The Phil Flynn Energy Report
No Room at the Inn
Oil prices are still grappling with more oil than the world needs right now, and we are running out of places to store it. Millions of barrels of oil on land and sea is looking for a place to stay. Yet those barrels are being turned away time and time again. Maybe we can find some hope as President Trump once again is offering the nation salt caverns as a desperate measure for storage. Yet unless production substantially falls or demand suddenly returns, global oil storage will soon run out.
The NYMEX delivery hub in Cushing, Oklahoma is getting a lot of attention. After another massive increase in U.S. crude inventory of 13.2 million barrels last week, supplies in Cushing, Oklahoma, rose 4.91 million barrels and it’s clear that the hub is well on its way to being topped out. In fact, according to Reuters, they should put up a no vacancy sign because all of the available storage is already contracted out. Reuters reports that total stocks, if the American Petroleum Institute (API) is right, are at 59.5 million barrels, leaving space for about 16 million barrels. Yet it’s not like anyone can lease that storage, and that space is already spoken for.
It's not just Cushing lacking storage. Storage around the world and the swoon in WTI is driving Brent crude to a 20-year low. Bloomberg reported that In India, refiners have filled 95% of fuel storage capacity, according to officials at 3 state-owned processors. Nigeria will cut production because it has no place to keep crude. The Wall Street Journal reported that Saudi Arabia's oil-price war with Russia flooded the market with crude. Now, with demand having dried up and buyers hard to find, the kingdom is resorting to storing much of it at sea. At least 1 in 10 supertankers around the world is serving as a floating oil storage facility, Saudi oil officials say. With many of those vessels filled with Saudi crude, stranded at sea without buyers, the world's top oil exporter is trying to manage the repercussions of its month-long price war with Russia. There is also a backlog of oil tankers that have crude with no buyers.
There was a hope that OPEC+ would move up the date of their historic production cut. Yet there was no agreement to do so even as they vowed to possibly do more to stabilize oil prices. The Journal reported that, "Something has to be done about this bloodbath," said a Saudi official familiar with the matter. "But it might be a little bit too late.”
President Trump says he is going to do more. He said, "We will never let the great U.S. oil and gas Industry down. I have instructed the Secretary of Energy and Secretary of the Treasury to formulate a plan which will make funds available so that these very important companies and jobs will be secured long into the future!" Of course with Congress failing to approve funding for the Strategic Petroleum Reserve, so far not one drop of oil has moved into the reserve at this point to ease the glut.
There is no help for the ethanol industry that is losing billions. DTN reports that despite the fact that the USDA announced some $19 billion in relief funds directed to a number of agriculture sectors — ethanol was not on that list. That's despite 73 ethanol plants now idled and 70 more plants have made production cuts in the past several weeks. Ethanol producer losses are about $10 billion. The A.P. reports that, "The Trump administration on Tuesday ordered Chevron Corp. to ‘wind down’ operations in Venezuela by December 1, barring the California-based oil giant in the meantime from drilling or exporting, as the U.S. increases pressure on President Nicolás Maduro to give up power."
Chevron is the last major U.S. oil company to do business in crisis-wracked Venezuela, investing in the South American nation's oil fields and machinery over the last century with an estimated value of $2.6 billion, which analysts say Maduro's government will likely take over.
ETFs are getting crushed. Bloomberg reports that, "The epic collapse spilled into the ETF market. The U.S. Oil Fund said it issued all registered shares and is asking the SEC for permission to register an additional 4 billion shares. If the oil ETF can't purchase more futures while the new shares clear, that could add more pressure on prices.”
Also, the sharp price drop partially led to Mexico's central bank to cut rates by 50 basis points to 6% unexpectedly. Banco said it'll take more measures to boost liquidity.
Oil products are also brimming. The API reported that the gasoline supply was up 3.435 million barrels and distillates up 7.639 million barrels. The market will move on OPEC news and Trump Tweets, not to mention the EIA supply report.
Continental Resources, a shale producer, is demanding an investigation. Harold Hamm, CEO of Continental Resources, wants the U.S. to investigate the move into negative prices on the WTI futures contract. Hamm has lost billions and is looking to the U.S. government for help.
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