Macro Voices Discussion Forum

The investment world is full of scam artists and con men, and one of their favorite tricks is to join an investment-related forum like this one, warm up to other users on that forum, then try to run some kind of scam on them. While we do our best to remove any posts we feel are inappropriate we recommend extreme caution when considering investment advice posted by other guests on this, or any other public forum. Read More...

Welcome, Guest
Username: Password: Remember me
Welcome to the Macro Voices Podcast Forum!

Post you comments and questions about specific podcasts here.
  • Page:
  • 1
  • 2

TOPIC: Storage crisis?

Storage crisis? 8 months 3 weeks ago #1

  • svenssona
    Richard Svensson
  • svenssona's Avatar
  • Offline
  • Fresh Boarder
  • Posts: 5
  • Karma: 0
We see on the latest reports that U.S imports is increasing. How come it is? Is'nt this a counter argument to storage crisis overall? Because you would'nt import if there was a problem would you? Am I missing something here? Enlighten me please.

They should be able to export raw oil aswell?

U.S imports.
2016 7,891 avg/day
2015 7,255 avg/day
The administrator has disabled public write access.

Storage crisis? 8 months 3 weeks ago #2

  • Loni
    Loni Saul
  • Loni's Avatar
  • Offline
  • Fresh Boarder
  • Posts: 6
  • Thank you received: 1
  • Karma: 0
Eric - I am not clear why you extended the recent storage build up into the next few weeks to determine that storage capacity is in danger of being full in your most recent podcast. We will begin the higher withdrawal season by the refineries soon. Hence despite being significantly above the average levels vs. the comparable time of the year, shouldn't we expect the absolute storage levels to decrease starting from end april or may?
Attachments:
The administrator has disabled public write access.

Storage crisis? 8 months 3 weeks ago #4

  • ErikTownsend
    Erik Townsend
  • Fourth Turning Capital Management, LLC
  • ErikTownsend's Avatar
  • Offline
  • Administrator
  • Posts: 166
  • Thank you received: 37
  • Karma: 9
Hi Loni,

If we were talking about finished product inventories, I would agree with you. But when it comes to crude oil, the inventory builds tend to actually increase around fall and spring maintenance seasons. The reason is that during maintenance, the refinery cannot process as much crude oil. So less is consumed. Assuming the same amount is being produced, it goes into storage.

Oil prices "bottomed" (everyone called it a "bottom" even though much lower prices were still to come) in mid March last spring.

My "mental model" for what happens next goes like this:

1. Price keeps going up on "Production Freeze Imminent" rhetoric. Makes no sense but that's what's happening
2. Gravity eventually sets in and we see a major down-move to the low $20s, maybe lower. Storage logistics will be the catalyst.
3. The "real bottom" happens sometime in 1H'16, at record contango
4. The back end of the futures curve and implied volatility on futures options remains high for several weeks to several months after the front month bottoms.

All the best,
Erik
The administrator has disabled public write access.

Storage crisis? 8 months 3 weeks ago #5

  • Loni
    Loni Saul
  • Loni's Avatar
  • Offline
  • Fresh Boarder
  • Posts: 6
  • Thank you received: 1
  • Karma: 0
Hi Erik,

Thanks for the detailed answer. Your expectations on oil price movements are very clear and well articulated.

Regarding your potential storage limit scenario would it be fair to say it has to play out roughly within the next 6-8 weeks since end of april/ early may appears to be the seasonal storage peaks? If so, am I right to suggest that the inventory build would probably need to escalate a bit than its recent two week average (I guess this part is more guesswork than pure calculation - just wondering your view)?

Many thanks.

Loni
The administrator has disabled public write access.

Storage crisis? 8 months 3 weeks ago #6

  • svenssona
    Richard Svensson
  • svenssona's Avatar
  • Offline
  • Fresh Boarder
  • Posts: 5
  • Karma: 0
Hi Erik,

Thank you for taking your time answering and be so insightful. I think you and Nathan really are doing a great job.

I actually have another question. So I had i really intresting conversation with a great trader on twitter. He did'nt think the freeze between Russia and OPEC was nonsens. His arquments being that,

1. Opex are really high in the oil industry. So likley we'll see a drop in global supply.
2. We'll see a increase i global demand. Were supply and demand goes together.

I'll add some pictures aswell but this was his case atleast. OPEC just had to have a production by 32,7 mb/d and the market would be in balance in q3 2016.

I'd really like to hear your thoughts? Do you think he is right?

I think atleast this gives some insight to why people think this oil production freeze is a good thing.

He also did'nt belive in a storage crisis, argument being: that by then U.S would just cut import. What's your respons to that?

Again, thank you so much.

Best regards

Richard
Attachments:
Last Edit: 8 months 3 weeks ago by svenssona. Reason: Pictures
The administrator has disabled public write access.

Storage crisis? 8 months 3 weeks ago #7

  • tankumo
  • tankumo's Avatar
  • Offline
  • Expert Boarder
  • Posts: 109
  • Thank you received: 7
  • Karma: 0
Erik, I heard now they are going to store oil in train containers, is this going to solve the issue, how much oil can locomotive stores?

Thanks.
The administrator has disabled public write access.

Storage crisis? 8 months 3 weeks ago #8

  • tankumo
  • tankumo's Avatar
  • Offline
  • Expert Boarder
  • Posts: 109
  • Thank you received: 7
  • Karma: 0
Oil storage, even Forbes is talking about it, amazing.

www.forbes.com/sites/arthurberman/2016/0...undary/#54f906dd6463
The administrator has disabled public write access.

Storage crisis? 8 months 3 weeks ago #9

  • ErikTownsend
    Erik Townsend
  • Fourth Turning Capital Management, LLC
  • ErikTownsend's Avatar
  • Offline
  • Administrator
  • Posts: 166
  • Thank you received: 37
  • Karma: 9
Hi Richard!

To be honest, I think your friend is missing important parts of the story. The U.S. "just cutting import" doesn't make sense or solve any part of the problem. Oil is being over-produced globally to the tune of 2 million barrels per day. Storage is, without a doubt, the single most important issue. If we had unlimited storage then the oil would get bought and sold at a reasonable price (much higher than the current market) and put in storage.

But we don't have unlimited storage. We're starting to run out, and it's a really big deal. Foreign storage capacity isn't as accurately tracked as in the USA, but private estimates have said that most of the remaining available crude storage capacity is in USA. "U.S. would just cut import" doesn't make any sense. If the USA stopped importing that oil, it would pile up elsewhere in the world where storage is even more scarce, and the effect on the global economy would be the same.

It looks like Mr. Market is finally waking up to the obvious: The production freeeze thing was never relevant and oil prices need to move at least $10 lower, maybe $15 lower. Or that's my opinion anyway.

Best,
Erik
The administrator has disabled public write access.

Storage crisis? 8 months 3 weeks ago #10

  • markwall618
    Mark Wall
  • markwall618's Avatar
  • Offline
  • Fresh Boarder
  • Posts: 2
  • Karma: 0
I noticed refinery utilization and refinery inputs have gone up the past two weeks. Isn't March the industries major maintenance season?
Or is it going to start soon, delayed this year? If so wouldn't you expect larger weekly builds in Cushing?
The administrator has disabled public write access.

Storage crisis? 8 months 2 weeks ago #11

  • tankumo
  • tankumo's Avatar
  • Offline
  • Expert Boarder
  • Posts: 109
  • Thank you received: 7
  • Karma: 0
Just like what Erik was saying, storage crisis.

www.safehaven.com/article/40799/oil-wont...d-until-this-happens
The administrator has disabled public write access.

Storage crisis? 8 months 2 weeks ago #12

  • tankumo
  • tankumo's Avatar
  • Offline
  • Expert Boarder
  • Posts: 109
  • Thank you received: 7
  • Karma: 0
This site contains some useful charts, storage is at high level.

www.howardweil.com/docs/Reports/WEEKLY%2...S/REFININGReport.pdf
The administrator has disabled public write access.

Storage crisis? 8 months 2 weeks ago #13

  • tankumo
  • tankumo's Avatar
  • Offline
  • Expert Boarder
  • Posts: 109
  • Thank you received: 7
  • Karma: 0
Things getting better or worse, depending on which side you are on.

www.yahoo.com/finance/news/dreaded-steal...ality-051540032.html
The administrator has disabled public write access.

Storage crisis? 8 months 2 weeks ago #14

  • ErikTownsend
    Erik Townsend
  • Fourth Turning Capital Management, LLC
  • ErikTownsend's Avatar
  • Offline
  • Administrator
  • Posts: 166
  • Thank you received: 37
  • Karma: 9
Spring maintenance season is typically late march to early april. Yes, one of the effects can be an increase in inventory builds, as the refineries are able to consume less crude during maintenance.

In other words, yes, right about now is when we should expect spring maintenance to affect the market.

Erik
The administrator has disabled public write access.

Storage crisis? 8 months 1 week ago #15

  • tankumo
  • tankumo's Avatar
  • Offline
  • Expert Boarder
  • Posts: 109
  • Thank you received: 7
  • Karma: 0
Erik, is hedgefund money considered 'dumb' or 'smart' money in COT report?

Thanks.
The administrator has disabled public write access.

Storage crisis? 8 months 1 week ago #16

  • tankumo
  • tankumo's Avatar
  • Offline
  • Expert Boarder
  • Posts: 109
  • Thank you received: 7
  • Karma: 0
supply/demand imbalances, cannot wait for the bottom to appear!

www.usatoday.com/story/money/markets/201...shock-2016/81336776/
The administrator has disabled public write access.

Storage crisis? 8 months 1 week ago #17

  • ErikTownsend
    Erik Townsend
  • Fourth Turning Capital Management, LLC
  • ErikTownsend's Avatar
  • Offline
  • Administrator
  • Posts: 166
  • Thank you received: 37
  • Karma: 9
Hedge fund money falls under the "Speculative" category. Smart and Dumb are subjective matters of opinion... ;)

Erik
The administrator has disabled public write access.

Storage crisis? 8 months 1 week ago #18

  • tankumo
  • tankumo's Avatar
  • Offline
  • Expert Boarder
  • Posts: 109
  • Thank you received: 7
  • Karma: 0
The administrator has disabled public write access.

Storage crisis? 8 months 1 week ago #19

  • tankumo
  • tankumo's Avatar
  • Offline
  • Expert Boarder
  • Posts: 109
  • Thank you received: 7
  • Karma: 0
The administrator has disabled public write access.

Storage crisis? 8 months 5 days ago #20

  • tankumo
  • tankumo's Avatar
  • Offline
  • Expert Boarder
  • Posts: 109
  • Thank you received: 7
  • Karma: 0
Still waiting for lower oil prices.............

www.safehaven.com/article/40979/crude-oil-is-now-the-hour
The administrator has disabled public write access.

Storage crisis? 8 months 4 days ago #21

  • tankumo
  • tankumo's Avatar
  • Offline
  • Expert Boarder
  • Posts: 109
  • Thank you received: 7
  • Karma: 0
Yep, bankruptcy doesn't stop production, storage crisis is real!

www.nasdaq.com/article/not-even-bankrupt...rom-pumping-cm600951
The administrator has disabled public write access.

Storage crisis? 8 months 2 days ago #22

  • tankumo
  • tankumo's Avatar
  • Offline
  • Expert Boarder
  • Posts: 109
  • Thank you received: 7
  • Karma: 0
Erik, looks like they can manage 'oil overflow', but I don't know how they can keep 'juggling' if oil keeps flowing in.

www.cnbc.com/2016/04/05/reuters-america-...ull-crude-tanks.html
The administrator has disabled public write access.

Storage crisis? 8 months 2 days ago #23

  • ErikTownsend
    Erik Townsend
  • Fourth Turning Capital Management, LLC
  • ErikTownsend's Avatar
  • Offline
  • Administrator
  • Posts: 166
  • Thank you received: 37
  • Karma: 9
Thanks, @tankumo, good read!

Erik
The administrator has disabled public write access.

Storage crisis? 8 months 1 day ago #24

  • tankumo
  • tankumo's Avatar
  • Offline
  • Expert Boarder
  • Posts: 109
  • Thank you received: 7
  • Karma: 0
Like Erik was saying, production freeze is meaningless.

This author thinks oil is going down.

www.safehaven.com/article/41013/perfect-...d-continues-to-build
The administrator has disabled public write access.

Storage crisis? 8 months 13 hours ago #25

  • tankumo
  • tankumo's Avatar
  • Offline
  • Expert Boarder
  • Posts: 109
  • Thank you received: 7
  • Karma: 0
The question is, how low can oil prices go?

www.safehaven.com/article/41034/more-pre...s-against-oil-prices
The administrator has disabled public write access.

Storage crisis? 8 months 3 weeks ago #3

  • ErikTownsend
    Erik Townsend
  • Fourth Turning Capital Management, LLC
  • ErikTownsend's Avatar
  • Offline
  • Administrator
  • Posts: 166
  • Thank you received: 37
  • Karma: 9
Good question! The answer lies primarily in the different grades of crude oil, and the configuration of the refineries.

The oil that comes from the shale plays in the USA is very slight, sweet crude. That just means that it has a light specific gravity and low sulfur content. These are GOOD qualities - Light Sweet is generally considered the "highest grade" of crude oil.

Just one problem - all the U.S. refinery capacity is designed for heavier, sour import grades.

So yes, believe it or not, what is happening is we are producing light sweet crude in the USA and putting it into storage, as we continue to import other grades of foreign oil.

Another contributing factor is that while storage capacity isn't tracked "by the government" outside the USA, there are still private efforts to analyze it, and most experts seem to agree that most of the remaining global storage capacity is in the USA. This creates an incentive to move more foreign imported oil into USA - because we have space to store more of it than Europe does.

I hope that helps. And thanks for starting a new thread with a great question!

Erik
The administrator has disabled public write access.

Storage crisis? 7 months 3 weeks ago #26

  • RHeffner
    Rickye Heffner
  • RHeffner's Avatar
  • Offline
  • Fresh Boarder
  • Posts: 2
  • Karma: 0
I am just an individual investor but I welcome the depth of discussion on Macro Voices.
Given that storage may be a limiting factor for oil, what do you think of the possibility that tankers are being used as temporary floating storage tanks. Is that true, and if so, is it likely to affect the price of tanker companies?
The administrator has disabled public write access.

Storage crisis? 7 months 3 weeks ago #27

  • tankumo
  • tankumo's Avatar
  • Offline
  • Expert Boarder
  • Posts: 109
  • Thank you received: 7
  • Karma: 0
Yeah Erik discussed that earlier.

Tanker storage is not new, it is very popular, they even use locomotive to store oil now.

Tanker rates are pretty good the last I heard.
The administrator has disabled public write access.

Storage crisis? 7 months 3 weeks ago #28

  • svenssona
    Richard Svensson
  • svenssona's Avatar
  • Offline
  • Fresh Boarder
  • Posts: 5
  • Karma: 0
Hi tankumo! Frist of all thanks for all the input and keeping the topic alive.

Only one question;

When you say good, what do you actually mean? That they are on a low level or a high level? Depends on which side you're on.

/Richard
Last Edit: 7 months 3 weeks ago by svenssona. Reason: Misspelled
The administrator has disabled public write access.

Storage crisis? 7 months 3 weeks ago #29

  • tankumo
  • tankumo's Avatar
  • Offline
  • Expert Boarder
  • Posts: 109
  • Thank you received: 7
  • Karma: 0
I mean better than average rate. But things can change quickly too. Which tankers are you looking at now?

Even the best tanker stock can get into trouble, just look at Frontier, it used be one of the largest and the stock crashed.

I am not smart enough to understand the tanker market so I am staying away for now.

But here's one link you can look at, see if it is helpful.

www.dropbox.com/s/s9pdrgjp2917p7q/shippi...tter_week14.pdf?dl=0
The administrator has disabled public write access.
The following user(s) said Thank You: svenssona

Storage crisis? 7 months 3 weeks ago #30

  • Joerg
  • Joerg's Avatar
  • Offline
  • Fresh Boarder
  • Posts: 5
  • Karma: 0
Hi Erik,

I think that the current upmove in crude prices and the resulting flattening of the curve should make the storage problem even more imminent as the "tanker trade" will become less attractive with less contango. What would you say to be the minimum required contango to make the tanker trade worthwile?

Thanks for the site and the podcasts!

Best regards
Joerg
Last Edit: 7 months 3 weeks ago by Joerg.
The administrator has disabled public write access.
  • Page:
  • 1
  • 2
Moderators: MikeRonayne, NathanEgger, amkc
Time to create page: 0.230 seconds

MACRO VOICES is presented for informational and entertainment purposes only. The information presented in MACRO VOICES should NOT be construed as investment advice. Always consult a licensed investment professional before making important investment decisions. The opinions expressed on MACRO VOICES are those of the participants. MACRO VOICES, its producers, and hosts Erik Townsend and Nathan Egger shall NOT be liable for losses resulting from investment decisions based on information or viewpoints presented on MACRO VOICES.

Go to top