There’s a lot of oil out there, far more than anybody wants or could use, which means the price of oil is probably going down again. From Wolf Richter at wolfstreet.com:
Forget the Recovery and “Rebalancing” Hype.
Deal makers in the oil patch of the US and Canada are smelling the fees, and they’re firing up the machinery. In the first half of the year, there were 52 pending and completed acquisitions of oil & gas exploration & production companies valued at $100 million or more, for a total of $30 billion, Fitch Ratings reported today:
The rise in transaction volume seems to be largely due to the improvement in hydrocarbon prices, including the tightening of bid/ask spreads, and access to capital markets.
The global oil market is “rebalancing” with production falling and demand rising, the meme goes. In anticipation, prices have bounced off the lows in February, with WTI soaring from $26.19 a barrel to $51.23 by June 8. So this would be the great oil price recovery.
At the moment, WTI trades at $45.33 a barrel. Just taking a breath?
On June 1, we wrote, “We have not been true believers in the recent oil rally. And we still aren’t.” That’s our story, and we’re sticking to it. Why? Because the world has crude oil and gasoline coming out of its ears.
The International Energy Agency reported on Wednesday that crude oil stored on tankers at sea “continued to build” and reached 95 million barrels at the end of June, “the highest level since 2009.”
In 2009, traders held oil for later delivery as prices at the time made this profitable. Not this time: “Today it is driven by logistical and marketing issues,” the IEA said. In other words, not enough demand and no place to go.
For example, according to Bloomberg:
Nine tankers holding about 9 million barrels of the major North Sea crude grades are floating off the U.K.’s coast, up from 7 million in May, according to a survey of oil traders and ship-tracking data compiled by Bloomberg.
Most of the cargoes floating idle in the North Sea have yet to find buyers and will probably remain where they are for some time because of subdued demand in Europe, according to three traders who asked not to be identified. The cargo in place longest, carried in a supertanker anchored off the east coast of England named Maran Thetis, has been on the water since April 23.
And this isn’t a profitable trade:
Ian Taylor, the chief executive officer of Vitol Group, the biggest independent oil trader, said in a Bloomberg television interview last week that the contango – the premium paid on future oil deliveries over current supplies – isn’t wide enough to make stockpiling at sea profitable. Any use of ships for storage now is probably out of necessity amid unloading delays at some ports, he said.
Global crude oil stocks on land are also soaring. The IEA reported that inventories in OECD countries rose by 13.5 million barrels in May to “a record 3,074 mb.”
To continue reading: The Global Oil Glut Gets Uglier
