New nav hazard: Parked tankers?

When you buy into the futures market you are in effect holding something in your name expecting it to rise in price. Doesnt always work like that but thats the Idea.

If Its common knowledge that some people are holding Tankers of the stuff then they are flooding the market which will not be to thier benefit.

Its not like a future where it does'nt yet exist,-- it does exist and can be and is available for sale now. In that respect it is a reserve and a big reserve will keep prices low.

Knowing that oil is available.

Shell is buying it to use. A speculator buys it for one reason only,-- profit.

Owning oil would be good if there was none around, but there is because you have 2 million barrels of the stuff offshore.


Having no bread in the kitchen is not a shortage of bread. Having no bread at the bakers is a shortage of bread.

OR-- there is no point in a farmer buying 2000 tons of grain expecting the price to go up when the farmer next door also has 2000 tons of grain.

 

Wheat is food, without food we die but oil?

 

If you haven't figured it out yet people aren't using as much oil as they were. People are realising what idiots they were for having 7 litre V8 4x4's to do the shopping with and take little Johnny to school in and getting more realistic vehicles.

Also have a look at the BDI, http://www.investmenttools.com/futures/bdi_baltic_dry_index.htm its fallen off a cliff for all comodities, ships ARE sitting idle because of this thing called the credit crunch, companies dont have the CASH to pay LOC as guarantees of payment to get ships loaded and unloaded, people are not buying vast quantities of worthless crap anymore for the sake of spending and keeping up with the Joneses.

The ships are sitting idle anyway, you can just about walk from Singapore to Malaysia.

 

that is entirely too sensible a post, are you QUITE sure you a re Australian?

 

If you haven't figured it out yet we are running at a 9.1% depletion rate which far exceeds any demand destruction which is in reality limited in the US and a fiction in Asia. Play with a calculator and see what that rates actually means by 2015... assuming the depletion rates stays static, which they won't, never does... look up Cantrell and see what happened there. This is a disaster about to happen as you will see over the next few years.

 

Frosty,

1. A futures contract has two sides... long and short... no matter what happens to price some one ends up ahead unless price remains static.

2. Shell hopes to profit, shell sells energy they are buying it because its cheaper than they can produce it.... they figure it is uneconomically cheap.

3. A few tankers is a drop in the ocean, its not a big price effecting reserve, less that a few % of daily consumption.

4. Oil supply is only just meeting demand... its unique commodity in that 3% to much is a glut, 3% to little is a disaster. We are very finely balanced at the moment with the turmoil in the credit market being the overriding element tipping the balance forcing commodities giants like Glencore into mass liquidations. This is temporary and destructive.

sabahcat... without oil western agriculture fails completely. We use 10 calories of oil to deliver 1 calorie of food. There is oil in everything you do or touch on a daily basis... you have no idea how addicted we are to this stuff. So yes oil is wheat in a very real sense.....

 

How fast do they travel when fully laden & how long to fill and then pump out? and who has the capacity to fully accept one load and where?

 

I vote for the port of Houston to get the list going


Jimbo

 

For a day, Frosty... for a day ---> 3% on a sustained basis... not 3% of one days requirement. This has more to do with the paper market than the physical market. Credit has caused disruptions in delivery everywhere, material is still wanted and available but its not moving because of credit. Anyway we are talking flow rate which is not directly connected to reserve size and depletion rate. Flow at a given point can be high/low enough to move price in a illogical direction given overall reserves and the strengthening or depletion of them. We are depleting at 9.1% (IEA number) at the moment... this is the overriding fundamental that will come to bear when these paper market disruptions and credit issues settle down.

 

It depends on the price of oil... the cheaper it is the faster they move, the more expensive the slower they move. They calculate the cost/profit sweet spot and that dictates the best speed to travel.

The reason that such a small % dictates glut/shortage is that very issue.... just what do you do with 2 million barrels of oil if you have no storage? The system needs a certain flow rate... too little an no buffers exist, too much and no storage exists. Step outside of that flow rate band and huge pressure on price occurs.

 

And that's part of the problem... no storage.
The US has their Strategic Petroleum Reserve, but on the whole there is very little buffering capacity in the global oil distribution system.
New refining capacity simply isn't being built to any great degree; refineries take decades to pay off and the oil companies are very much aware that, as known reserves dwindle and it becomes increasingly more difficult to find ever-smaller new reserves, they wouldn't be able to supply new refineries for long enough to turn a decent profit on them.
These days, when one refinery goes down- even briefly- what little reserve supply is available is quickly depleted, gas stations have empty tanks, and pump prices skyrocket.
Attempting to match price, supply and demand when there is so little buffering capacity, will lead to volatility. No doubt, that's a factor in the wild price swings we've been seeing lately.

 

For sure the industry knows that the payback on refineries built today may never come, thats if they let you build one. They also understand that even though we have 50% of the total reserve left many factors conspire to deny us access to all of it, add that to the exponential nature of demand and the accelerating nature of decline... Its a train wreck thats going to happen inside the period of time in which we can respond with new tech, there is a decade long (?????) gap here that will prove very hard to bridge. Anyway, this is why oil infrastructure is rusting into the ground... on one level or another new investment is not making sense at these prices and for the big long term investments its not making sense at all. 9.1% depletion means half todays oil flows by 2015 IF the depletion rate stays steady (unlikely)... who wants to spend billions to refine oil in that scenario? They will keep patching these things until they are no longer needed.... which is closer that we collectively realise.

 

3% glut today is 3% glut tomorrow if consumption does'nt change.

I dont tink storing tankers is a good thing anyway, 20,000 dollars per day rent plus maintenance, plus discharge and docking fees and anchoring whilst waiting plus cleaning tanks and LAWS that go along with it.

Then you might have to deliver it 12,000 miles

How long will you wait for profit, the longer you wait the more inclined you would be to take an offer.

A future would be better no involvement with the commodity at all.

Thats why I think the report is not all true, you dont believe everything you read.

 

Petro-Canada just packed up an entire refinery near here- broke the whole thing into pieces, put them in containers, sent it to India and put it back together. Not because the capacity isn't needed here- it is- but because the combination of high demand and cheap labour in India held the promise of more profitable refining down there. But they didn't want to invest in a new one.

I don't like that they're doing it either. But at current prices, it is profitable to just park the ship for a few months. Spot prices for Mideast crude are in the $40-$46 range right now; the July contract is trading at $55. Load up a 2M bbl tanker at $43, that's $86M, but if you hold a July contract for that same oil on the futures market it's worth $110M. So a $24M margin, of which the tanker- even at $80k a day (to be honest I don't know exactly what a VLCC charters for these days)- will cost only $14M, leaving a healthy $10M in the pocket, or a 12% margin in 6 months. Not shabby in this economy....