Disappointed "this time it's different" analysts point out better-than-expected China PMI, a relatively large decline Friday for U.S. rig count, and overall sentiment today as reasons why crude oil prices should not be falling, but after hitting 2 week highs Friday, with algos running stops on every swing, it appears the harsher reality of China's full storage [8], plunging tanker rates [9], an unquivering OPEC, and ongoing production levels is too much to bear for the bulls...
[10]
As we noted previously, something very unexpected has happened: the world quietly hit a tipping point when, according to Reuters [11], China ran out of space to store oil.
In a report explaining why "oil cargoes bought for state reserve stranded at China port" Reuters notes that "about 4 million barrels of crude oil bought by a Chinese state trader for the country's strategic reserves have been stranded in two tankers off an eastern port for nearly two months due to a lack of storage, two trade sources said."
And now, as Bloomberg reports,
VLCCs sailing to Chinese ports at lowest since Sept. 19, 2014, according to ship tracking data compiled by Bloomberg.
As China began its Strategic Petroleum Reserve build in Oct 2014: 89 VLCCs inbound for China... [12]
[13]
and after ramping up its buying (and VLCC traffic and thus tanker rates), just 59 ships are now signalling Chinese ports, down by 13 from week earlier...
[14]
And this has sent the daily VLCC rate from Mideast Gulf to East Asia crashing to less than half this year’s recent peak...
[15]
And just like that China has, if only for the time being, run out of storage facilities. As we concluded previously,
How long until this translates into an actual drop in oil purchases, and even more importantly, how long until the U.S. itself finds itself in a comparable "overflow" bottleneck, leading to the next, and sharpest yet, drop in oil prices?
