December WTI $46.05 up 11 cents after today's heart stopping exuberance.
It was just two days ago when we reported that according to Goldman calculations, the world was dangerously close to an almost unprecedented event (with two exceptions: 1998 and 2009): running out of space to store crude distillate products.
As a reminder, this is what Goldman said: "the build in Atlantic distillate inventories this year has been large, following near-record refinery utilization in both the US and Europe, only modest demand growth, especially relative to gasoline, and increased imports from the East on refinery expansion and rising Chinese exports."
As a result, and despite a cold winter in both Europe and the US last year, European and US distillate storage utilization is reaching historically elevated levels, driving a sharp weakening in heating oil and gasoil time spreads.Such high distillate storage utilization has two precedents, leading in both cases to storage capacity running out in the springs of 1998 and 2009, pushing runs and crude oil prices and timespreads sharply lower. This raises the question of whether today’s oil market oversupply can rebalance simply through financial stress – prices remaining near their current low level through 2016 – or if operational stress – breaching storage capacity constraints and forcing prices below cash costs like in 1998 and 2009 – is ineluctable.
Then moments ago the EIA reported that despite Goldman's concerns, and despite yet another inventory build in the U.S., which rose by a further 3.4 million barrels, as US production rose once again, Cushing inventories actually declined further, dropping by 785K, following a -78K decline a week earlier.The DOE update, together with the algo trade documented earlier, led to a massive surge in oil.
This data was fitting with what we have seen outside the US. Earlier this month, we reported that supertanker day-rates has soared to over $100,000 for the first time since 2008 even as Saudi Arabia was slashing its price (to a $3.20 discount to the benchmark with the largest price cut since 2012) which suggested that in an effort to shore up its reserves and capture more market share amid dwindling demand (and excess supply) - a price war has begun led by US ally Saudi Arabia, and China is hoarding crude at these low-low prices.
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And then something very unexpected happened: the world quietly hit a tipping point when,according to Reuters, 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."
One tanker, the Ocean Lily, loaded oil from the Omani port of Mina Al Fahal, Reuters' shipping data on Eikon showed. It is unclear what crude Plata Glory is carrying.
The oil was part of a total of at least 6 million barrels of crude bought by Sinochem for government stockpiles, but destined for a commercial tank farm in the city of Weifang, connected with Huangdao with a pipeline, the trader and port source said.
The tank farm, with total storage of about 25 million barrels, is mainly owned by Shandong Hongrun Petrochemical Co, an independent refinery partly owned by Sinochem.
The delays will cost millions of dollars and indicate how China is struggling to import record amounts of crude if storage and port capacity at Qingdao, its largest oil import terminal, are unable to keep pace.
Ocean Lily and Plata Glory, two very large crude carriers carrying oil for Sinochem Corp, arrived at Huangdao, Qingdao's main oil terminal, in early September, and both were still at anchor this week, waiting to unload, according to Reuters' shipping data, and trade and port sources....MORE