Look Out Below :Oil prices hit 11-year low as global supply balloons ( Reuters plus Bloomberg charts) )

LONDON (Reuters) – Brent crude oil prices hit their lowest in more than 11 years on Monday, driven down by a relentless rise in global supply that looks set to outpace demand again next year.

Oil production is running close to record highs and, with more barrels poised to enter the market from nations such as Iran, the United States and Libya, the price of crude is set for its largest monthly percentage decline in seven years.

Brent futures (LCOc1) fell by as much as 2 percent to a low of $36.05 a barrel on Monday, their weakest since July 2004, and were down 49 cents at $36.39 by 1332 GMT.

While consumers have enjoyed lower fuel prices, the world’s richest oil exporters have been forced to revalue their currencies, sell off assets and even issue debt for the first time in years as they struggle to repair their finances.

OPEC, led by Saudi Arabia, will stick with its year-old policy of compensating for lower prices with higher production, and shows no signs of wavering, even though lower prices are painful to its poorer members.

The price of oil has halved over the past year, dealing a blow to economies of oil producers such as Nigeria, which faces its worst crisis in years, and Venezuela, which has been plunged into deep recession.

Even wealthy Gulf Arab states have been hit. Last week Saudi Arabia, Kuwait and Bahrain raised interest rates as they scrambled to protect their currencies.

NO LIGHT AT THE END OF THE TUNNEL

“With OPEC not in any mood to cut production … it does mean you are not going to get any rebalancing any time soon,” Energy Aspects chief oil analyst Amrita Sen said.

“Having said that, long term of course, the lower prices are today, the rebalancing will become even stronger and steeper, because of the capex (oil groups’ capital expenditure) cutbacks … but you’re not going to see that until end-2016.”

Reflecting the determination among the biggest producers to woo buyers at any cost, Russia now pumps oil at a post-Soviet high of more than 10 million barrels per day (bpd), while OPEC output is close to record levels above 31.5 million bpd.

Oil market liquidity usually evaporates ahead of the holiday period, meaning that intra-day price moves can become exaggerated.

On average, in the last 15 years, December is the month with least trading volume, which tends to be just 85 percent of that in May, the month which sees most volume change hands.

Brent crude prices have dropped by nearly 19 percent this month, their steepest fall since the collapse of failed U.S. bank Lehman Brothers in October 2008.

U.S. crude futures (CLc1) were down 26 cents at $34.47 a barrel, their lowest since 2009.

“Really, I wouldn’t like to be in the shoes of an oil exporter getting into 2016. It’s not exactly looking as if there is light at the end of the tunnel any time soon,” Saxo Bank senior manager Ole Hansen said.

Investment bank Goldman Sachs (GS.N) believes it could take a drop to as little as $20 a barrel for supply to adjust to demand.

Thanks to the shale revolution, the U.S. has been pumping a lot of oil on the cheap, helping to drive down prices to six-year lows and to fill up storage tanks. Indeed, we’re running out of places to put it.

LOOK OUT BELOW

The U.S. has 490 million barrels of oil in storage, enough to keep the country running smoothly for nearly a month, without any added oil production or imports. That inventory doesn’t include the government’s own Strategic Petroleum Reserve, to be used in the now highly unlikely event of an oil shortage. Nor does it include oil waiting at sea for higher prices. The lower 48 states also boast about 4 trillion cubic feet of natural gas in storage — a far bigger cushion than Americans have needed so far during a very warm winter.

For their part, OECD countries (including the U.S.) have nearly 3 billion barrels of oil in storage — or enough to keep factories lit and houses heated in those countries for two months, cumulatively, without added production or imports.

The glut is going to continue worldwide unless some major producers stop pumping. OPEC announced recently that it was abandoning output limits.

So what happens when there’s too much oil to store? Producers will try to rid themselves of it by cutting prices. In that scenario, the price would plummet so far that some producers would shutter their wells altogether — which is, perhaps, the only way that the oil glut will ease.

Our Services

In search of tailor-made solutions

Our core business lies in the fields of formation/administration of global corporations , trusts,foundations , asset safeguarding and sucession arrangements

We compile legally protected and tax optimising concepts and find the optimal solution for you.

We offer extensive services and contacts in the following fields:

  • Company , trusts ,foundations – incorporation and jurisdiction selection
  • Asset safeguarding
  • Tax optimisation
  • Managment consulting
    Bank introductions

Email : info@jackbassteam.com   ( all emailed answered within 24 hours)

  OR

Call Jack direct at 604-858-3302  Pacific Time

10:00 – 4:00 Monday to friday

There is never a cost or obligation for this inquiry.

Video:

Video

JB offshore.mp4  The First Rule Is Safety

About Jack A. Bass Business Development Services

photo

Jack A. Bass and Associates

Advertisements

Oil 5 Talking Points – All Point to Lower for Longer ?

 

Oil’s bounce back from the summer’s lows has the look of a bottoming in crude prices, but some strategists say the shakeout is not over.

“I’m pretty sure we’re going to see a new low. The probabilities are that we see a new low or two or three,” said Jack Bass. Our 2015 results for managed accounts all did well by avoiding oil and natural gas and that continues to be our bias.

The negative factors that have pounded oil prices continue to hang over the market, and the world is still facing oversupply of about 2 million barrels a day. Strategists say the chief wild card that could send oil to new lows is Iran — and uncertainty about when and how fast it can bring crude back to the market.

This past summer, West Texas Intermediate crude futures touched a low near $38 in late August before moving back to $50 per barrel on Oct. 9. Since then, oil has traded in the upper $40s, giving the impression the worst lows of the bear market in crude are over. Brent, the international benchmark, hit a low at around $42 per barrel in August and temporarily rose above $54 in October.

“There was a bout of short covering, and oil was pumped up on geopolitical fears about Russia’s foray into Syria, but the fundamentals never changed. Production is still high all around the world, and the glut is getting worse, especially for diesel fuels,” said John Kilduff of Again Capital.

1. Iran as a catalyst

Major producers continue to pump at high levels, and demand continues to lag. U.S. shale producers have more resilience than expected, and the U.S. is still producing about 9 million barrels a day.

But it’s Iran’s oil production that some analysts say the market may not be pricing correctly. They also say Iran may be making blustery assertions about its oil production that it will not be able to meet.

The U.S. and five other nations agreed in July to lift sanctions against Iran in return for curbs on its nuclear program, and this past Sunday the agreement was formalized based on Iran’s meeting its commitments to the deal.

An Iranian official this week said the country has already secured buyers from Europe and Asia for more than 500,000 barrels a day in new exports once sanctions are lifted. The final assessment by the International Atomic Energy Agency is expected to be completed by Dec. 15.

“If they put that marginal barrel onto the market, there’s going to be a price impact from it. The Saudis have taken a lot of their market share from Europe in the last couple of years,” said Michael Cohen, head of energy commodities research at Barclays. “It’s going to be a fine balance. I wouldn’t be surprised at the end of 2016 if we look back at the end of the last year and be surprised that they put only 400,000 to 500,000 barrels back on the market, not 800,000 to 900,000 barrels.”

Iran has been producing about 2.8 million barrels a day, from a high of 4.2 million barrels, according to Andrew Lipow of Lipow Oil Associates. “It would surprise me to see 500,000 a day come out onto the market within a couple of months,” he said. “The market takes what they say with a grain of salt. We do know that they are going to be exporting the first minute they can.”

It could be the start of Iran’s oil returning to market that sends oil prices back to the lows, said Citigroup’s Morse. He said the oil market could hit bottom late this year or in the first quarter, but he does not expect Tehran to be able to quickly push the volume of new oil that it is promising.

“These shut-in wells have been building pressure. They can surge production beyond what is sustainable, and if they want to show the world they are there, which is highly likely, that is possible,” he said. Morse said he expects Iran could produce 300,000 to 500,000 barrels a day more within a half year of sanctions being lifted.

Iran also has about 40 million barrels of condensates in floating storage. “I just think the market has underestimated how much oil could come back on the market immediately upon having sanctions released,” Lipow said.

2. Inventories bulging

A second thorny issue for the market is buildup of inventories. Last week U.S. government data showed a surge in crude stocks of 7.6 million barrels of oil, but it is also the buildup of refined products that analysts are watching.

Barclays, in a report, said that global refinery runs grew faster than demand by about 57 percent during the second and third quarter. That created a buildup, pushing refined products into storage in offshore tankers.

Refining capacity has been added around the globe. Saudi Arabia, for instance, shipped less crude in August but more refined oil products. According to JODI data, Saudi Arabia exported 1.3 million barrels a day of refined product, compared to 1.1 million barrels the month earlier.

The U.S. has also increased refined-product exports as well and is a net exporter of about 2 million barrels a day. Barclays expects the rate of build in refined products to slow.

“Fundamentally speaking, we remain in an oversupply situation, and refining margins are weak and likely to get weaker, especially in distillates, and the stocks remain at high levels,” said Cohen. “So any sustained price move tot he upside is going to be met by with skepticism by the market and that’s why we continue to maintain our range bound price forecast at least until the third quarter of next year.”

3. U.S. shale gale

A third bearish factor for oil has been, and continues to be, the resilience of the U.S. oil industry. Saudi Arabia and OPEC vowed last fall to continue producing and to allow the market to set prices in an oversupplied world, a factor they were hoping would curb non-OPEC production.

But U.S. production, despite shut-in rigs, has not fallen that much. Analysts had been expecting some companies to lose some funding in bank redeterminations this month, but it seems the industry is doing better than expected, and the impact is relatively minor.

“We think for WTI there’s downside risk for the first quarter based on the fact we think U.S. production may not roll over like people think,” said Cohen. “We need to see prices go lower as a disincentive.”

Analysts now expect the companies facing lending reviews to have a difficult time in the spring after more months of low oil prices. The U.S. industry is made up of so many companies drilling so many unconventional wells that the trigger of falling prices is not an automatic one, since producers are profitable at all different levels.

“High-yield companies are well-hedged through the first quarter, and then their hedges go off, and it’s not clear they have the cash flow to keep drilling,” said Morse.

Cohen said the pressure from a long period of low prices will pinch companies. “U.S. production is likely to be lower,” he said, adding the hit to shale producers will be worse next year after several more quarters. “It will be worse, not just for those that have their borrowing base redetermined.”

4. Biggest producers producing

Russia and Saudi Arabia are the world’s biggest oil producers, and both of them have taken a full-throttle approach to lower prices in an effort to gain or hold share.

Saudi Arabia led OPEC in its plan to use market pricing as a weapon to slow overproduction. When OPEC meets in early December, analysts see little chance of a change in policy.

In fact, rhetoric around that meeting could add downward pressure on prices.

“The Saudis have been adding more to inventories. I don’t really see them backing down from the 10 million-barrels-a-day production level. They continue to be open to a cut if other producers are willing to cut first,” said Cohen. “They’ve taken a very tit-for-tat approach. They want to see a plan and a credible plan before doing anything.”

The strain of low prices is wearing on both Russia and Saudi Arabia. “They (Saudi) can shield the blow by issuing more debt, which they have done,” Cohen said. “The amount of debt they are issuing this year is basically the equivalent of a $10 bump in oil prices.”

Morse said the producers will not be able to sustain production in a low-price environment forever. “Definitely at some point, in the winter of 2016/2017, it looks like the world moves into a net inventory drawdown, helped by U.S. shale, helped by production in Mexico, the North Sea, Oman, Russia … all showing decline rates instead of staying stable,” he said.

5. World demand

Oversupply hit the world market at the same time demand from the emerging world and China was dampened. China reported GDP of 6.9 percent for the third quarter just below last quarter’s 7 percent pace, but worries about Chinese growth and demand have pressured prices.

The World Bank this week said it expects oil prices to remain weak through next year, and it cut its expectations for crude. The World Bank’s quarterly commodity sector report pared its average oil price forecast to $52 per barrel this year from an earlier estimate of $57. It sees an average price of just $51 in 2016.

The Bank said Iran’s return to the market will dent oil prices, but it also noted weak global growth.

“All main-commodity price indices are expected to decline in 2015, mainly owing to ample supply and, in the case of industrial commodities, slowing demand in China and emerging markets,” the Bank said.

Besides overproduction, high inventories and weak demand, Morse said another factor that could weigh on prices are the speculative investors who could slam the oil price once Iran brings oil back onto the market.

He said WTI could average $40 per barrel in the fourth and first quarters, and Brent could average about $44. Barclays expects Brent to average $53 per barrel in the fourth quarter and $63 in 2016 after a recovery in prices in the second half.

 

November 2014 – How Did We Do On Our Stock Market Forecast ?

JACK A. BASS MANAGED ACCOUNTS – YEAR END UPDATE AND FORECAST  As written – November 2014 – 40 % cash position You Can Judge : Our 2014 Year End Review and Forecast Gold and Precious Metals The largest gains for our … Continue reading

Posted in Asset Protection, Best Tax Haven, Gold, Jack A. Bass Managed Accounts, Jack A.Bass, Offshore Incorporation, Offshore Investing, Portfolio Management, Tax Havens, Tax Jurisdiction, tax secrecy, Tax strategy,Trusts, Wealth Advisor, Wealth management | Tagged , , | Leave a comment | Edit

 

Crude glut: A lesson in supply and demand : Running Out Of Storage

A LESSON IN SUPPLY AND DEMAND

Oil traders are growing increasingly nervous that a glut of crude will send prices into a tailspin.
5 ways surplus oil will affect us

Oil storage tanks in the United States have been filling rapidly as companies there contribute to produce more crude than refiners can process. As a result, the price differential between U.S. crude and international sources has widened considerably, once again providing a “North American” discount to the market.

North American motorists will like it

With rising inventories in key locations, refiners will be able to access cheaper crude and will pass at least some of those savings along to consumers. But refiners on the east and west coasts have limited access to cheaper North American crude and won’t feel the benefit as much as those who live in the mid-continent.

U.S. producers will fear it

With more crude in storage, oil companies are essentially competing with their own past production. And as space in the tanks become more scarce, producers will be forced to sell their current output at steep discounts, driving prices down further. Even as demand picks up in response to lower pump prices, the huge volume of inventories will moderate any rebound in crude prices.

American politicians will debate it

The boom in U.S. crude production has already prompted talk in Washington about lifting the 40-year-old ban on crude oil exports from the lower 48 states. As producers fill up available storage, the calls to end the prohibition (which does not include exports to Canada) will grow louder and more desperate.

Canadian producers will be sideswiped by it

Canadian crude prices are set in relation to the price of West Texas Intermediate, which is set in Cushing, OK., site of a major storage hub that is brimming with crude. Since U.S. crude is a “light” variety, Canadian oil sands producers are still seeing healthy demand for their “heavy” barrels. But their prices are being hammered down.

American environmentalists will seize on it

In the long-running debate over the Keystone XL pipeline, the Canadian government has sold the project as contributing to U.S. energy security. Opponents of the pipeline will point to the surplus production as another reason that the pipeline is unnecessary and should be turned down

Calgary’s Enbridge Inc. owns the largest oil storage facility at the continent’s most important location for such things, but it is a commercial secret as to how close its tanks are to full capacity.

In the past three years, as the U.S. oil boom took off, Enbridge expanded its tank farm in Cushing, Ok., by a third so that it can now store 20 million barrels of crude. Cushing is a strategic location: It is a hub for the web of pipelines that crosses the U.S. plains but is also the continent’s largest crude storage centre.

In recent weeks, oil traders have grown increasingly nervous that a growing glut of oil could overwhelm North America’s capacity to store it, and that we’ll soon run out of places to put it. If that occurred, prices would go into a tailspin and the industry would be forced to shut off their wells until growing demand caught up to shrinking supply.

The storage picture is opaque – clouded by companies’ commercial sensitivities and time lags in U.S. government data. Enbridge stores crude for its own account and on behalf of customers who profit by buying oil at today’s low prices and then re-selling it at a higher price on the futures market for delivery at some later date.

“Demand for commercial tank storage today is high since the future expected price of oil is higher than it is today so investors are looking to build up supplies in North America,” Enbridge spokesman Graham White said in an e-mailed statement. “Enbridge works with commercial storage clients to accommodate their requirements.”

Market fears were heightened late last week when the Paris-based International Energy Agency said that rising U.S. supply “may soon test storage capacity limits.” The warning prompted another selloff in oil markets, with North America’s key benchmark, West Texas Intermediate (WTI), falling to six-year lows Monday, down 2 per cent to $43.82 (U.S.) a barrel. That’s the lowest price for WTI since the depths of the great recession of 2008-09.

“The U.S. is a-flood with oil and other production points around the world are not letting up in their output. The question is how much more oil can we take before the storage tanks hit capacity?” said Gene McGillian, senior market analyst at Tradition Energy in Stamford, Ct.

For Canadians, the storage issue has broad ramifications.

Another round of price cuts would further cripple Alberta’s already-struggling oil industry, and blow an even larger hole in the province’s finances, as Premier Jim Prentice prepares to release his first budget since taking office in September. Federal Finance Minister Joe Oliver has delayed Ottawa’s budget until at least April in order to get a better sense of how falling oil prices will hit the Canadian economy.

For consumers, the further decline in crude prices offers more relief at the pump with prices again dropping below $1 per litre in major Ontario markets, while at the same time, undercutting the value of the Canadian dollar.

But some analysts argue the fears are overblown.

“Yes, the U.S. has seen unprecedented growth in crude stocks this year,” said Afolabe Ogunnaike, a Houston-based analyst with Wood Mackenzie, an international consulting group. “But we still think there is significant amount of storage capacity available.”

He said U.S. inventories have gown by 66.5-million barrels since the beginning of the year, but estimates there is still room to store another 200-million barrels. Meanwhile, the pace of the stock build-up should slow as refineries, which were down for seasonal maintenance, resume operations to prepare for the summer driving season. And as the industry reacts to lower prices by cutting drilling and other spending, it will soon begin to show up in lower production.

The U.S. energy department reported in February that crude storage capacity is 60 per cent full, and the figure has climbed a few percentage points since then. But the situation varies widely across the country and within Canada. The largest tank farms are close to production facilities, as in Cushing, or Hardisty, Alta. Or on the U.S. Gulf Coast, which is close to Texas producers and Gulf of Mexico producers and serves the world’s largest refining centre.

The U.S. separates the country into districts known as “PADDS – for Petroleum Administration Defence Districts, which were created during the Second World War for logistical purposes. PADD 1, for instance, is the East Coast, which has a large refining sector that relies heavily on imported crude and has little storage capacity beyond the refineries themselves. The East Coast market for petroleum products heavily influences the pump prices paid by consumers in Eastern Canada.

The key regions for storage are PADD 3, which includes the U.S. Gulf Coast, and PADD 2, which contains Cushing and the Midwest, where the vast majority of Canada’s record exports to the U.S. are headed. As of March 6, the U.S. Energy Information Administration (EIA) calculated that PADD 2 storage was 73-per-cent full, while PADD 3 was at 59 per cent. For technical reasons, many storage facilities can’t go above 80-per-cent capacity.

Oil storage tanks in Linden, N.J. are shown in this aerial file photo of Aug. 29, 2007. (The Associated Press)

The PADD 2 market is particularly important for Canadian producers, who have growing — but still limited ability — to reach the Gulf Coast. The International Energy Agency warned that should storage capacity in the Midwest reach its limits, Canadian exports would suffer.

However, refiners have invested heavily in equipment required to process the heavy-diluted bitumen that is produced in the oil sands and are keen to maintain those imports, said Greg Stringham, vice-president of the Canadian Association of Petroleum Producers.

Analysts note that Washington is working with out-dated numbers for storage capacity. The energy administration last updated its capacity estimates in September, and will do so again in March.

“Crude oil stocks are rising everywhere in North America,” said Hillary Stevenson, manager of supply chain network for Genscape, an energy-market consulting firm. “But there’s been considerable growth in capacity, especially on U.S. Gulf Coast since September . . . so things maybe aren’t as full as people are thinking, especially on the Gulf Coast. We do have some time to absorb this growing supply glut that we’re having.”

But there is still an incentive for investors to store crude, though companies such as Enbridge are raising prices at their tank farms. The speculators are taking advantage of a condition in the futures market called contango, when prices for immediate delivery or next month are considerably below those for later months.

On the market yesterday, one could buy a barrel of crude for April delivery for $43.79 (U.S.) a barrel, and then resell it for delivery a year from now for $55.55. So if storage for the year costs less than $12 a barrel, you stand to make a profit.

Earlier this winter, traders were anticipating the same type of transaction using supertankers. In 2009, an armada of supertankers are leased, filled with crude and left at anchored for delivery at higher prices later. But this year, international crude prices have not seen the same steep differential in the futures markets, so the sea-borne market never developed.

But there is another source of “storage” that is not as accessible as the oil in tanks but still represents a future challenge for producers. In the prolific shale oil fields of Texas and North Dakota, many companies are drilling wells but not doing the final work need to bring them into production.

As above-ground storage begins to reach its limits, more firms will decide not to complete the wells they are now drilling. The glut will be buried, but not dead.