Oil Surge Continues As Short Squeeze Accelerates

Despite a significant build at Cushing (Genscape +300k), tumbling China demand, and Libyan supply, the ever more financialized crude oil market is aoneway street higher of short-squeezing exuberance. As 2015's August explosion plays out again, WTI Crude just broke back over $43 as record shorts suffer...

WTI back to the cliff-dive from DOE data showing a big unexpected build..


Cushing storage builds...

Genscape reports a 310,000 barrel build.

Supply is set to rise...

Libya has started maintenance work at Es Sider port, the nation’s largest oil export terminal, as part of plans to increase output from Africa’s biggest holder of crude reserves.

 

Exports should resume in a month once official orders are received to reopen the port, Galal Mohamed, head of operations at Waha Oil Co. , said in a phone interview Sunday from Libya’s eastern city of Ras Lanuf. Es Sider, operated by Waha Oil, has been closed since December 2014 when armed groups attacked the port. The state National Oil Corp. has engineers and other workers at the port to evaluate damages and decide when to resume exports, NOC’s Ibrahim Al-Awami said by phone.

 

“We haven’t received official orders to reopen the port and resume exports, but there were intensive meetings with the National Oil Corp. officials last week to discuss this,” Mohamed said. Six of the port’s 19 storage tanks are damaged from fighting over the last two years, he said.

And demand is fading...

China oil imports dropped to six month lows.

 

China imported 31.07m mt of crude last month, the General Administration of Customs in Beijing says on website. That’s equivalent to 7.35m b/d, lowest since January.

But the 'storage-carry' trade remains supportive as despite the drop in contango (flattened curve), the cost of storage has also dropped...

Steep drop in VLCC rates, widening Brent contango has made floating storage profitable again, Morgan Stanley analysts including Fotis Giannakoulis say in e-mailed report.

 

Economics only work for 3-6 mos, “vintage tonnage” as owners won’t commit younger ships to loss-making rates for extended periods.

 

12-mo. storage only works if vessel chartered for less than current spot rate.

 

Varying demand for different crude grades makes floating storage difficult for charterers, who are vulnerable to price swings.

And it is deja vu all over again...

 

As record shorts suffer...

 

But it's not helping stocks...