Crude Crunch Continues as Storage Nears Capacity
April 23rd, 2020
The reports continue to talk about storage getting full at a very rapid pace and the actions that will be taken by OPEC+ starting May 1st are not near enough and they will likely have to do something prior to that date. Nigeria has shut down its crude production because it has nowhere to go with it. The WTI crude oil futures contract delivery point at Cushing, Oklahoma is technically not full, but all storage is spoken for and will be full in a few weeks. Production around the globe will need to decline and demand needs to begin again. We know that at some point some sort of normalcy will return but we are just not sure when and what that looks like but it sure appears it will be a long slow grind despite the rapid rally in the energy markets.
President Trump in a tweet yesterday said that the US would destroy any Iranian gunboats that harass American ships. This added some support to the market yesterday as a bit of geopolitical risk gets adding into the mix of things driving these volatile markets.
Also adding tension to the geopolitical issues was this news out late on Wednesday. Iran claimed to launch a satellite missile. The U.S. military says the same long-range ballistic technology used to put satellites into orbit could also allow Tehran to launch longer-range weapons, perhaps someday including nuclear warheads. U.S. Secretary of State Mike Pompeo said he thinks the action defied a U.N. Security Council resolution.
The DOE said the crude oil stocks were up 15.022 million barrels with stocks at Cushing, Ok up 4.776 million barrels. Gasoline stocks were up 1.017 million barrels and distillates were up 7.786 million barrels. Refinery runs were down 1.5% to 67.6% of capacity.
Shipping and trade sources stated that Saudi Arabia is looking to re-routing millions of barrels of oil onboard tankers sailing to the US is President Donald Trump decides to block imports of crude oil from the country. About 40 million barrels of Saudi crude are on their way the US and due to arrive in the coming weeks. Three tankers also chartered by Saudi Arabia are currently anchored outside the US Gulf ports.
The founder of Continental Resources Inc., Harold Hamm, is urging the US CFTC and the exchange to probe whether market manipulation or system failure was behind this week’s fall in crude futures. Continental also filed a complaint with the CME. The CFTC’s chairman, Heath Tarbert, on Tuesday said the volatility in oil prices is due to fundamental supply and demand issues, not a financial market issues.
Tuesday Saudi Arabia said that it was ready to take extra measures with other producers, though the next formal OPEC+ meeting is not until June.