for a couple refinery explosions and drilling rig fires. It always helps.

SimpleJackBlack's picture
SimpleJackBlack (not verified) Aug 17, 2016 10:58 PM

I know for sure I don't "need" higher gas prices. Idiots. The economy"needs" oil to be higher. Wtf! I'm sick of the talking heads on MSM pumping oil rallies. Bring on the $20 oil bitchez.

Infield_Fly's picture
Infield_Fly (not verified) Aug 18, 2016 3:29 AM

Gewbmints trying to create inflation through large corps - there is so much inventory sitting out there, it is beyond comprehension and unaccounted for.

 

Inflation now comes through additional taxes like "carbon taxes".

 

As we continue to deflation, gewbmint debt becomes the elephant in the living room.

Sapere aude's picture

Most of you are completely on the wrong track

There is no 'glut' never was, never will be. The reason for all the propaganda and the comments about solar taking over, and the massive Tesla subsidies are because oil is depleting fast.

The report by the US military showed it, and if you look hard enough its still available on the net.

The SPR was built to be bidirectional to help in the propaganda games, so much of the claimed production now from fields that are bidirectionally connected to the SPR are in fact drawdowns from the SPR. That is a definite becuase the declines rates on shales mean its impossible for claims that production is stable or even increasing, as production has to be plummeting based on science, based on known decline rates.

Shales production declines at a staggering rate, often dropping 70% in the first year as opposed to the 6-7% on conventional wells. Shales were built on a ponzi scheme ignoring the red queen syndrome associated with having to drill ever more wells to stand still.

With a 70% decline rate it means the well you drill this week, that might produce 1,000bbls BOE will only produce 500bbls in 6 months time, and only 300bbls this time next year.

Every field has a finite number of wells, and its normal to drill sweet spots first, so each time you drill a well or a pad, you lose those sweet spots and then go on to the less productive wells.

With over 10,000wells in the Eagle Ford alone, some being 4 years old, it is simply impossible for the production figures stated.

 

Now, just take the figure of 2,000wells in a year in the first year three years ago in say January 2013, each one producing an average 1,000boe, which is 2,000,000bbls peak, by the end of 6 months, production is 1,000,000boe, and it requires another 1,000wells at the six month interval to keep production at the peak, so at January 2014 its even worse, because you have the initial 2,000 wells now producing just 30% after their 70% first year decline, so you have 2,000wells producing 300boe = 600,000BOE, but now we have the 50% decline in the six month period for the 1,000 wells that kept production peak, which are now producing 1,000 x 500BOE to give a combiled total of 1,100,000BOE still 900,000boe per day less, so to make that up you need even more wells, or in fact another 900wells just to keep production at the 2,000,000boe. So we drill those, but now we have 3900 wells taking up most of the sweet spots, and temporarily they are producing 2,000,000boe the same as the peak, but the costs are astronomical, six months later its even worse, as the intial 2000 legacy wells now 18 months old are producing 200boe if you are lucky, with the additional 1,000wells now also a year old down to 30% of initial peak production, so we have 2,000 at 200boe, 1,000 at 300BOE, and the declilne kicks in from the day any new wells are added.

This is the same on most of the shales.

Most of the oil companies shout out to shareholders meetings that their profit oil is at $30, or any figure they claim, but their accounts show that is not true, they are all losing billions, and having to dispose of assets or arrange more finance to keep shareholders dividends going but in a fruitless exercise.

The SPR pumps back to some of these declining fields to compensate for the illusion of growing production, yet the import figures show imports at over 8,000,000bbls a day and likely to rise.

You then look at inventory to take your focus of the real facts, and inventory rises....whoopy doo. Of course it does if you've imported more oil. No one forces anyone to import more oil than they need, so how can you then work the price lower because you have bought more. Another dodgy derivative game to give illusion of the oil glut.

China's oil production dropped through the floor this year, Libya's none to good, and Iran's claimed massive glut never existed and they are still pumping far less than ever it was claimed in the propaganda game to hit Russia via derivative and dodgy oil figures.

Then you get the claims of world oil stocks at all time highs, forgetting that most countries are REQUIRED to keep 100 days supply of oil, so its nothing new, yet its sold on by some playing games.

Even U.S. claimed production has plummeted over 850,000bbls a day and rising every day with legacy well declines.

We get 15 rigs added and there's stupid comments about shale fighting off competition, but 15 rigs wont drill the ever increasing number of wells required to even sustain production, let alone increase it, as the Red Queen Syndrome means its eventually impossible to replace the declining wells, as you run out of money and acreage.

Then you hear on this site and others about the massive cost savings and technology improvements in fraccing, but those improvements took place 3 years ago and the majority of saving now is not from fraccing at all, its from pad drilling, so any improvements are unlikely to make up for declining fields, declining sweet spots and ever more bankrupt companies being allowed to still drill at a known loss.

Within 3 years of a well being drilled in shale, its likely to be 'stripper' status, yet all the big companies claim 25 year life, when they know its irresponsible to claim it, because after 3-4 max, the wells are likely producing just 30BOE with infrastructure costs and maintenance costs making them non commercially viable, but they cannot afford to plug and abandon them, as it might cost them $200,000 a well which is why now there are over 200,000 abandoned wells in Pennsylvania alone, because then its kept off the balance sheet.

So when you think oil should be $20...think about it properly, as in reality importing 8,000,000bbls a day and rising, it should be nearer $100bbl and will be when people see through this deliberate mist of a non existent oil glut.

Think about it too. False claims of profit oil but where even the big players are losing hundreds of millions on shale, but where its still cheaper to artificially inflate production keeping real figures from the world and compensating by bidrectional flows from the SPR, because it makes the 8,000,000+bopd half as expensive so the net cost to the US is far cheaper and buying more increases inventory to allow even more claims based on inventory which are ridiculous anyway, because no one forces anyone to buy oil if they don't need it. Buying it to deliberately increase inventory is for one thing...to get hold of cheap oil but it will not last as no one is that foolish not to understand what is happening.

The Saudi's assist as it was never aimed at hitting shale, it was aimed at Russia to prevent Putin pumping more and more into its armed forces where the Russian economy is so dependent on oil, but where selling in rubles, their economy is protected anyway.

The strategy is flawed, and the smaller shale operators are hitting the decks like ninepins, leaving a trail of debt, and the bigger players increasing debt which is the reason for NIRP and ZIRP, but even that can't keep it going for long.

It amazes me that some comment about true price of oil should be $20bbl...as its completely ridiculous if it costs $70 to extract it, let alone service artificially low interest rate debt

PleasedToMeatYou's picture

Excellent post. 

And, we don't get enough of this plain-as-day observation around here: "...it was aimed at Russia to prevent Putin pumping more and more into its armed forces where the Russian economy is so dependent on oil,... "

MASTER OF UNIVERSE's picture

0il will implode to at least $20 per barrel and likely more. Clearly, it was oversold by everyone with a loan from TBTF. Here we are in 2016 and BIG Oil is still overcharging in a down market where supply outstrips demand for the foreseeable future. My estimation is that BIG Oil should have gone to $0.80 per liter at the pumps since 08. They only started lowering pump prices about a year ago which makes them approximately seven years off-the-mark IMHO. Frankly, it pleases me to see every business in North America going headlong into bankruptcy all at the same time due to the amassed ignorance of tertiary education and that bastion of stupidity we all refer to as 'Economics'. The Ivory Tower has never had more egg on it's face in history given that they only divested themselves from oil investments en masse about two years ago. In brief, BIG Oil has been crashing since 08 and it will continue to crash until GS has bought up every bit of storage, and facilities, that are in existence.