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  • Oil producers running out of storage space

    Oil producers running out of storage space
    Glut caused by world slowdown leaves the world awash in crude

    updated 2 hours, 40 minutes ago
    NEW YORK - Supertankers that once raced around the world to satisfy an unquenchable thirst for oil are now parked offshore, fully loaded, anchors down, their crews killing time. In the United States, vast storage farms for oil are almost out of room.

    As demand for crude has plummeted, the world suddenly finds itself awash in oil that has nowhere to go.

    It’s been less than a year since oil prices hit record highs. But now producers and traders are struggling with the new reality: The world wants less oil, not more. And turning off the spigot is about as easy as turning around one of those tankers.

    So oil companies and investors are stashing crude, waiting for demand to rise and the bear market to end so they can turn a profit later.

    Meanwhile, oil-producing countries such as Iran have pumped millions of barrels of their own crude into idle tankers, effectively taking crude off the market to halt declining prices that are devastating their economies.

    Traders have always played a game of store and sell, bringing oil to market when it can fetch the best price. They say this time is different because of how fast the bottom fell out of the oil market.

    “Nobody expected this,” said Antoine Halff, an analyst with Newedge. “The majority of people out there thought the market would keep rising to $200, even $250, a barrel. They were tripping over each other to pick a higher forecast.”

    Now the strategy is storage. Anyone who can buy cheap oil and store it might be able to sell it at a premium later, when the global economy ramps up again.

    The oil tanks that surround Cushing, Okla., in a sprawling network that holds 10 percent of the nation’s oil, have been swelling for months. Exactly how close they are to full is a closely guarded secret, but analysts who cover the industry say Cushing is approaching capacity.

    There are other storage tanks in the country with plenty of extra room to take on oil, but Cushing is the delivery point for the oil traded on the New York Mercantile Exchange. So the closer Cushing gets to full, the lower the price of oil goes.

    Some oil is ending up in giant ships and staying there. On these supertankers, rented by oil companies such as Royal Dutch Shell, there is little for crews to do but paint and repaint the decks to pass time.

    More than 30 tankers, each with the ability to move 2 million barrels of oil from port to port, now serve as little more than floating storage tanks. They are moored across the globe, from the Texas coast to the calm waters off Europe and Nigeria.

    “It gets expensive to do this,” said Phil Flynn, an analyst at Alaron Trading Corp. “If you’re sitting on a bunch of oil and you’re stuck paying storage and insurance, and you can’t find a buyer, you may have to sell it at a discount just to get rid of it.”

    On the other hand, as storage units on land have filled up, the companies that own the tankers have profited. Tanker companies charge an average of $75,000 a day, three times as much as last summer, to hold crude, said Douglas Mavrinac, an analyst with Jefferies & Co.

    Demand for oil began to increase steadily in the early 1980s, and it went into overdrive in recent years as the Chinese economy surged and as producers pumped lakes of oil out of the ground to take advantage of a spike in prices. Then recession gripped the globe, frozen credit markets made things worse, and inventories swelled.

    Refineries in the U.S. have cut way back on production of gas as the economy weakens and millions of Americans, many of them laid off, keep their cars in the garage.

    The latest government records show U.S. inventories are bloated with a virtual sea of surplus crude, enough to fuel 15 million cars for a year. Inventories have grown by 26 million barrels since the beginning of the year alone. Oil from Saudi Arabia, the United Arab Emirates and Nigeria is finding few takers, even though much of it is used to make gasoline in the United States.

    There are so many players in the international oil market that no one has enough control to sway prices. OPEC slashed production by more than 4 million barrels a day, and still the price of a barrel of crude languishes near $40. At its peak, it traded at $147 a barrel.

    Experts aren’t sure what will happen when all that oil finally comes ashore.

    One fear is that with oil prices so low, companies will slash drilling and production, setting the world up for an energy crunch that would send prices soaring. The number of oil and gas rigs operating in the United States has fallen a staggering 39 percent since August.

    Others say prices would plummet if companies forced millions of barrels onto the market at once.

    “If everyone’s running for the exits at the same time, they’ll engineer a price collapse,” Flynn said.
    I think the federal government should engineer a "soft landing" of oil prices. We don't want a crash of oil prices, followed by a massive production cut, and then when the economy recovers, an oil price shock.

    Federal government is already in the car, insurance, mortgage, and banking business. Why not invest in oil future? Let's fill up the salt mines under Louisiana.
    Last edited by Shek; 04 Mar 09,, 04:54.
    "Only Nixon can go to China." -- Old Vulcan proverb.

  • #2
    Time to fill the SPR. Buy low and release when high :))
    "So little pains do the vulgar take in the investigation of truth, accepting readily the first story that comes to hand." Thucydides 1.20.3

    Comment


    • #3
      Today at work, I found an old paper from April 2008. The news of the day, all over the front page and inside the paper was about the high price of fuel. The comment section was filled with people writing in complaining about the fuel. I found an interesting article also, in which the author talks about how a massive economic crisis may be looming unless fuel prices go down.

      Well.. geeze! we got a two for one!

      Not only did Fuel prices go down, but the economy tanked also!!

      Comment


      • #4
        How the Ef does that explain the price of gas creeping up again unless someone has control of the supply of the finished product. Refineries at a slowdown?
        Removing a single turd from the cesspool doesn't make any difference.

        Comment


        • #5
          Originally posted by bonehead View Post
          How the Ef does that explain the price of gas creeping up again unless someone has control of the supply of the finished product. Refineries at a slowdown?
          That is exactly correct.

          The refineries have a much-reduced demand of gasoline: Nobody is driving right now, or driving as little as possible. Businesses have either cut back routes etc. or eliminated them entirely. (Whoever did deliveries for Circuit City for example, is probably crying in their beer).

          Thus, refineries are not buying nearly as much crude as before.

          Thus, the oil producing countries are wetting their pants and looking at the massive production cuts they've made do absolutely nothing about the over-supply problem.

          So, next step, as the article said, is even more massive cuts in production and exploration. Which means we'll probably be looking at another energy crisis in a few years.

          At any rate, what all this means to the price of gasoline is that refineries have drastically cut back on production, thus causing the price to creep up a little bit. Not a lot because there's still very little demand.

          Shek said it best: FILL THE SPR RIGHT THE FRIG NOW!
          “He was the most prodigious personification of all human inferiorities. He was an utterly incapable, unadapted, irresponsible, psychopathic personality, full of empty, infantile fantasies, but cursed with the keen intuition of a rat or a guttersnipe. He represented the shadow, the inferior part of everybody’s personality, in an overwhelming degree, and this was another reason why they fell for him.”

          Comment


          • #6
            Winter months is also the time for refinery maintenance and switching to summer blend of gasoline. The result is decreasing supply of winter blend.
            "Only Nixon can go to China." -- Old Vulcan proverb.

            Comment


            • #7
              Originally posted by gunnut View Post
              Winter months is also the time for refinery maintenance and switching to summer blend of gasoline. The result is decreasing supply of winter blend.
              Sounds like coffee... Whats the difference between 'summer' and 'winter' blend?
              The best part of repentance is the sin

              Comment


              • #8
                Originally posted by gunnut View Post
                Winter months is also the time for refinery maintenance and switching to summer blend of gasoline. The result is decreasing supply of winter blend.
                Good point, hadn't thought of that! :)


                We need our Princess of Petroleum to keep us in the loop on these things...where is she?? :))
                “He was the most prodigious personification of all human inferiorities. He was an utterly incapable, unadapted, irresponsible, psychopathic personality, full of empty, infantile fantasies, but cursed with the keen intuition of a rat or a guttersnipe. He represented the shadow, the inferior part of everybody’s personality, in an overwhelming degree, and this was another reason why they fell for him.”

                Comment


                • #9
                  Originally posted by gunnut View Post
                  Winter months is also the time for refinery maintenance and switching to summer blend of gasoline. The result is decreasing supply of winter blend.
                  It's Spring time dammit! Bring on the good stuff.
                  Removing a single turd from the cesspool doesn't make any difference.

                  Comment


                  • #10
                    Originally posted by chakos View Post
                    Sounds like coffee... Whats the difference between 'summer' and 'winter' blend?
                    Different formula based on the difference between freezing temperatures and the scorching heat.

                    Here's a much better explanation:

                    Cars using summer-blend gasoline spew fewer harmful emissions and get slightly better fuel economy than those using winter-blend gas during the summer months.

                    The difference between conventional summer- and winter-blend gasoline has to do with the Reid Vapor Pressure of the fuel. RVP relates to the volatility of a gasoline. The more volatile a gasoline, the more likely it will evaporate as the temperatures rises; evaporated gasoline contributes to unhealthy ozone and smog levels. Summer gasoline has a low RVP and is less likely to evaporate when compared to the high RVP winter grade. The Environmental Protection Agency says conventional summer-blend gasoline contains 1.7 percent more energy than winter-blend gas, which contributes to the summer blend’s slightly better gas mileage.

                    The Energy Information Administration says the switch between the two fuels happens twice a year, once in the fall (winter blend) and again in the spring (summer blend). Summer-blend gasoline is typically more expensive to produce than the winter blend, and it won’t affect vehicle performance or the durability of the engine and fuel system, according to the EPA.

                    In many large cities as well as California and New England, the EPA requires the use of reformulated summer- and winter-blend gasolines. These RFGs contain oxygenates that lower RVP and other toxic chemicals even further than conventional gasoline.
                    “He was the most prodigious personification of all human inferiorities. He was an utterly incapable, unadapted, irresponsible, psychopathic personality, full of empty, infantile fantasies, but cursed with the keen intuition of a rat or a guttersnipe. He represented the shadow, the inferior part of everybody’s personality, in an overwhelming degree, and this was another reason why they fell for him.”

                    Comment


                    • #11
                      Ah ok, reason i didnt know about it is that we wouldnt use winter gasolene here. A cold winters day here is considered somewhere in the mid teens celcious, not cold enough to warrant specialty cold weather fuel. We probably consider the summer mix as standard.
                      The best part of repentance is the sin

                      Comment


                      • #12
                        Originally posted by chakos View Post
                        Ah ok, reason i didnt know about it is that we wouldnt use winter gasolene here. A cold winters day here is considered somewhere in the mid teens celcious, not cold enough to warrant specialty cold weather fuel. We probably consider the summer mix as standard.
                        It's not so much as a special cold temperature fuel per se. It's more of "air pollution" fuel. I think there's some additives in the "summer blend" gasoline to make it burn more completely...or something like that. It's to prevent that brown haze we all came to love in the Los Angeles area.

                        As far as I know, metro LA area and San Diego area use this type of summer blend. The desert, not so much. Metro Pheonix in Arizona uses the same summer blend that we use here in LA. But the rest of Arizona does not.

                        A few years ago a pipeline connecting CA and AZ broke and caught fire. Phoenix was out of gasoline. It couldn't use the gasoine in the surrounding communities because of the air regulations. So people started to hoard gasoline for fear of running out. Guess what? The price went up.
                        "Only Nixon can go to China." -- Old Vulcan proverb.

                        Comment


                        • #13
                          Originally posted by TopHatter View Post
                          That is exactly correct.

                          The refineries have a much-reduced demand of gasoline: Nobody is driving right now, or driving as little as possible. Businesses have either cut back routes etc. or eliminated them entirely. (Whoever did deliveries for Circuit City for example, is probably crying in their beer).

                          Thus, refineries are not buying nearly as much crude as before.

                          Thus, the oil producing countries are wetting their pants and looking at the massive production cuts they've made do absolutely nothing about the over-supply problem.

                          So, next step, as the article said, is even more massive cuts in production and exploration. Which means we'll probably be looking at another energy crisis in a few years.

                          At any rate, what all this means to the price of gasoline is that refineries have drastically cut back on production, thus causing the price to creep up a little bit. Not a lot because there's still very little demand.

                          Shek said it best: FILL THE SPR RIGHT THE FRIG NOW!
                          If I may venture a guess, regular gasoline is holding firm in price so they can drop diesel prices. Once nearly a buck between them, it's now down to 20 cents and lower in my area and dropping fast. Diesel went to $1.93 the other day while regular stayed firm at $1.79.

                          In any case, dropping diesel prices will help the transport industry as well as factories that have to ship their goods to market, and all that filters down to consumers in lower prices. I hope it affects food prices, which have become ridiculous lately.
                          To be Truly ignorant, Man requires an Education - Plato

                          Comment


                          • #14
                            Originally posted by gunnut View Post

                            It couldn't use the gasoline in the surrounding communities because of the air regulations.
                            How would they prevent you from filling up?
                            "Every man has his weakness. Mine was always just cigarettes."

                            Comment


                            • #15
                              Originally posted by Shek View Post
                              Time to fill the SPR. Buy low and release when high :))
                              Well, according to the SPR, reserves are at 706m bbl, compared to a capacity of 727m bbl.

                              http://www.spr.doe.gov/dir/dir.html

                              But, sweet reserves are at 282.6 million bbls, while sour reserves are at 423.6 million bbls. Would it be a wise move to swap out all of the sour for sweet?
                              "Every man has his weakness. Mine was always just cigarettes."

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