Oil producers running out of storage space

[MKSheppard]

Link

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

The Associated Press
updated 8:01 p.m. ET, Tues., March. 3, 2009

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.

[Hawkwings]

turnabout's a bitch, ain't it?

It's nice to see that demand didn't suddenly go way up again as prices dropped. Maybe we're really past the whole gas-guzzling SUVs phase?

On another bright note, we can fill up the Strategic Petroleum Reserve for really cheap now, even possibly expand it.

[His Divine Shadow]

Maybe now is the time to invest in oil futures/shares/whatever?

On a personal note I drive alot from neccessity, I already drive as little as I can and I am looking for a new even smaller and more efficient car to drive. I don't think I'll ever waste money on useless monsters like SUVs...

Now driving my Trans Am for fun every once in a blue moon, thats another thing.

[Col. Crackpot]

So much for a hard landing. With wind turbines and solar panels popping up like weeds all over, and proposed changes to CAFE standards, i'd imagine demand will drop even further.
The TEOTWAWKI's have moved on to "were all gonna starve when every bank fails" now anyway.

[Count Chocula]

Considering that several oil-rich countries (Iran, Saudi Arabia, Syria) are suspected financial backers of terrorists, and now are facing a price free-fall from reduced demand and possible unrest within their borders, perhaps we'll see a drop in terrorism. No money, no RPG. Maybe. I hope.

[aerius]

Once again the article is full of crap. The reason everyone's renting out tankers and storage space is because there's a massive price contango in the futures market, that is the price of the front month contract is a hell of a lot lower than the price of later dated contracts. For instance I could've bought the March contract for $35 a barrel while the May contract was trading at $44. If I took delivery of the March contract and sold the oil into the May contract, I'd pocket $9 a barrel minus the storage fees. Easy money, that's why all the storage farms are full and people are chartering tankers to store oil, and why the price of oil gaps up $5-10 a barrel every month on options expiration day. If I had $10-20 million to play with I'd be doing it to, clean 15-20% profit every month for doing jack.

[Big Phil]

Damned straight aerius! The world is still going to collapse in a Road Warrior-esque apocalypse due to Peak Oil, and only the Internet can save us now!


That being said, don't get too excited about the decline in oil prices and the excess of crude in storage - demand for energy is still high, and oil is still the cheapest way to produce energy. Until America and other countries get serious about alternative sources of energy - clean coal, solar, wind, and EVIL nuclear power - we will still be using fossil fuels and they are still a finite resource.

I saw a commercial the other day for the solar commission or something like that, saying that 100 square miles of solar arrays in the Arizona desert would power all of America's energy needs each year. Without arguing the validity of that statement, it's good to see that alternatives to oil are now getting serious consideration. I just wish Obama was willing to consider nuclear power instead of just solar and wind.

[aerius]

I saw a commercial the other day for the solar commission or something like that, saying that 100 square miles of solar arrays in the Arizona desert would power all of America's energy needs each year. Without arguing the validity of that statement, it's good to see that alternatives to oil are now getting serious consideration. I just wish Obama was willing to consider nuclear power instead of just solar and wind.

The commercial's complete bullshit. 1 square mile is about 2.6 million square metres, assuming 100% efficiency (~1kW per square metre) that gives about 2.6GW, or 260GW for 100 square miles. That's still less than 1/3 of America's total electrical energy consumption, nevermind total energy consumption, and 100% efficiency is totally unrealistic. 10% is about what we can manage these days so it's more like 1/30 of total electrical, and probably less than 1% of total energy consumption. That's why we need to build 500-1000 nuke plants.

[CaptainChewbacca]

So much for a hard landing. With wind turbines and solar panels popping up like weeds all over, and proposed changes to CAFE standards, i'd imagine demand will drop even further.
The TEOTWAWKI's have moved on to "were all gonna starve when every bank fails" now anyway.

I'm sorry, could you please define/clarify the bolded term?

[folti78]

So much for a hard landing. With wind turbines and solar panels popping up like weeds all over, and proposed changes to CAFE standards, i'd imagine demand will drop even further.
The TEOTWAWKI's have moved on to "were all gonna starve when every bank fails" now anyway.

I'm sorry, could you please define/clarify the bolded term?

The End Of The World As We Know It (Wiktionary, www.survivalnet.org)

[The Duchess of Zeon]

Yeah, I consider the largest global depression in history that we may be heading into to be a miracle on par with Frederick the Great's letter to Prince Ferdinand of Brunswick, "The sky begins to clear. Courage, my dear fellow. I have received the news of a great event." -- i.e., the death of the Empress of Russia, Elizabeth I. I felt the same way when I heard about this mess, pretty much; it's why I'm utterly unconcerned with the result of the global crash. It's exactly what we needed to give us a chance to avert a hard landing in peak oil, and for that matter it's slashing global warming emissions.

[Forum Troll]

I saw a commercial the other day for the solar commission or something like that, saying that 100 square miles of solar arrays in the Arizona desert would power all of America's energy needs each year. Without arguing the validity of that statement, it's good to see that alternatives to oil are now getting serious consideration. I just wish Obama was willing to consider nuclear power instead of just solar and wind.

The commercial's complete bullshit. 1 square mile is about 2.6 million square metres, assuming 100% efficiency (~1kW per square metre) that gives about 2.6GW, or 260GW for 100 square miles. That's still less than 1/3 of America's total electrical energy consumption, nevermind total energy consumption, and 100% efficiency is totally unrealistic. 10% is about what we can manage these days so it's more like 1/30 of total electrical, and probably less than 1% of total energy consumption.

Keeping in mind the likely imprecision of hearing about this second-hand, most likely the commercial rather referred to a 100 mile square, in terms of an area 100 mi by 100 mi.

Collectors at a fixed tilt in the southwestern U.S. desert receive 7 kWh/m²/day of sunlight, for 1 kWh per square meter a day of electricity. So a 100 mile by 100 mile square of 1E4 mi² and 2.6E10 m² would provide 26 billion kWh daily.

Such is 2.3 times total U.S. electricity consumption.

Of course, you would need either massive amounts of power storage or intercontinental (superconducting) power transmission lines between multiple sites worldwide to avoid losing your power every night if that was the primary source. Plus, to replace the 70% of U.S. electricity consumption from coal & natural gas for even a couple trillion dollars, you would need to reduce the cost of the solar collectors to under $250 per square meter to afford 8 billion square meters of them, better performance than obtained now.

That's why we need to build 500-1000 nuke plants.

That would be substantially cheaper than so many solar arrays at current cost rates, yes.

[Big Phil]

It was a 100 mile square, not 100 square miles. Forum Troll is correct.

[Loner]

Yeah, I consider the largest global depression in history that we may be heading into to be a miracle on par with Frederick the Great's letter to Prince Ferdinand of Brunswick, "The sky begins to clear. Courage, my dear fellow. I have received the news of a great event." -- i.e., the death of the Empress of Russia, Elizabeth I. I felt the same way when I heard about this mess, pretty much; it's why I'm utterly unconcerned with the result of the global crash. It's exactly what we needed to give us a chance to avert a hard landing in peak oil, and for that matter it's slashing global warming emissions.

So we can thank W. for his financial policies for averting peak oil disaster?

[Samuel]

Yeah, I consider the largest global depression in history that we may be heading into to be a miracle on par with Frederick the Great's letter to Prince Ferdinand of Brunswick, "The sky begins to clear. Courage, my dear fellow. I have received the news of a great event." -- i.e., the death of the Empress of Russia, Elizabeth I. I felt the same way when I heard about this mess, pretty much; it's why I'm utterly unconcerned with the result of the global crash. It's exactly what we needed to give us a chance to avert a hard landing in peak oil, and for that matter it's slashing global warming emissions.

So we can thank W. for his financial policies for averting peak oil disaster?

Actually, I think the massive amount of deregulation started with Reagan, who also took apart methods to wean us off oil. So it appears we that conservatives will make us become more sustainable- just obliquely and painfully.

[J]

So we can thank W. for his financial policies for averting peak oil disaster?

Well, he is an oilman afterall...so clearly, he foresaw the disaster and found a workable, no, an absolutely ingenius and brilliant solution, one so subtle it fooled everyone. The man is a mis-understood genius.

[GrandMasterTerwynn]

Yeah, I consider the largest global depression in history that we may be heading into to be a miracle on par with Frederick the Great's letter to Prince Ferdinand of Brunswick, "The sky begins to clear. Courage, my dear fellow. I have received the news of a great event." -- i.e., the death of the Empress of Russia, Elizabeth I. I felt the same way when I heard about this mess, pretty much; it's why I'm utterly unconcerned with the result of the global crash. It's exactly what we needed to give us a chance to avert a hard landing in peak oil, and for that matter it's slashing global warming emissions.

So we can thank W. for his financial policies for averting peak oil disaster? :lol:

I realize you're being sarcastic, but, no. All the global depression will do is temporarily reduce the planet's petrochemical consumption. What it will not do is encourage development and deployment of alternative energy solutions. Innovative R&D start-ups need cash-flow to survive, much less innovate and bring world-changing products to market. It also will not encourage governments to stock up on their petrochemical reserves, or build up the required energy infrastructure. If anything, it will give governments enormous debt-loads as they try to spend their way out of the depression, prop up various zombie financial/industrial institutions, and create make-work for the jobless (with no guarantee that these public-works projects will result in anything that might be useful in averting the coming energy crisis.)

Think of it this way. The effects of the coming depression will be akin to discovering an oil field containing somewhere between a few billion, and several tens of billions of barrels of oil (depending on how long and how deep the depression is.) Problem is, the planet consumes over thirty billion barrels of oil per year. Already, as of last year oil production was expected to be identical to oil consumption by 2010. We're pretty much at the peak right now. The looming financial meltdown will only extend the plateau by a few years. Unless it gets so bad that I need to shoot my neighbors to get enough to eat, it's not going to extend that plateau by the couple of decades required to properly avert the hard crash on the other side.

[Stark]

So I hear futures speculation doesn't cause harm?

[Traveller]

Actually, I think the massive amount of deregulation started with Reagan, who also took apart methods to wean us off oil. So it appears we that conservatives will make us become more sustainable- just obliquely and painfully.

Thats exactly correct, Reagan neutered and or dismantled a great many programs related to energy efficency etc, that interestingly enough, were set up by then-President Carter. His Bush Successors of course, were only interested in maintaining the dirty-oil status-quo. Clinton, and that includes Al Gore, despite 8 years in the White House, did virtually nothing to challenge the American Auto Industry\Big Oil in anything but the trivial way(if at all)

For the Solar Array, the numbers I heard was 5% of Arizona even with current technology could supply all of America's electrical needs. The cost, 5 Trillion Dollars was quoted. Could America afford that?...Well your 10 Trillion in debt now, waste immense resources,fiscal, human\physical and tolerate immense enviromental damage as well, all to maintain the dirty oil status quo. If you were really serious, you could do it in stages, to take advantage of falling costs\improved solar technologies. Unfortunately, well probably never see such a grand project realized. This temporary glut, I fear, will probably have the same effect on Americans that it usually does, Screw CAFE, and lets throw 30billion at GM so they can keep produceing gas guzzling shit-boxes(except with GPS to make americans think there 'high-tech').

[Glocksman]

Maybe now is the time to invest in oil futures/shares/whatever?

On a personal note I drive alot from neccessity, I already drive as little as I can and I am looking for a new even smaller and more efficient car to drive. I don't think I'll ever waste money on useless monsters like SUVs...

Now driving my Trans Am for fun every once in a blue moon, thats another thing.

I bought my current car in late 1999 and it had ≈59,000 miles on the clock.
Almost 10 years later, it has ≈115,000 miles.

IOW, I drive about 6000 or so miles each year.
Luck is with me in that my work commute is 15 miles round trip, so I don't spend a freaking fortune on fuel though $4+/gallon gas fucking hurt when paid from a $320/week after tax income.

That said, I'd dearly love to buy a 1972 Nova SS and damn the fuel economy.
However, my budget and income won't support a Nova SS.

IOW, I have Cadillac Sixteen taste on a Chevy Aveo budget.

[Adrian Laguna]

I'm utterly unconcerned with the result of the global crash. It's exactly what we needed to give us a chance to avert a hard landing in peak oil, and for that matter it's slashing global warming emissions.

I cannot say I have much faith that the opportunity will be properly taken advantage of, especially in the United States. Dealing with a limited resource situation requires long term planning, especially when one's infrastructure is utterly dependent on abundance, and I am just not seeing it from the people in charge. The good news, as far as I'm concerned, is that a respite ensures that I will be able to finish all the important things that I must do while in my youth, higher education chief among them. Whatever happens after that, happens.