A quick post to update readers on an interesting debacle that occurred in the world of oil stock data analysis this week.
Philip Verleger, veteran independent oil analyst, launched a scathing attack on the quality of the EIA’s data on Monday, claiming the agency had been overestimating US output by some 1.6m barrels a day.
The accusations in his note were brutal to say the least:
“The explanation for the mistake indicates a gross dereliction of responsibility on the EIA’s part. Rarely if ever has a US agency charged with collecting data made a miscue of this magnitude. The EIA administrator should be dismissed immediately for gross incompetence.”
An inundated inbox means we’re slightly late to this, but it’s worth flagging up two days on regardless.
It’s the EIA’s take on the US crude system’s “l’embarass de richesses” problem.
Inventory levels at Cushing may be at a record high, they note, but not as a percentage of total working storage capacity.
The great thing about the Cushing storage system is that it’s a private market. That means whenever storage gets tight the incentive to build new capacity increases for commercial operators. Read more
A quick little follow up to our previous “crude wall” post.
It’s worth stressing that since the beginning of the year crude stocks in Cushing, the delivery point for WTI crude futures, have staged a remarkable reversal. Read more
The number of cargoes that go towards determining the Dated Brent price is rising.
As Reuters reported on Thursday:
At least nine May cargoes have moved up the North Sea Forties crude programme after stronger-than-expected output from Britain’s Buzzard oilfield, the biggest contributor to the Forties stream.
From BNP Paribas’s Harry Tchilinguirian and Gareth Lewis-Davies on Friday.
The latest crude and product stock position in the United States: Read more
Something of a strange one this. Every analyst and his dog has for the longest while been preaching that demand for crude post-crisis has really been all about emerging market demand… that the US, by and large, has become increasingly irrelevant when it comes to global supply and demand.
Yet, from Reuters last week, we had this: Read more
Whoa…. look at that move in the WTI-Brent spread. That’s at least $4 worth of tightening in less than 10 minutes:
If you’re wondering what Goldman Sach’s view on crude is — it can be summed up in one neat sentence from their latest research note:
The world crude oil market remains exceptionally tight.
First there was Cushing syndrome. Then there were Brent market antics. Now, nobody knows what’s going on in the Brent-WTI spread.
The difference between the two contracts has (once again) reached record levels. This time the spread traded as wide as $21 per barrel. For now, however, most analysts remain stupefied as to the reason behind it. Read more
The US commodities regulator has charged a trading house and two individuals with manipulating oil prices in 2008 by amassing dominant positions in the physical market that created the impression of a shortage. The charge is only the second oil manipulation case the US Commodity Futures Trading Commission has filed since launching a “nationwide crude oil investigation” three years ago as the cost of West Texas Intermediate, the US benchmark, surged towards a record high of $147 a barrel. The regulator alleged that Parnon Energy, a US oil trader, together with its Swiss and UK affiliates Arcadia Energy (Suisse) and Arcadia Petroleum, made more than $50m from the scheme in January and March 2008. The strategy focused on exploiting the WTI delivery point in Cushing, Oklahoma. For more on the story see FT Alphaville.
Wow. Turns out that in 2008 (into the mega rally time period) someone may have been “squeezing” oil after all.
As the FT reports: Read more
Barges laden with crude are set to make their way to the oil-rich Gulf of Mexico in the latest sign of how price anomalies have reconfigured energy markets. Petro Source Terminals, a storage tank operator, plans to start filling vessels with crude oil at the river port of Catoosa, Oklahoma, to sell to refiners in Louisiana, hundreds of miles downstream. The company is hiring barges because the price of West Texas Intermediate crude, the US oil benchmark, has been weighed down by record 40m-barrel stocks at its delivery point in Cushing, Oklahoma. On Wednesday, the price of Louisiana sweet crude was $127 per barrel, while Nymex June WTI futures were $111.90, having dropped 31 cents. Profit awaits traders who can sell WTI-linked oil in more expensive markets, but moving it out of landlocked Cushing is difficult. This week two companies, Enterprise Products Partners and Energy Transfer Partners, said they would build a pipeline to move 400,000 barrels per day from Cushing to Houston to provide an outlet for the “stranded” barrels. The project would not begin service until late 2012.
By now, anyone following oil markets will be familiar with Cushing syndrome. The one-way flow problem which affects the Cushing delivery point for Nymex WTI futures in Oklahoma preventing oil that’s gathered there to travel to alternative domestic or sea-borne markets where demand is higher.
The dynamics have resulted in an almost permanent discount of WTI crude to sea-borne Brent crude for nearly a year now. Read more
Brent crude rose above $123 per barrel on Wednesday, a 2½-year high, as supplies in Libya appeared at risk of a prolonged outage, the FT reports. Col Muammer Gaddafi’s forces battled opposition fighters around the oil port of Brega on Wednesday, suggesting Libya’s valuable light, sweet crude output will remain bottled up for the foreseeable future. The threat of losses in Gabon, the small oil-producing nation in Africa, appeared to have lifted after an oil workers’ union agreed to end a four-day strike, according to foreign oil companies. West Texas Intermediate crude’s discount to Brent, meanwhile, extended to about $13 per barrel. Bloomberg reports the New York Mercantile Exchange is now considering tightening specifications on the oil contract to differentiate between the variability of crudes being delivered into Cushing Oklahoma. They believe blenders who are capturing a profit by mixing cheaper grades into more expensive oils, along with an increase in storage tanks and pipeline links, are adding to deviations in WTI-tied blends. A quality assurance programme could be in place by the second half of 2011, they said.
There’s been some interesting commentary on Friday regarding the ongoing problem of the widening WTI- Brent spread, which struck a record wide in like-for-like basis terms on Thursday.
First this from John Kemp at Reuters, on the mechanics of arbitrage and the substantial physical hurdles to closing out the current window. Read more
Here it is, the all time record spread between CME WTI front-month future crude and ICE Brent front-month future crude:
If you thought the distortions in the WTI-Brent spread couldn’t keep going for much longer, you may be interested in the following.
TransCanada’s extension of its Keystone pipeline could see it pumping as much as an additional 156,000 barrels per day into Cushing, Oklahoma, as of next month — putting further pressure on capacity at the Nymex WTI future delivery point. Read more
Reuters is running an interesting story on Thursday that throws further light on the widening WTI-Brent spread, which when we last looked was at $6.42 a barrel.
The newswire claims oil trader Hetco has taken control of the first eight North Sea Forties crude oil cargoes loading in February and two Brent cargoes. Read more
The spread between the two main global oil benchmarks, West Texas Intermediate and Brent, is blowing out (again). And it’s been doing so for most of the month.
JBC Energy has picked up on the ongoing problem of the WTI-Brent forward curve disconnect on Wednesday.
In a nutshell, while Brent futures prices have been jostling nicely into a flattish curve structure (and even a touch of backwardation at the very front end), WTI futures have remained firmly gripped by contango — the condition in which futures prices are higher than spot prices. Read more
The WTI super-contango is back, which incidentally also implies the inevitable return of so-called ‘Cushing syndrome‘ - a term nicely coined by JBC Energy, as it happens.
On Thursday, US inventory data showed that Cushing stocks — the delivery point for WTI futures – fell last week by 330,495 barrels to 37.6m, but there is reason to suspect further builds are imminent, according to the JBC Energy analysts. Read more
The WTI super contango is back — which means time to prepare for price distortions, offshore tanker storage buildup and the general return of evil hoarding oil spivs.
Mwa ha ha. Read more
Commodities guru John Kemp at Reuters has again been focusing on full stocks at Cushing Oklahoma and the continuing widening contango, in his latest market commentary.
A bit of background: Cushing is the main physical delivery point in the US for Nymex WTI crude. The inability of traders to deliver easily into the hub has the effect of depressing the time-spread between the front-month and second-month, as traders look to close out positions which would otherwise force them to take delivery without the means to store oil. Read more
WTI front-end futures have experienced some extreme price volatility during the past two weeks due to distortions stemming from full-to-the-brim storage facilities at Cushing Oklahoma, FT Alphaville reports. And the most recent inventory data from the EIA suggest there’s going to be continued pressure on storage. Read more
Last week both Nymex and ICE began trading brand new oil futures linked to the Argus’ new Sour Crude Index — the ASCI.
The exchanges developed the futures in response to Saudi Aramco abandoning the Platts WTI benchmark in favour of the Argus sour benchmark back in October. Read more
WTI oil fell more than 5 per cent to $63 per barrel on Wednesday after US inventory data showed a much higher than expected build in crude stocks. Analysts had been expecting inventories to draw of 1.5m barrels, compared with the actual increase of 5m barrels.
As BNP Paribas’s Harry Tchilinguirian points out the rise came largely due to an unexpected rise in imports (our emphasis):
US crude stocks bucked expectations by posting a 5 mb build this week. The consensus was looking for a 1.5 mb draw amidst still depressed crude imports and refinery runs holding even. However, refinery runs pulled back by the week ending 24 July in sympathy with declining refining margins. Crude imports posted a strong gain, increasing some 820 kb/d to 10 mb/d and allowing a build in inventories. The jump in crude oil imports came as a surprise after several weeks of imports trending in the 9 to 9.2 mb/d range. The jump in imports was about evenly split between the West and Gulf Coasts, with potentially delivery of floating storage boosting the numbers on the US Gulf Coast. With this week’s build, US crude stocks end at 348 mb, over 52 mb above last year and over the upper limit of their recent five-year range. For the first half of July, the NYMEX futures 3:2:1 proxy for refining margins had come considerably down, trading mostly below $8/Bbl (compared to double digits in June). And given a rising surplus in product inventories, economics and discretion were probably at work behind the moderation in runs. Throughputs on the week fell 170 kb/d to 14.6 mb/d, leaving nation-wide utilisation rates of refining capacity at 84.6%.
As FT Alphaville has been reporting for weeks now, WTI
has lost is losing its position as the global oil-price benchmark.
In case anyone still disputes the fact, Thursday’s WTI/Brent spread has reached a preposterous $9 dollars. As the FT’s trusty energy correspondent Javier Blas informs us, that’s the widest spread in 17 years. Read more
The latest US stock data has just been released and it’s a whopper of a build at Cushing, Oklahoma- the delivery point for West Texas Intermediate physical barrels which set the WTI Nymex benchmark. The number is currently the most closely watched inventory figure because of the contango in the forward curve and the associated incentive to store crude.
Few analysts would have expected Wednesday’s build of 4.1m to 32.2 mn barrels. The total build documented by the US Energy Information Administration figures was 6.7m to 325.4m barrels. Crude has unsurprisingly come off sharply on the news – WTI down to some $44 per barrel at the last look, off some 7.6 per cent over the session. According to Dow Jones Newswires, total capacity at Cushing is some 45 mn barrels. Read more