WTI

[Wheels]

https://www.zerohedge.com/markets/here-full-explanation-behind-oils-unprecedented-negative-price


Here Is The Full Explanation Behind Today's Unprecedented Negative Oil Price

Roger Diwan

How did you end up with negative oil prices today? This happens when a physical futures contract find no buyers close to or at expiry.

Let me explain what that means:

A physical contract such as the NYMEX WTI has a delivery point at Cushing, OK, & date, in this occurrence May. So people who hold the contract at the end of the trading window have to take physical delivery of the oil they bought on the futures market. This is very rare.

A decline of over 15% in the June contract price points to real worries that the physical stress will continue to reverberate, and will force a lot more production shutdowns during May than the ones announced so far.

So today negative prices are the reflection of dire market conditions for producers, with the hope that demand restart before the middle of May and that the June contract does not face the same fate.

 

[K-man]

You can also hear the printing of pink slips in Texas, Oklahoma and Louisiana today.

I wanted to "like" this but its so true and so sad... They already were printing pink slips but today I think the guy printing pink slips got one..
This negative pricing happened back in the '80's, but I don't remember what the prices were then.

 

[Wheels]

I wanted to "like" this but its so true and so sad... They already were printing pink slips but today I think the guy printing pink slips got one..
This negative pricing happened back in the '80's, but I don't remember what the prices were then.

Understand on the "like" button comment.

The motto of the day was "Stay alive till 85". Then in 86 oil went under $10.

I have a bad feeling it will get worse for us Okies before it gets better.

 

[Hank2211]

You will see a price in the high teens to low twenties on Wednesday when the June contract begins trading. While this is cold (!) comfort, I expect very little crude actually traded at a negative number today.

And note that WTI is currently (about 9.30 pm EDT) trading at +$1.09, an increase of $38.72 from today's low!

While the numbers are clearly lousy, the volatility is enormous and really kills any ability to plan. We will have to live with this until some sanity returns to the world and people begin to go back to work, and to leave their homes, whether it be by plane, train or automobile.

 

[375 Ruger Fan]

I read something about the worlds tankers all being full and at anchor waiting to be off loaded. No one will accept product.

Oil tankers are typically chartered at least 45 days in advance. For instance, in mid-April, producers are locking in charters for the entire month of June. Tankers are scheduled to arrive within a 2 day window, referred to as a lay-can. A lay-can is almost like the takeoff or landing slot that an airliner has at an airport. If the producer doesn't have the oil inventory to ship, the producer must pay demurrage if the tanker isn't loaded during the designated lay-can. Demurrage for a VLCC (Very Large Crude Carrier, 2 million barrel ship) was about $50,000 per day. Sort like a taxi or Uber arriving to pick you up and you're not ready. They put you on the meter. When the full tankers arrive at the ports or refineries to offload, there obviously has to be tanks to put the oil into. If there is no room, the tanker can't offload and demurrage is paid again (by the buyer). If the tanker doesn't offload, it can't sail back to pick up it's next load and the entire operation comes to a halt. This is where we are today.

 

[Standard Velocity]

Oil tankers are typically chartered at least 45 days in advance. For instance, in mid-April, producers are locking in charters for the entire month of June. Tankers are scheduled to arrive within a 2 day window, referred to as a lay-can. A lay-can is almost like the takeoff or landing slot that an airliner has at an airport. If the producer doesn't have the oil inventory to ship, the producer must pay demurrage if the tanker isn't loaded during the designated lay-can. Demurrage for a VLCC (Very Large Crude Carrier, 2 million barrel ship) was about $50,000 per day. Sort like a taxi or Uber arriving to pick you up and you're not ready. They put you on the meter. When the full tankers arrive at the ports or refineries to offload, there obviously has to be tanks to put the oil into. If there is no room, the tanker can't offload and demurrage is paid again (by the buyer). If the tanker doesn't offload, it can't sail back to pick up it's next load and the entire operation comes to a halt. This is where we are today.

So the instance of tankers waiting to offload for an indeterminate amount of time will have a domino effect? They will now be late to pickup the next shipment that has been canceled anyway? In such rare instances does everyone renegotiate existing contracts or do they have to eat it? If they stop production does the system pause or is it more like minimizing a ten car pile up?

 

[ActionBob]

That's for the May contract, which only trades for a few more days. May contracts are getting squeezed........nobody wants them. June contract is in the $20 per barrel range last time I looked.

All the storage tanks are full and there is nowhere to go with the crude. This is about as ugly as I've seen in my 39 year career. When I worked in Nigeria, we had a supertanker pull up to our deepwater FPSO (floating production, storage & offloading) facility and pickup 1 million barrels of crude every 4 to 5 days. If the system backs up, like it appears to be doing, a lot of production will get shut in (temporarily). You might have seen on the news where dairy farmers are pouring milk down the drain because they can't get it to market. Same type of deal, except apparently you can't shut in cows.

We can not just shut off milk production. And the industry is trying to slow production as fast as it can. But slaughter plants are full so culling cows is limited. We can dry off cows a week or two early, feed more milk to calves, cut rations back a little but not to the point it jeopardizes health.

Basically the same story as oil. Supply lines are all full. Warehouse capacity is maxed out. Cheese vats are full, storage tanks are full, trucks are full, on farm storage is full. Milk is being dumped.

 

[Standard Velocity]

We can not just shut off milk production. And the industry is trying to slow production as fast as it can. But slaughter plants are full so culling cows is limited. We can dry off cows a week or two early, feed more milk to calves, cut rations back a little but not to the point it jeopardizes health.

Basically the same story as oil. Supply lines are all full. Warehouse capacity is maxed out. Cheese vats are full, storage tanks are full, trucks are full, on farm storage is full. Milk is being dumped.

That’s a shame. I knew a dairy farmer when I was growing up. He and his two sons would alternate taking one week vacations. This way every three years one of them would get a vacation. Even with a modern milking facility and computerized identification and tracking of the cows they were working 80 hours a week to be middle class.

 

[wesheltonj]

Sure puts a damper on plans, besides losing about 25% of my investments, now the mail box money too.

 

[Wheels]

Not looking good today either.

 

[Mr. Zorg]

The company my wife currently works for and I retired from, Marathon Petroleum, is (hopefully temporarily) shuttering refineries in the current environment of low refined product demand. A small refinery in the Las Cruces, NM area and a medium size refinery in the San Francisco Bay Area near Martinez, CA.

AOC reportedly made a jubilant Twitter post about the effects in the USA by all these forces in the petroleum industry then replaced after the impact on above average paying jobs for US families vanishing, despite her degree in Economics. Tax revenues from those businesses in business and payroll taxes vanishing will be soon felt in many areas much like the 1980's, when a huge number of stripper wells were permanently shut in and the pump jacks that had been a familiar part of the scenery became endangered species.

Supertankers in the VLCC & ULCC sizes have been purchased and chartered in the past few months as floating storage, not shipping per se. This has been more common since the turn of this century with the limited number of places ships this size can actually load and discharge cargo at, and many of those in politically unstable areas (such as Kharg Island). Instead, lightering, ship-to-ship transfers have become the general role with these supertankers parked in a specific spot.

Recently a Hong Kong flagged tanker was boarded by "pirates" in the Strait of Hormuz, who subsequently left the vessel after discovering its Chinese registry.

Things will likely get worse before they get better in the petroleum sector. The companies carrying the highest debt loads will again be the earliest casualties. However the impacts are broad even in supermajors that have been through similar market cycles minus pandemic pandemonium previously. ExxonMobil dividend payments to shareholders are said to be in jeapordy by some analysts even after huge cuts in their capital spending plans.

 

[Mr. Zorg]

One more in-depth articles for those interested.

https://lloydslist.maritimeintellig...ng-storage-fails-to-offset-demand-contraction

There are others

https://www.wsj.com/articles/saudi-oil-stranded-in-supertankers-as-backlog-piles-up-11587478831

 

[WAB]

I ran oil refineries in a previous life. These shutdowns are not an easy or inexpensive undertaking. These folks will likely be advancing turnarounds to take some advantage of a tough situation.

I can’t imagine what US intermediate inventories look like. NA is the only place on earth with a 70/30 gasoline/diesel production mix. Typical is 30/70. It appears that we have flipped our consumption ratio in recent months but our refineries don’t have the configuration to produce at that ratio. This thing is more buggered than just crude inventories.

 

[Mr. Zorg]

I'm not sure turnarounds previously planned or not can currently be staffed and executed under social distancing requirements even for these otherwise defined essential sectors @WAB. I haven't seen anything about Marathon Petroleum putting those two refineries in turnaround, just parking them. As @WAB says this isn't like just flipping a switch, and there are significantly greater risks during refinery shutdowns & startups in unsteady-state vs normal operations at more or less steady state.

This temporary refining capacity reduction is on top of the permanent shuttering of the Philadelphia area refinery permanently removing that facility from US domestic refining capacity recently. This will also negatively impact the US balance of trade as exports of refined products and petrochemicals has been a strong area on the plus balance sheet for the US.

 

[Mr. Zorg]

The Canadian petroleum industry is also poised for lasting effects, especially heavy oils using steam assisted gravity drainage for production.

 

[ActionBob]

Here is another explanation of how markets close and why oil went negative. This was directed at Dairy producers but I thought I'd share here as it is a pretty simple explanation for those not in the business or familiar with commodities markets.

Crude oil made history. The term 'going to zero' is typically a form of hyperbole in bear mkts. Today, it's reality. In fact, May futures traded & closed negative! How & why can this happen?

At expiration, futures contracts are settled either physically or financially.

Financially settled futures at expiration are done via purely a monetary exchange. Whichever side of the position owes money transfers the final funds to the acct of the position that is owed & the contract is liquidated. Dairy futures settle this way.

Physically settled, like corn & crude, settle via a physical exchange of the good. Most positions are liquidated or exited prior to notice of delivery/expiration so longs (buyers) don't need to take delivery & shorts (sellers) don't need to deliver.

Longs, or owners of futures past the notice period, are eligible to take delivery of the commodity from shorts. May futures expire tomorrow & clearly there are some longs getting squeezed into desperately avoiding being stuck w/a physical asset rapidly losing value b/c there's no place to store or move.

Zero price = no economic value. Negative prices = longs are paying to exit positions (@ -$37/brl) as a lower opportunity cost of being stuck w/it.. #astounding

 

[375 Ruger Fan]

By Robert Tuttle Bloomberg

April 21, 2020

4:02 PM

Oil tankers carrying enough crude to satisfy 20% of the world’s consumption are gathered off California’s coast with nowhere to go as fuel demand collapses.

Almost three dozen ships — scattered in waters from Long Beach to the San Francisco Bay — are mostly acting as floating storage for oil that’s going unused as the coronavirus pandemic shutters businesses and takes drivers off the road. Marathon Petroleum Corp.’s refinery in Martinez, Calif., has been idled and others, including Chevron Corp.’s El Segundo refinery, have curtailed crude processing as the state orders residents to stay at home.

The more than 20 million barrels of crude is the highest volume of crude to ever float off the West Coast at one time, according to Paris-based Kpler SAS, which tracks tanker traffic. About three-quarters of those tankers are holding oil in storage, meaning they have been floating steadily for seven days, also a record.

Storage has become increasingly scarce as a growing supply glut collides with collapsing fuel demand. As traditional oil tanks have filled, excess oil has been pushed onto tankers to float off Singapore, the U.S. Gulf Coast and, now, the U.S. West Coast

 

[Wheels]

What better way to push for a rebound in oil prices.



https://www.washingtonpost.com/poli...b924c6-8499-11ea-ae26-989cfce1c7c7_story.html


Trump instructs the Navy to ‘shoot down and destroy’ Iranian gunboats that ‘harass’ U.S. ships

 

[375 Ruger Fan]

Interesting choice of words, "Shoot down boats"????

 

[Mr. Zorg]

Well, after ventilation they'll undoubtedly go down ☠