Shrinking Glut? | Russell T. Rudy Energy LLC
“Rigzone” cites a Bloomberg report that the global oil glut might be starting to shrink. A month ago, international traders and major oil companies were considering buying oil and storing it on tankers. This can be profitable when a contango, or the expectation of higher future prices, exists. However, the spread between current prices and expected future prices has to be high enough to cover storage costs and still provide a profit margin. When the perception was that onshore storage capacity was no longer available, speculators considered chartering tankers and anchoring them offshore as floating warehouses.
However, two things happened: production and inventories trended downward and tanker rates rose. A pipeline taking crude from Northern Iraq to the Mediterranean Sea was out of service, and another one in Nigeria was sabotaged. Further, U. S. oil production is headed for a drop to below 9 million barrels of oil per day (bopd) for the first time since November, 2014. The production decrease attributable to these three factors alone accounts for about 1 million bopd, or roughly half, the worldwide surplus.
Concurrently, tanker rates rose as demand for transportation on the benchmark route from Saudi Arabia to Japan increased. Falling supply and rising tanker rates have made offshore storage uneconomic.
Decreasing inventories are a positive sign for oil prices. In fact, such respected industry observers as the International Energy Agency, and Goldman Sachs, now predict that the worst of the price collapse is over.
To read the article in its entirety, please go to http://www.rigzone.com/news/article.asp?hpf=1&a_id=143616&utm .
Russell T. Rudy Energy, LLC buys oil, gas and mineral interests nationwide. Please call (800-880-0940), or write (info@rudyenergy.com ) to let us know if you agree, disagree or would just like to comment on this, or any of our posts.
