Thursday, April 30, 2020

Fleet Of 28 Saudi Oil Tankers Could Send U.S. Oil Prices Crashing In May

Oil tankers parked in the ocean.
Photo by Petty Officer 3rd Class Aidan Cooney, U.S. Coast Guard

With the Covid-19 pandemic reducing global oil demand by devastating numbers, oil storages are filling quickly in the US, forcing producers to start shutting output in the country and creating a big tanker congestion on its coasts. A Rystad Energy analysis reveals that 28 tankers with Saudi oil, including 14 VLCCs and carrying a total of 43 million barrels, will arrive on the US Gulf and West coasts between 24 April and 24 May.

The Saudi fleet, with oil loaded at Ras Tanura, will join an existing congestion of 76 tankers that are currently waiting to unload in US ports. Most of these tankers are on the West Coast, where 34 tankers are waiting in line to offload about 25 million barrels of crude. In addition, about 31 tankers, carrying a similar load, are waiting for a slot to unload on the US Gulf Coast.

The tanker congestion has spiked in recent days because refiners are canceling or deferring their purchases, as they adjust utilization rates to match the steep fall in demand for road and jet fuels.

“The total volumes booked to arrive from Ras Tanura are four times higher than the previous four-week average of imports from Saudi Arabia. Given the current storage situation and the level of congestion on US coasts, we find it unlikely that all tankers will be able to unload upon arrival. The congestion at US ports has reached new highs,” says Paola Rodriguez-Masiu, Rystad Energy’s Senior Oil Markets analyst.
If all the Saudi tankers unload, the crude they carry will offset during May almost all of the production reductions from March levels, effectively maintaining the current high storage filling rates.
The limited storage is a growing concern in the oil market and among the key reasons why prices have taken a steep downturn in recent weeks, with US WTI crude even trading negative a few days ago.

Before the official stock build data for week 17 (ending on April 24), commercial crude stockpiles stood at 518.6 million barrels, nearly 9% above the five-year average for this time of year, and just 16.9 million barrels away from hitting the record level of 535.5 million barrels reached during the spring of 2017.

“While US refinery demand for crude has dropped over 3.0 million bpd during the last four-week period, the EIA reported that oil production has only decreased by 800,000 bpd. We expect it to drop by another 800,000 bpd in the following weeks. However, crude imports are forecasted to remain at around 5.8 million bpd during the next four weeks due to the Saudi cargos that are fast approaching US shores,“ Rodriguez-Masiu concludes.

US oil production is bracing for a steep decline in May and June as operators shut some of their producing wells due to storage constraints and oil price economics. The operator-communicated shut-ins alone (from six operators) are calculated to reach at least 300,000 barrels per day (bpd) in May and April, Rystad Energy has estimated.

Please note that total shut-ins only account for a portion of the US total production decline since March 2020 as the shut-in figure only includes production losses from producing wells that have been turned offline. It does not include production potentially lost from canceling drilling and completion plans.

By Rystad Energy

Wednesday, April 29, 2020

Helicopter View of Oil Tankers | California Coast April 27th 2020

Oil jumps more than 30% on hope economy will reopen sooner than expected

Oil prices jumped more than 30% on Wednesday following a report that showed a smaller-than-expected build in U.S. inventories, as well as on the hope that economies will reopen sooner than expected.

West Texas Intermediate for June delivery surged 34.2%, or $4.22, to trade at $16.56 per barrel, while international benchmark Brent crude traded 13.3% higher at $23.17.

Optimism that economies will be able to re-open ahead of schedule rose after Gilead said early results of its coronavirus drug trial showed that at least 50% of patients treated with a five-day dosage of antiviral drug remdesivir improved and more than half were discharged from the hospital within two weeks.

Stocks rose following the news, despite a 4.8% contraction for U.S. GDP in the first quarter — the largest contraction since the financial crisis.

Oil prices also got a boost on a smaller-than-expected build in U.S. inventories. According to data from the U.S. Energy Information Administration, crude stockpiles rose by 9 million barrels for the week ending April 24. This was lower than the 11.7 million barrel build analysts polled by FactSet had been expecting.

The data also showed that U.S. production fell by 100,000 barrels per day last week to 12.1 million bpd. This is 1 million bpd below the record 13.1 million bpd production set during the week ending March 13.

“Oil prices rose on Wednesday morning as traders cling to potentially positive indications that the demand-supply gap may somewhat become smaller soon,” Rystad Energy’s global head of oil markets Bjornar Tonhaugen told CNBC.

“Overall we need official announcements for cuts or economies reopening for prices to stabilize. Expect a lot of volatility and price swings either way in coming days as bullish and bearish traders weigh their hopes and fears in a market that is desperate to find something to hang on,” he added.

Oil prices swayed wildly on Tuesday between gains and losses as investors continue to keep an eye on depleting crude storage space amid a dearth in demand. The coronavirus pandemic, which has forced countries around the world to shut their economies temporarily as people are told to stay home, has reduced global demand for crude by as much as a third, according to some estimates.

WTI for June delivery fell 44 cents, or 3.4%, to settle at $12.34 per barrel on Tuesday. International benchmark Brent crude, on the other hand, gained 47 cents, or 2.35%, to settle at $20.46.

In a note dated April 28, Moody’s Investors Service said it was reducing its near-term oil price assumptions for WTI as well as Brent.

“Exceptionally weak short-term prices will persist until production drops enough to ease the strain on storage facilities already operating at or close to full capacity,” said Elena Nadtotchi, vice president and senior credit officer at Moody’s. “Significant supply adjustments in due course should help to balance the market later in 2020, but the pace of the market’s rebalancing and rising oil prices will depend on demand recovery.”

Moody’s price prediction for WTI is currently $30 per barrel this year, and $40 next year. For Brent, it sees prices averaging $35 per barrel in 2020 and $45 in 2021.

Data from the American Petroleum Institute released Tuesday night showed that U.S. crude inventories jumped by 10 million barrels in the week to April 24, bringing the total to 510 million barrels. That was lower than analysts’ expectations of a build of 10.6 million barrels, according to estimates from Reuters.

— CNBC’s Patti Domm Sam Meredith contributed to this report.

Tuesday, April 28, 2020

Oil’s Scary Replay: Physical U.S. Crude Could Go Negative In 2 Weeks

Take note of this date: May 11. By then, if the math is right, the physical price of U.S. crude should be back in negative territory—though I have a hunch it will happen earlier.

As everyone still probably has vivid memories of last week, the collapse of West Texas Intermediate futures to sub-zero levels came after the physical market first slumped to such hitherto unseen prices. 
As of April 14, the physical price of WTI was already at $16 per barrel when futures for May were trading as high as $23. On April 17—five days before expiration—the May contract was still hitting daily highs above $20, while the physical price had already slid to $14.25. 

Of course, over the course of the next 72 hours, everything the U.S. crude market had become known for, as a global benchmark of oil since the early 1980s, disintegrated.  

Oil’s “Black Monday” Set For Rerun

On oil’s “Black Monday,” April 20—the stock market has multiple iterations of black days and it was about time oil got one—May WTI raced down the abyss, matching the physical market’s quote dollar-for-dollar, to minus $40 at one point.  

WTI Daily May Contract
WTI Daily May Contract
Freefalling May WTI plunged 440% at one juncture, as those stuck with the worthless expiring contract couldn’t find a single buyer in a pandemic-annihilated market. However, after its April 20 settlement of minus $37, May WTI was finally at home with its physical avatar, and laid to rest two days later at under $14. 

Now fast forward to this week: June WTI, U.S. crude’s new embodiment, suffered another jaw dropping 25% on Monday, though in dollar terms, it was only just over $4—to settle at $12.78. By Tuesday afternoon in Asia (0400 GMT), June WTI was down another 14%, or nearly $2, to a session low of $10.66.

And it could fall at least another $2 over the next 24 hours. Why? 

Physical Market Driving Futures Lower 

Because the physical market for WTI was already as low as $8.50 by Monday’s close. And it gets more interesting when you look at the math to see where it could go from here. 

WTI June Futures 300 Minute Chart
WTI June Futures 300 Minute Chart

From its April 14 price of $16, physical WTI has lost almost $8 or 50% over the course of just two weeks. At this rate of attrition, June WTI could get to negative in two weeks—which would roughly be on May 11, or about a week before its May 19 expiration. The likelihood of it happening within the next few days is, of course, just as great. 

If what happened to May WTI is any guide, then the replay of sub-zero pricing, with June in the driver’s seat, could be worse. The question, of course, is how much worse. 

Minus $100 WTI This Time? 

Mizuho oil analyst Paul Sankey thinks it could be in the three-digits as fear grows by the day that U.S. crude will run out of storage space soon. “Will we hit -$100/bbl next month?” Sankey asked in a note last week, then answered the question himself, saying, “quite possibly.” He added:  
“The physical reality of oil is that it is difficult to handle, volatile, potentially polluting, and actually useless without a refinery.” 
There are very few analysts out there, including those who’ve lived a life of looking at oil in a positive way, that will argue against June WTI going to zero or below. Proof of it is the lightning defections made to July WTI by investors who would typically be in the front-month contract, if only not for the demand loss of some 20 million to 30 million barrels per day versus production cuts at less than half of those levels. 

Make no mistakes about it, volume in June is definitely higher than July by about 200,000 lots, or 200 million barrels. But open interest in the front-month—the key indicator of liquidity—was lagging the nearby contract by almost 55,000 lots or 55 million barrels.

June WTI’s open interest as a whole has dropped 255,000 lots or 255 million barrels over the past week.

Hedge Fund-Like USO Adds To Spot WTI’s Pain 

And most tellingly, June WTI was at a discount of $7 per barrel to July—not the super contango of last week, but that could still happen with another three weeks to its expiration. 

The liquidity ruin in June WTI was hastened, of course, by the United States Oil Fund (NYSE:USO), which unexpectedly moved to sell all its holdings in the most active U.S. crude futures contract so that it could spread its risk further down the calendar to June 2021.

USO said its move, which significantly widened WTI's June-July spread, was due to new limits imposed upon it by regulators and its broker.  

Yet it was quite ironic to see an exchange-traded fund, whose original purpose was to mirror WTI’s front-month, now dictating its direction—somewhat like a hedge fund.

Monday, April 27, 2020

Saudi Arabia & Kuwait Start Cutting Oil Output Ahead of Schedule

 A 3D printed oil pump jack is seen in front of displayed Opec logo in this illustration picture

The two nations acted prior to the May 1 deadline set by OPEC+.

Saudi Aramco has reportedly started reducing production from 12 million barrels per day (bpd) to hit its target of 8.5 mbpd, Bloomberg reported. It made the move prior to the May 1 start date of the OPEC+ agreement, which will limit supply as the coronavirus pandemic has slashed demand globally.

Kuwait has also started cutting its oil output ahead of May 1, when suppliers are due to start cutting supply in accordance with the latest OPEC+ deal, according to the nation’s oil minister.

Oil Minister Khaled Al-Fadhel said that he “felt responsibility to respond to market conditions” and acted early, Kuwait News Agency reported. He did not disclose the amount of production cut, but it will slash 23% of production by May 1.

Al Fadhel added that he was not pressured to reduce output, and Kuwait made a “sovereign” decision.

Saturday, April 25, 2020

Energy Transfer Asks For Permission To Turn Pipelines To Oil Storage

Pipeline giant Energy Transfer will be asking the Texas Railroad Commission to allow it to idle two pipelines in Texas and turn them into storage for around 2 million barrels of oil, the company told Argus Media this week.

U.S. oil producers are struggling amid collapsing demand and oil prices while inventories across America are growing. Producers in Texas struggle to place their barrels with the U.S. Gulf Coast refineries, which are cutting crude processing rates in response to plunging fuel demand. The massive oil demand drop in the U.S. and overseas due to lockdowns in the COVID-19 pandemic has had U.S. oil producers scrambling to find storage for their produced barrels when no one wants more oil right now. 

Earlier this month, Enterprise Products Partners applied to open the northbound capacity of its Seaway pipeline, offering U.S. oil producers struggling to place their oil near the Gulf Coast to ship their barrels to the primary storage hub at Cushing, Oklahoma.    

“Given the current turmoil in the crude oil market, including impacts on both refinery and export demand, there is strong market interest to access the Cushing storage market,” the pipeline operator said in a filing with the U.S. Federal Energy Regulatory Commission (FERC), as carried by Reuters.  

But many analysts think that available storage in Cushing will fill up by the middle of May, or the end of May, at the latest, if demand doesn’t materially pick up by then. This is an unlikely scenario, considering the lockdowns and work from home policies in many states.

If Energy Transfer’s plan to idle two Texas pipelines for storage is approved, “After that it will be a matter of adding pumps to the lines, which we can easily achieve,” Energy Transfer told Argus this week.

“We estimate we can be ready by mid-May,” a spokeswoman for the company told Bloomberg in an email.  

By Tsvetana Paraskova for

Friday, April 24, 2020

Tankers can store "55-60 days of excess oil supply" – Vortexa

The world's tankers may have the capacity to store the excess production for 55 to 60 days, according to Vortexa, a UK analytics company specialising in waterborne oil markets.
This is based on demand for oil reduces by 20 per cent or more due to the Coronavirus,

It is a complex question because the drop in demand for oil from consumers leads to a drop in demand for tankers themselves for freight, says Syed Ahmad, market analyst with Vortexa.

Also the willingness for traders to charter tankers to store oil depends on the steepness of the market contango (difference between current price and future prices), so they can sell oil for a higher price in future, thus making a margin to cover the tanker costs.

"Shipowners will constantly be making this decision - if it is more economical for them to put vessels into storage - or take normal cargo from point A to point B," he says.

"The wider the contango spread in the oil market, the greater the incentive on shipowners to put more vessels into floating storage."

Thursday, April 23, 2020

No Vacancy: Main U.S. Oil Storage in Cushing Is All Booked

Official U.S. government data shows that storage at the key crude oil hub in Cushing, Oklahoma, was just 70% full as of mid-April. Traders say that is bunk – because whatever is left is spoken for by firms sending oil to the hub right now.

Oil prices have crashed this year, with the current U.S. contract falling into negative territory, due to millions of barrels of supply around the globe hitting markets at a time when the coronavirus pandemic means people are not flying on planes or driving in cars.

With demand down 30% worldwide, that leaves buyers of oil few options other than to stick crude in storage, and Cushing is the primary U.S. locale for that. The tank farm has about 76 million barrels of working capacity, and coming into last week about 53 million barrels were being stored there, according to U.S. Energy Department figures.

But while the tanks are not full yet, they are fully leased out to producers and traders who will fill them soon, five trade sources said. That means to anybody looking for a last-minute space – there is not any. As coronavirus keeps people at home and obliterates demand, there is no reason for storage levels to fall.

“The terminals have already contracted their storage 100%,” said Ernie Barsamian, chief executive officer of The Tank Tiger, a terminal storage clearinghouse in Princeton, New Jersey.

That realization among traders and funds managers sparked a panic on Monday that caused the expiring May oil contract to crash to minus-$37.63 a barrel, the first time U.S. crude ended in negative territory in history.

“Firms have oil on pipelines on the way to Cushing and thought they had storage tied up and for some reason they didn’t,” said Phil Verleger, an oil economist and independent consultant.

The American Petroleum Institute, an industry group, said on Tuesday that Cushing inventories rose by 4.9 million barrels as of Friday, putting total stocks at 59.5 million barrels at the hub, leaving space for about 16 million barrels. The energy researcher’s data, while not official government data, is more up-to-date than U.S. federal figures.

“We have been forecasting for some weeks that Cushing, Oklahoma would reach tank tops by mid-to-late May,” said John Coleman, principal analyst at Wood Mackenzie. “Based on current trajectories, (that) looks to likely to happen in the first half of May instead.”

Monday’s historical trading in May crude futures was in part a panicked move ahead of its expiration on Tuesday. But June futures nearly repeated that trick on Tuesday, falling 43% to $11.57 a barrel. For now, the contract is in positive territory, but the price is falling because it is not looking like it will be any easier to find storage for barrels, and in fact, it could be harder.

Several major oil companies, including Magellan Midstream Partners, Enterprise Products Partners, and Enbridge inc own tanks at the hub, which they lease out for companies to store their oil. Some traders sublease that space. Barsamian, who brokers these transactions, said all tanks were leased by mid-March, and he has not subleased any space since late in the month.

That came as a shock to the likes of hedge funds who had jumped into the oil contract, only to realize that if they held the contract when it expires, they would be obligated to take the barrels that they do not want.

“I never been contacted by as many hedge funds as I did yesterday looking for storage. I had dozens of emails and phone calls from hedge funds,” said Barsamian. “They never really thought about the aspect of the physical delivery.”

Flows into Cushing accelerated in the last two weeks after Enterprise Products Partners started shipping on unused pipeline space from the U.S. Gulf Coast to Cushing.

Enterprise and Enbridge declined to comment, citing confidentiality concerns. A Magellan spokesperson said that the company has received significant interest in storage throughout its system, without specifically discussing Cushing.

Wednesday, April 22, 2020

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Tuesday, April 21, 2020

WTI Crude Oil Futures 4/21/2020

Asian Oil Trading Legend Files For Bankruptcy After Hiding $800 Million In Losses, Secretly Selling Loan Collateral

Last weekend we reported that one of Singapore's biggest and most iconic - and extremely secretive - oil traders, Hin Leong Trading, whose website reports revenue surpassed $14 billion all the way back in 2012, was on the verge of collapse as the company's banks had frozen letters of credit for the firm - a death sentence for any commodity merchant - over its ability to repay debt; as a result, the firm appointed advisers to help negotiate with banks for more time to resolve its finances.

After pointing out the perplexing lack of high-profile blow-ups in the current commodity crush (as a reminder back in 2016 when oil dropped less than it has now, the Glencores and Trafiguras of the world were this close to collapse), we explained the critical nature of L/Cs...
Letters of credit are a critical financial backstop for commodity traders, used as way of financing critical short-term trade. A bank issues the so-called L/C on behalf of the buyer as a guarantee of payment to the seller. Once the goods have exchanged hands, the buyer repays the lender.
... and said that Hin Leong had "suddenly found itself without providers of L/Cs - for reasons still not exactly known - without which it is effectively paralyzed as it needs to front cash for any transactions, something no modern commodity merchant can afford to do."

One week later we have found the reason: according to a Bloomberg report, the son of the "legendary" founder of Hin Leong said the Singapore oil trader hid about $800 million in losses racked up in futures trading, suggesting a much bigger hole in the company’s finances than many expected, even if it explains why the banks scrambled to cut off the giant company's funding.

Not only that but the Singapore commodity giant was also involved in the oldest trick in the commodity trader's book: liquidation of pledged collateral to obtain critical funding. According to Evan Lim, the son of company founder Oon Kuin "OK" Lim, the company also sold some of the million of barrels of refined products it had used as collateral to secure loans from its banks, Bloomberg adds citing an April 17 email sent by the shipping affiliate of Hin Leong, notifying recipient parties of proposed moratorium proceedings.

As Bloomberg notes, the downfall of Hin Leong Trading, one of the biggest and most secretive forces in the world of physical fuel-oil trading, whose markets include crude oil, feedstock, middle distillates, petrochemicals, biofuel, mogas, naphtha, fuel oil, LPG, asphalt, base oil and lubricants, shows "the depth of the fallout from the dramatic drop in oil prices so far this year as a consequence of the Saudi-Russia price war and the coronavirus pandemic."

It also suggests that we have finally found our first mega casualty from the coronacommoditycrisis (a long overdue offset to Pierre Andurand who managed to reverse just in time and to generate record profits in the past month having gone short oil): as a result of cooking its books and collateral shortfall, Hin Leong faces a significant shortfall between the oil stocks it held and the inventories pledged to its banks. That potentially means huge losses for the banks which provided the merchant with billions in loans as the collateral they thought they have as a guarantee isn’t there. 

In what may be the most brutal case of cooking one's books since Enron, the founder's son, also known as Evan Lim, said he was unaware of the reason for losses suffered over some years and his father had instructed Hin Leong’s finance department to omit them from its financial statements; all this was disclosed in an email sent by Ocean Tankers Ltd., the group's shipping arm which owns a fleet of more than 130 tankers, signed by the son and his sister Lim Huey Ching.

Completing the picture, just hours earlier, Hin Leong and Ocean Tankers both filed for court protection from creditors on Friday as the former struggles to repay its debts. Both companies are solely owned by the Lim family.

While Bloomberg focuses on the plight of the commodity trading giant, noting that "the trader’s financial distress has rocked the tightly-knit trading community in Singapore" and is "raising speculation that the privately-held company could be the latest casualty of the historic collapse in oil prices triggered by the coronavirus" the bigger question is whether this collapse will be systemic enough to send shockwaves among Singapore's banks, some of the most levered in the world, and one of the world's last remaining spot to launder money which is why so many Chinese have opened Singapore bank accounts in recent years.

The deception was simple: Hin Leong posted a positive equity of $4.56 billion and net profit of $78 million in the period ended October 31, according to the Bloomberg sources. But Hin Leong told its creditors this month that total liabilities reached $4.05 billion as of early April, while assets were just $714 million, leaving a hole of at least $3.34 billion.

The balance sheet of the company showed no equity at all as of April 9, 2020, and warned that “figures obtained from the company are subject to verification”.

What is even more bizarre, is that the company had used an otherwise reputable auditor, with Hin Leong Trading accounts for the financial year ending October 31, 2019 were audited by Deloitte & Touche LLP. The auditor didn’t flag any problems, according to people familiar with the matter. Meanwhile the banks too, were apparently unaware of the gross fraud taking place right under their noses, begging the question just what is the use of banker diligence?

That said, while auditors should have caught the accounting fraud, even they would have had trouble catching the company's secret liquidation of pledged collateral. As noted above, Lim’s son said his father sold a substantial part of the company’s inventories even those used as collateral for banks loans. As a result, he said there was a large shortfall of oil inventories compared with the amount that had been pledged to secure the credit lines.

It also explains why as recently as last weekend, the banks had pulled their letters of credit.

Altogether, Hin Leong is said to owe almost $4 billion to more than 20 banks including HSBC, who will now scramble to figure out just how massive their loan losses are.

Meanwhile, the company which is not just a giant commodity trader and one of Asia's largest suppliers of ship fuel, or bunkers, but co-owns oil storage unit Universal Terminal with PetroChina, and whose bunkering arm, Ocean Bunkering Services Ltd., was ranked the third-largest shipping fuel supplier in Singapore last year, is no more. Founder Lim Oon Kuin, known to many in the industry as OK Lim, will be resigning from all executive roles in Hin Leong, the Xihe Group and related companies as of April 17, Bloomberg sources reported. He will also step down as director and managing director of Ocean Tankers.

Meanwhile, the banks will be fighting with other creditors for whatever scraps are leftover: both Hin Leong and Ocean Tankers filed for protection from its creditors under Section 211B of Singapore’s Companies Act.

One unexpected consequence of the company's sudden bankruptcy, is that with a record 160MM barrels of oil loaded up on tankers to ease the global commodity glut, Singapore may suddenly lose its place as the world's tanker "parking lot." While traditionally Singapore has had massive spare oil storage capacity which explains photos such as shits one...

... it is Hin Leong's Universal Terminal that has storage capacity of 2.33 million cubic meters and is the largest independent petroleum storage terminal in Singapore and one of the biggest independent storage facilities worldwide. But now that the company is bankrupt, the ability of tankers to store their holdings in the terminal is suddenly in limbo, which means that storing oil on sea may suddenly become far more complicated.

Last week, before we know the extent of the company's financial debacle - and fraud - we concludes that "it is unclear what will happen to the Singapore commodity trading giant if it is unable to find banks that will backstop its operations." Well, we now know - game over - which makes the second part of our forecast especially applicable: "should the firm become insolvent, the downstream cascade for companies in the Pacific Rim could be devastating." We now wait to see if we were correct again.

Monday, April 20, 2020

US oil prices are on track for their worst day ever: Here’s why

  GP: Oil field workers pump jack 191120
  • The May contract of U.S. West Texas Intermediate (WTI) futures fell to $11.66 a barrel on Monday, down more than 36%. It means the price grade is on track to register its worst day back to contract inception in 1983.
  • To be sure, the May contract expires on Tuesday, thus leaving it exposed to weaker trading volumes and more extreme market moves.
  • The June contract of WTI, which is more actively traded, stood at $22.29 a barrel, almost 11% lower. 
  • “The curves are saying we have a big problem with the storage of oil right now,” Bjarne Schieldrop, chief commodities analyst at SEB, told CNBC via email.

U.S. oil prices were on track for their worst day on record on Monday, with crude storage facilities filling rapidly as the coronavirus pandemic continues to crush demand.

The May contract of U.S. West Texas Intermediate (WTI) futures fell to $11.54 a barrel on Monday, down more than 36%. It means the price grade is on pace to register its worst day back to contract inception in 1983.

To be sure, the May contract expires on Tuesday, thus leaving it exposed to weaker trading volumes and more extreme market moves. The June contract of WTI, which is more actively traded, stood at $22.29 a barrel, almost 11% lower. 

Meanwhile, international benchmark Brent crude stood at $26.41 on Monday, around 6% lower for the session.

It comes amid heightened concern that the volume of oil held in U.S. storage is rising sharply, with the coronavirus crisis compounding the problem by dramatically reducing consumption.

“The current forward crude oil curves for Brent and WTI are now in very deep contango, but the contango is also very front-loaded,” Bjarne Schieldrop, chief commodities analyst at SEB, told CNBC via email.

A contango market implies oil traders believe crude prices will rally in the future, encouraging them to store oil now and to sell at a later date.

20200420 Oil Prices Crash

“The curves are saying we have a big problem with the storage of oil right now,” Schieldrop said, noting the general market view seemed to be that the global economic trough and the oil demand trough would be April 2020.

In the second half the year, he continued, the problem of storage capacity should “vanish rapidly” because oil demand is expected to rebound strongly, while inventories will draw down sharply. “This is why the Brent crude average oil price for 2021 is holding up so well at $40 a barrel,” Schieldrop added.

‘Without any sort of hope’

Earlier this month, analysts at Goldman Sachs warned that the coronavirus shock was “extremely negative for oil prices and is sending landlocked crude prices into negative territory.”

The U.S. investment bank said it expected waterborne crudes like Brent to be far more insulated from the coronavirus shock, with prices likely to remain near cash costs of $20 a barrel — albeit with temporary spikes below.

Brent is priced on an island in the North Sea roughly 500 meters from the water, where tanker storage is accessible. In contrast, WTI is landlocked and 500 miles from water.

“This illustrates an important point,” analysts at Goldman Sachs said in a research note. They argued waterborne crudes were likely to be “better positioned” than landlocked price grades — like crude oils in the U.S., Canada and Russia — because they had comparatively easy access to tanker storage.

Chart: Brent WTI spread 200420 Asia

“The U.S. situation is quite dire,” Daniel Hynes, senior commodity strategist at ANZ, told CNBC’s “Squawk Box” on Monday.

“Clearly, being a relatively landlocked market there, we are seeing real pressure on storage as a consequence of the collapse in demand,” Hynes continued. “Without any sort of hope I suppose, at least over the next month about that easing up. I think prices are going to remain under pressure.”

The Covid-19 outbreak has meant countries have effectively had to shut down, with many governments imposing restrictive measures on the daily lives of billions of people. It has created an unprecedented demand shock in energy markets, with storage space – both onshore and offshore – quickly filling up.

To date, more than 2.4 million people have contracted the coronavirus worldwide, with 165,257 deaths, according to data compiled by Johns Hopkins University.

“Going forward, of course, we are going to have to see a lot of declines in production in the U.S. in order to push this thing a little bit higher,” Samir Madani, founder of, told CNBC’s “Capital Connection” on Monday.

“U.S. energy is very important for global energy security … because if it wasn’t for U.S. energy then prices would be a whole lot higher,” Madani said.

— CNBC’s Abigail Ng contributed to this report.

Thursday, April 16, 2020

Tankers pile up off Europe's coast as onshore storage sites hit limit

LONDON, April 15 (Reuters) - Dozens of tankers holding jet fuel and gasoline are at anchor in sea lanes around Europe’s main storage hubs, unable to discharge their cargoes as onshore tanks are full to capacity following the collapse in demand linked to the coronavirus crisis. 

Nearly 1 million tonnes of refined products are parked on around 30 tankers off Europe’s coast, Reuters calculations found. 

According to shipping data and trade sources, tankers have dropped anchor near to the Amsterdam-Rotterdam-Antwerp (ARA) refining and storage hub and across parts of the Mediterranean as their cargo owners struggle to find buyers or storage tanks. 

While some vessels are expected to moor in ports soon, others could remain at sea for weeks because of a shortage of space left to be leased in onshore tanks, traders said. 

“The region is overflowing with products,” one trader said on condition of anonymity. 

Traders and shipping sources said there were long delays at tanker terminals in the ARA area, lifting costs for traders chartering the vessels. 

“Congestion has picked up in the past few days,” a shipping source said. “(Ship chartering) deals may now be impacted.”

Low water levels along the Rhine river have added to logistical pressure on ARA storage. They mean barges can only be loaded to 50% of capacity, limiting how much they can take to storage sites along the river. 

Most of the vessels are carrying jet fuel, gasoline and naphtha, often blended into gasoline, all of which have seen a massive drop in demand after restrictions on movement around the world to curb the spread of the novel coronavirus. 

At least three are carrying diesel, according to the data. 

Two tankers - Stena Polaris and Andrea Victory - have been leased in recent weeks by BP to store fuel offshore for two to three months are anchored off the east coast of England, Refinitiv data showed. 

BP declined to comment. 

Refineries around the world have reduced their operations and in some cases shut down. As a result, several European refiners have been unable to unload crude oil cargoes.

Consultants Rystad Energy forecast oil demand in Europe in 2020 falling by 2.3 million barrels per day to 12.7 million bpd, an 11.2% decline from 2019’s 14.3 million bpd. They expect Europe’s April road fuel demand to fall by 35% to 4.7 million bpd. 

The International Energy Agency (IEA) on Wednesday forecast a 29 million barrels per day (bpd) fall in April oil demand to levels not seen in 25 years and said no output cut by producers could fully offset the near-term falls facing the market. 

Reporting by Ron Bousso and Jonathan Saul; editing by Barbara Lewis