You can talk about shale oil and rig counts all you want but you must also talk about oil in storage or the lack thereof. My buddy Matt Smith at Clipper Data points out that Saldanha Bay in South Africa is home to one of the world's largest crude storage facilities, and it has seen its supply almost emptied out. Smith points out that various trading houses were selling crude from the storage hub after the market had flipped into backwardation (when near-term prices are higher than those further into the future), dis-incentivizing crude storage – be it onshore or offshore (a.k.a. floating storage).
Smith cites an article from the Financial Times that reported two weeks ago that Saldanha Bay storage had been emptied, according to Vitol's Chris Bake, quoting him saying, “stockpiles at important oil storage hubs, such as Saldanha Bay in South Africa, have been 'emptied' and crude stored on tankers at sea, such as off the coast of Iran and Singapore, is all gone.'”
Smith adds that while we concur that floating storage off the coast of Iran has been drawn down (something that was almost complete by April of last year), the reports of the demise of floating storage off Singapore appear greatly exaggerated. Although it has more than halved since mid-last year, we still see around 30 million barrels of crude waiting offshore in the region.
Still, the big drop in supply there and during the last few months in the United States should raise concerns about how well future oil demand will be supplied. We keep hearing that shale oil will be the savior and bring OPEC to its knees, but the actual supply data is telling a much different story.
Global oil demand obviously is much stronger than people think it is, or maybe shale oil production is not as prolific as the International Energy Agency (IEA) keeps telling us it is. Of course, the IEA represents the consuming nations. At the CERA energy week, the IEA reported that rising oil production from the United S.tates alone will need to cover 80% of the world's demand growth during the next two years. They say that U.S. production will grow by 3.7m barrels per day (bpd) during the next five years. If they are wrong and the United States misses that growth target, it is likely the globe will be woefully undersupplied. The IEA acknowledged that it is a bit concerned about underinvestment, as well they should be.
City AM writes that "The United States is set to put its stamp on global oil markets for the next five years," said Fatih Birol, the IEA's executive director. "But as we've highlighted repeatedly, the weak global investment picture remains a source of concern. More investments will be needed to make up for declining oil fields -- the world needs to replace 3m bpd of declines each year, the equivalent of the North Sea -- while also meeting robust demand growth." The IEA expects global oil demand to increase by 6.9m bpd by 2023 to 104.7m bpd, with China leading demand growth.
Crude oil products will be very tight this spring. There will be strong global demand as well as increased cost due to steal tariffs. Diesel and gasoline buyers should use the market’s weakness to lock in their needs as there is a strong probability of a seasonal price upswing soon.
The Northeast winter blast is not helping Henry hub prices. Nat gas needs to rally soon or it could see a major selloff. The Fox Business Network is where everyone is turning to get their business news!
About the Author
Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.
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