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Page added on December 16, 2015

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Something Strange Is Taking Place In The Middle Of The Atlantic Ocean

Something Strange Is Taking Place In The Middle Of The Atlantic Ocean thumbnail

Early last month, we noted that something very strange was happening off the coast of Galveston, Texas.

As FT reported, “the amount of oil [now] at sea is at least double the levels of earlier this year and is equivalent to more than a day of global oil supply.” In short: the global deflationary crude supply glut is beginning to manifest itself in a flotilla of stationary supertankers, as millions of barrels of oil are simply stuck in the ocean as VLCCs wait to unload.

Ultimately, this led to nearly 40 crude tankers with a combined cargo capacity of 28.4 million barrels waiting to anchor near Galveston. Here’s what the logjam looked like:

 

In the latest sign that the world is simply running out of capacity when it comes to coping with an inexorable supply of commodities, three diesel tankers en route from the Gulf to Europe did something rather odd on Wednesday: they stopped, turned around in the middle of the ocean, and headed back the way they came! 

“At least three 37,000 tonne tankers – Vendome Street, Atlantic Star and Atlantic Titan – have made U-turns in the Atlantic ocean in recent days and are now heading back west,” Reuters reported, citing its own tracking data.

The Vendome Street actually made it to within 800 miles of Portgual (so around 75% of the way there) before abruptly turning around. “Ship brokers said a turnaround so late in the journey would come at a cost to the charterer,” Reuters notes.

The problem: low prices, no storage capacity, and soft demand.

Here’s Reuters again:

“European diesel prices and refining margins have collapsed in recent days to six-year lows as the market has been overwhelmed by imports from huge refineries in the United States, Russia, Asia and the Middle East. At the same time, unusually mild temperatures in Europe and North America further limited demand for diesel and heating oil, ptting even more pressure on the market.

 

Gasoil stocks, which include diesel and heating oil, in the Amsterdam-Rotterdam-Antwerp storage hub climbed to a fresh record high last week.

And here are the stunning visuals via MarineTraffic.

Vendome Street

Atlantic Titan

As of now, it’s “unclear if the tankers will discharge their diesel cargoes in the Gulf Coast or await new orders,” but what you’re seeing is a supply glut so acute that tankers are literally just sailing around with nowhere to go as there are reportedly some 250,000 tonnes of diesel anchored off Europe and the Mediterranean looking for a home. On that note, we’ll close with the following quote from a trader who spoke to Reuters:

“The idea is to keep tankers on the water as long as you can and try to find a stronger market.”

Zerohedge



46 Comments on "Something Strange Is Taking Place In The Middle Of The Atlantic Ocean"

  1. makati1 on Wed, 16th Dec 2015 7:14 pm 

    The crash is fast approaching…

  2. Plantagenet on Wed, 16th Dec 2015 7:18 pm 

    Its not at all strange that oil gets stored at sea in tankers during an oil glut.

    Its really very common during oil gluts.

    cheers!

  3. In the middle on Wed, 16th Dec 2015 7:35 pm 

    Plant, You should start calling yourself plantaglut. 🙂 btw, I read most of your comments and I think you make a lot of sense. Keep up the good work.

    Truth

  4. ghung on Wed, 16th Dec 2015 8:03 pm 

    Oil Traders Aren’t Dancing the Crude Contango This Time Around

    >Few tankers storing barrels at sea to profit from price curve

    >Rout driven by ever-expanding glut, not 2008-09 demand shock

    “Back when the global recession trashed oil demand and prices, the likes of BP Plc and Vitol Group found a novel way to profit: They stashed crude on tankers. With a slump of similar magnitude now, traders are seldom finding the same opportunities.

    Here’s why. What defined both periods is something the industry calls contango, meaning oil for next month is cheaper than, say, for April. There were moments in the depths of the 2008-09 recession when a standard 2 million barrel cargo might fetch $14 million more for later delivery than it did in the spot market. That made for an easy trade: Find a ship for less than that. The same economics have seldom worked this year.

    “These are very different market conditions,” said Paul Horsnell, London-based head of commodities research at Standard Chartered Plc. “Traders certainly are not getting much from floating storage plays.”

    The main difference now is what people expect for the future of the oil market. The financial crisis was seen as a short, sharp shock to oil demand that wouldn’t endure, according to Eugene Lindell, an analyst at JBC Energy GmbH, a consultant in Vienna. That meant later prices far exceeded immediate ones. Now, the most enduring glut in decades leaves traders believing the market’s recovery could be much slower.

    Less Potential

    That means the cost of storing would wipe out potential profit from doing so. In mid-November, the three-month contango was about $2.50 a barrel, or about $5 million for one of the industry’s biggest cargoes, according ICE Futures Europe exchange data. It has since diminished, offering even smaller rewards for holding onto supplies. Keeping such crude on tankers for the same duration cost about $4.65 a barrel, figures from E.A. Gibson Shipbrokers Ltd. show. Spot rates for the vessels have subsequently soared to fresh seven-year highs, making it even less viable to horde than it was…….”

    http://www.bloomberg.com/news/articles/2015-12-11/why-oil-traders-aren-t-dancing-the-contango-this-time-around

    What do they call this? Backwardation? Either way, sounds like a lot of screwardation is fixing to go down.

  5. GregT on Wed, 16th Dec 2015 8:10 pm 

    “Its not at all strange that oil gets stored at sea in tankers during an oil glut.”

    It must be getting pretty difficult for ships to get in or out of the Mediterranean by now, eh planter? There must be thousands of ‘sea tankers’ anchored there by now.

    Cheers! 🙂

  6. Anonymous on Wed, 16th Dec 2015 8:18 pm 

    The world has a problem with expensive oil, and it seems to have a problem with cheap(ish) oil too. Why? Debt levels are still at historic highs, for individuals, gov’ts and a lot of companies. Most of us, simply doing have money(oil) to burn no matter what its price. People are still getting laid off, and are swimming in debt regardless of the cost of oil on any given day. What do people do when they have money to spend? They usually waste resources frivolously, which is good for the economy, bad for everything else. Problem is, most of us don’t have a lot of spare cash lying around, or if we do, aren’t really spending it if we can help it.

    And since the US wants to crush Russia and Iran and anyone else that wont play ball with the Anglo-zionist empire, with oil economic warfare, no one is dialing down production to meet demand. Regardless, we’re still burning through oil much faster than we are discovering it, so, any ‘glut’s are largely illusory, a temporary condition.

  7. roman on Wed, 16th Dec 2015 8:20 pm 

    If they don’t know how to get rid of the oil let the “goverments” of the world buy it up and give it away for free and nullify the printed paper “debt”. The world runs on oil(and paper and bits) and it can use a tax break.

  8. Plantagenet on Wed, 16th Dec 2015 9:59 pm 

    @GregT

    You’ve got to turn off your TV and go travel or you’ll never understand how the world works. Your suggestion that the entrance to the Mediterranean is blocked by tankers is ridiculously dumb. I suggest you go to the Meditteanean and see it for yourself—-you’ll find its a much bigger place then you are imagining. If you want to see the entrance to the Med I recommend going to the little Spanish town of Tarifa and taking the ferry to Tangiers in Morocco, as I did last January. You not only get to see the entrance to the Med for yourself, but you can get some whale-watching in on the cheap. And when you get to Tangiers, don’t miss the Casbah!

    cheers!

  9. BillC on Wed, 16th Dec 2015 10:26 pm 

    Anonymous ,
    I agree. I see a strategic move by the Illuminati. First have Saudi Arabia push out as much oil as possible to weaken the price of oil and at the same time weaken the Iran and Russia enemies.

    At the same time stoke pile oil in the U.S. just in case WWIII starts.

  10. twocats on Wed, 16th Dec 2015 10:51 pm 

    There’s a lot of weird postings on this thread so I’ll add to the mix.

    So back during the QE/POMO days of late 2008 to late 2014, the US government basically said, “take these huge piles of cash, we don’t care what you do with it, just do something.” and so they did – houses, stocks, bonds, commodities, etc.

    so those assets took off to the moon and to paraphrase Kunstler – doubled down on perhaps the greatest misallocation of resources of all time.

    http://www.calculatedriskblog.com/2014/10/qe-timeline-update.html

    but consumption IN THE US, has never recovered to 2007 levels and sits today where it was in 1999 and barely above 2009 levels:

    http://peakoilbarrel.com/a-surprising-look-at-oil-consumption/

    so they’ve performed a wonderful magic trick: grown GDP, grown assets, grown production, grown rent costs, while barely growing consumption of oil.

    And THAT is why there is a glut, not because this is “just another cycle” in the long history of gluts. They tried to stimulate demand by focusing on the supply side and it seems to have failed. Like a Chinese ghost city – they built it and no one came.

  11. Boat on Wed, 16th Dec 2015 11:11 pm 

    Just because oil is cheap dosen’t mean the world can just up and build a bunch of shyt that uses fuel. It takes mucho time, planning etc. Thats why when prices are very high you don’t see huge drops in consumption or production. Like the last six years before the glut. The market is huge. It moves slowly no matter what is happening. Especially developed markets.

  12. GregT on Wed, 16th Dec 2015 11:19 pm 

    @planter,

    I stopped watching TV almost entirely over 25 years ago. I’ve backpacked all over the world. One of the few places that I haven’t visited is Alaska. I’ll be sure to look you up when I do Claudia.

  13. GregT on Wed, 16th Dec 2015 11:26 pm 

    “Just because oil is cheap dosen’t mean the world can just up and build a bunch of shyt that uses fuel.”

    Oil isn’t cheap anymore Boat. Back when it was, we built a whole bunch of infrastructure that we can no longer afford to maintain.

  14. Dredd on Thu, 17th Dec 2015 6:42 am 

    Follow the fingerprints (SLC Fingerprints R Us – 2).

    Then book ’em Danno.

  15. Hello on Thu, 17th Dec 2015 7:15 am 

    I assume hiring a tanker ain’t cheap. It’s amazing that it makes monetary sense to use them as storage container.

    What a world.

  16. makati1 on Thu, 17th Dec 2015 7:26 am 

    Hello, I expect that, in the end, they will lose their shirt. Oil prices are going down and leaving it in those tankers costs 6 figures per day, I once read. If anyone can prove me wrong, with credible references, please do.

  17. Hello on Thu, 17th Dec 2015 7:31 am 

    Mak, somehow I have a feeling that people that play in the big league never loose their shirt.

  18. rockman on Thu, 17th Dec 2015 7:58 am 

    Hello – ” It’s amazing that it makes monetary sense to use them as storage container”. Some times it makes sense (i.e. some times makes a profit) and sometimes it doesn’t…they lose money. The only one guaranteed a profit is the tanker owner. I would hope every understands it’s that simple.

    It’s just a gamble on one’s ability to guess future oil prices. But the amount of investment risked on storage plays is insignificant compared to the same bet made in oil futures. So what…maybe 25+ millions bbls played on storage. Compare that to a typical day when 1 BILLION BBL is being “stored” in oil futures: about 2%+ of the oil being bet is in physical storage and 98%- is bet on “paper”. But it’s essentially the same bet. The big difference is that a tanker will often cost a lot more then they pay in fees for oil future contracts.

    So why make the physical futures bet? Typically it’s done by folks who have fixed oil purchased contracts. This is a very common dynamic in the LNG world: most LNG is sold on long term GUARENETED volume purchase contracts. If a company can’t burn it’s contracted volume it has to sell the excess on the spot market…often at a loss. But sometimes a buyer will short it’s customer base and sell to the spot if the money is right. A couple of winters ago a Boston utility was very short on NG during a nasty cold spell so it had to buy a couple on LNG loads from the spot market. So when domestic NG was selling for less than $6/mcf they paid $22/mcf for that LNG. Not too big a hit for the Boston consumers since the extra cost was averaged into the total rate base.

  19. ghung on Thu, 17th Dec 2015 8:29 am 

    Mak said; ” …and leaving it in those tankers costs 6 figures per day, I once read. If anyone can prove me wrong, with credible references, please do.”

    Maybe you should read the other comments before posting for a change. From my link, above:

    “That means the cost of storing would wipe out potential profit from doing so. In mid-November, the three-month contango was about $2.50 a barrel, or about $5 million for one of the industry’s biggest cargoes, according ICE Futures Europe exchange data. It has since diminished, offering even smaller rewards for holding onto supplies. Keeping such crude on tankers for the same duration cost about $4.65 a barrel, figures from E.A. Gibson Shipbrokers Ltd. show.”

  20. shortonoil on Thu, 17th Dec 2015 10:52 am 

    The Etp Model is a study of the energy transfers taking place in the world of petroleum. One of its counter intuitive conclusions is that a point will be reached when the economy will no longer be able to acquire all of the petroleum products produced. That appears to defy traditional economic beliefs. Economic theory was based on the observations, and expectations of a continually growing economy. That growth was overwhelming powered by petroleum. At the point where petroleum is no longer able to power that growth the economy will begin contracting, and economic models will begin to run, what appears to be, backwards. In essence, the time rate of change for the value of money has now gone from positive to negative.

    We are now residing in a world of completely unexplored terrain. The developed economic models from past years of continual growth can no longer explain the events taking place. Many petroleum producers, and its traders will continue to use old, outdated hypotheses to explain market conditions. Many of them will use them until they collapse. On land storage facilities will overflow, and tankers of petroleum products will prowl the oceans looking for a market. They will be looking for a market that can no longer exist.

    Like the economic models that they were based upon, the generally held perceptions of how the age of oil will end is floundering upon those now reversed hypotheses. We have yet to learn that the world is no longer how it was once perceived. The end of the oil age will not be as simple as lines of SUVs waiting in expectation at a gas pump.

    http://www.thehillsgroup.org/

  21. Hello on Thu, 17th Dec 2015 11:05 am 

    short, please give it up with your model. It has been shown that your past predictions are as good as my random guesses.

  22. rockman on Thu, 17th Dec 2015 11:18 am 

    Hello – I resemble…I mean resent that remark. In the past my random guesses have been as good as anyone else’s. lol

  23. godq3 on Thu, 17th Dec 2015 11:36 am 

    Shortonoil – I think that now oil, with it’s overproduction, is cannibalising other forms of energy providers, like coal. In the past three weeks the US coal production is down over 20% year over year (EIA weekly data). That’s energy equivalent of 2 million barrels per day. At the same time natural gas production has stopped to grow yoy. Coal production is also falling in other countries, besides India, and maybe Russia.

  24. shortonoil on Thu, 17th Dec 2015 11:41 am 

    Oil now $34.77. As petroleum’s price approaches its lifting cost, producers will cut back production to a minimum to reduce losses. Many of the wells that will have to be shut in, as a result of investors fleeing the the HY market, will never be reopened. With a maximum cap now at $67 these loses can never be recovered:

    http://www.thehillsgroup.org/depletion2_022.htm

  25. Davy on Thu, 17th Dec 2015 11:48 am 

    Hello, you can discount the ETP model in its purest form to some degree considering human nature and the small degree of substitutions that can be made with oil in the modern economy. You cannot dismiss it because it is using scientific laws to explain natural phenomenon of a finite substance in a energy driven system. It adds up properly but the conclusions can be argued in my opinion especially with the economy and human nature which is only partly rational.

  26. shortonoil on Thu, 17th Dec 2015 12:07 pm 

    “partly rational”

    Exactly what part are you referring to???

  27. Davy on Thu, 17th Dec 2015 12:14 pm 

    The part that will not pencil into an equation and the reason we are in the mess we are in part.

  28. shortonoil on Thu, 17th Dec 2015 12:58 pm 

    “The part that will not pencil into an equation and the reason we are in the mess we are in part.”

    Like Hello’s derogatory remark on a subject that it has never studied, to say nothing of, understanding. That might come under the Fibonacci controlled fight, or flight response. A pre-programed reaction that may be modified by conditioning. It has been observed in all manner of organic life, down to earthworms. It is, however, a well defined mathematical progression. How we interpret the response: stupidity, cowardice, hubris would be more likely to fit into your “not pencil into an equation” conclusion than the actual response. On a statistical bases human response it fairly predictable. Of course, that doesn’t tell you “who” is going to hit you in the back of the head when you’re not looking.

  29. Hello on Thu, 17th Dec 2015 1:03 pm 

    are you 99% confident that your comment makes sense?

  30. Revi on Thu, 17th Dec 2015 1:13 pm 

    It seems like oil, even though it is an incredible store of energy is now not wanted by the market. We’ll take it at $34.77 now, but that’s all we’ll pay. We won’t pay much for any other commodities either. The dollar is too strong, and it’s messing everything up. We never thought that low prices would be the spur that creates peak oil. These tankers will be circling Houston for a while before it all gets used up.

  31. Dredd on Thu, 17th Dec 2015 1:14 pm 

    Now, boat garbage too?

    The Ocean Is Contaminated by Trillions More Pieces of Plastic Than Thought

    Maybe they can’t get thru any more.

    Coming soon to an ocean near you.

  32. shortonoil on Thu, 17th Dec 2015 1:17 pm 

    “Shortonoil – I think that now oil, with it’s overproduction, is cannibalising other forms of energy providers, like coal.”

    You are most likely correct, but unfortunately we don’t have a means to quantify the cannibalization process. We do know that the spread between what the industry is consuming, and what it is providing is now 22 trillion BTU per year. Of course, where that energy is coming from is the $10 trillion question? Other fossil fuels would be a very likely candidate. Thanks for your insight.
    BW Hill

  33. Davy on Thu, 17th Dec 2015 1:18 pm 

    Short, it is that very small part that won’t pencil that makes all the difference. It is the reason engineers and economist alike get lost in their equations and feel omnipotence. Humility is what is needed today with humans not hubris.

  34. ennui2 on Thu, 17th Dec 2015 1:26 pm 

    “Oil isn’t cheap anymore Boat.”

    It IS cheap. Man, some people are living in their own reality-distortion-fields.

  35. Apneaman on Thu, 17th Dec 2015 1:35 pm 

    Hello says “short, please give it up with your model. It has been shown that your past predictions are as good as my random guesses.”

    I must have missed that or it was before I started coming here. How many predictions are you talking about? Do they differ from the model? Do you have links so I can see for myself? If there are many of them, just a few examples to demonstrate your point will do.

  36. shortonoil on Thu, 17th Dec 2015 1:37 pm 

    “It IS cheap.”

    Cheap for whom is the question! The end consumer is now paying the lowest price per BTU for oil that they have paid since 1973. The total production energy cost is the highest in history. That is why we are seeing for the first time in history money moving down the economic ladder rather than up. Central banks are beginning to choke!

  37. twocats on Thu, 17th Dec 2015 1:56 pm 

    and that is exactly the hard part to predict: will places go welfare or “something else” or a combination, etc.

    welfare being: “statutory procedure or social effort designed to promote the basic physical and material well-being of people in need.”

    and all this is on a variety of ranges and in a wide variety of countries. Some countries will be forced to step-down consumption (e.g. Greece) while others may decide it is better to heavily subsidize their country than risk social disruption (e.g. Saudi Arabia). and so as those baselines of consumption are touched on the
    production side, whatever that number is, 80mbpd, 70mbpd, 60mbpd, at some point the world is going to start bumping against basic basic needs VS basic basic need for a return on investment, especially since I believe we are talking about a majority of these resources essentially being possessed by state run oil companies (anybody got current stats on that? i.e why is a country going to give their resources to the global economy unless they get something of equal value in return).

    that is where all the existing models that Short is talking about go up in a very large puff of smoke and the world either spirals further into armed conflict (Michael Klare scenario) or becomes wildly localized and subsidized – these are the resources we have and we will distribute them as best we can until they fully depreciate.

  38. Apneaman on Thu, 17th Dec 2015 2:22 pm 

    twocats, IMO, Michael Klare made the easiest prediction in history. You could sum it up with – Same as it ever was.

  39. twocats on Thu, 17th Dec 2015 2:46 pm 

    haha!! Tru dat Ap! I’ve been very unimpressed with his analysis of late. Ditto Tom Whipple. But they were early-ish to the game and did their part to spread the word.

  40. Apneaman on Thu, 17th Dec 2015 3:50 pm 

    Mutual Assured Bankruptcy

    December Oil inventories are highest in 80 years

    http://ponziworld.blogspot.co.uk/2015/12/black-swan-event-oil-bankruptcy-at-0.html

  41. shortonoil on Thu, 17th Dec 2015 4:50 pm 

    “that is where all the existing models that Short is talking about go up in a very large puff of smoke and the world either spirals further into armed conflict”

    We have already stated our opinion on that a few days ago:

    “12/13/15 PO News
    OPEC cannot kill shale oil

    “But in conclusion are you saying that NEVER again will it acquire that oil, in that we will NEVER work through the surplus?”

    Yes, the present global oil production system will never work through the surplus. That is why we believe that the future production system for oil will be regional producers. Small, very efficient refineries using regional sources. The fuel used in the future will come from a well fifty miles away, and processed in a refinery down the road. We are presently working with some small start-up firms that are basing their business models on that structure.

    This will, of course, change the landscape of the present society. By 2030 the US will be consuming 5 to 6 mb/d; extracted locally, processed locally, and distributed to limited regions. Petroleum can no longer supply sufficient energy to support a globally distributed system. The present system must end in the near future.

    http://www.thehillsgroup.org/

    Petroleum is no longer supplying enough energy to support an integrated global production system.

  42. penury on Thu, 17th Dec 2015 6:02 pm 

    I love the discussions on “cheap” or “expensive” oil. I know that the majority of [posters here are U.S. centric,)but, there is a big world out there. Oil is sold in dollars and the exchange rates have not been kind to EMs for the last year. When the dollar rises by 20 per cent, em prices rise due to currency exchange. Middle class Americans may consider energy cheap, but for the lower 20 per cent it still is expensive. When you consider whether anything is cheap or dear, consider where you fit on the economic scale. Most of us here are at least middle class. Or we would be posting from the library.

  43. makati1 on Thu, 17th Dec 2015 7:28 pm 

    penury, so true. It is all relative to our position on the economic ladder. But the ladder is breaking and the rungs some stood on for most of their life are breaking. What you can afford easily today may be a luxury or out of reach tomorrow, as many millions are finding out.

    That goes for twocats comment about countries and their citizens ability to buy.

    The cost of diesel and gasoline here in the Ps is now over $1 cheaper ($4 vs $5/gal.) than most of the 7+ years I have been here. It is a plus for most Filipinos. Since, on average, they use about 0.2 gal./day/per capita (vs US ~2.4/gal./day/per capita), not much change in their costs. The ~400,000 bbls./day more than meet their needs.

  44. shortonoil on Fri, 18th Dec 2015 7:52 am 

    The present situation with petroleum has more to do with the production side than the consumer’s side. Oil as of this morning is $34.50. Over the last 19 months the price has fallen 65%, and consumption has increased by less than 3%. 2.5% of that increase occurred as a result of the increased demand provided by the producers themselves. It takes an ever increasing amount of energy to produce petroleum, and its products.

    Depletion has reduced the impact of petroleum to the point where it can no longer power growth in the economy. As its depletion cycle continues the economy will be forced to contract in order to continue producing it. The consumers ability to acquire it will depend on the strength of that economy. At the present it appears that the consumers ability to increase their consumption has fallen to zero.

  45. GregT on Fri, 18th Dec 2015 8:47 am 

    “It IS cheap. Man, some people are living in their own reality-distortion-fields.”

    Some people prefer to look at the data, as opposed to ‘reality-distortion fields”.

    http://www.macrotrends.net/1369/crude-oil-price-history-chart

    I reiterate;

    “Oil is not cheap. Back when it was, we built a whole bunch of infrastructure that we can no longer afford to maintain.”

    The latest pullback in oil prices to ~$35/bbl is a result of slowing growth in the world’s economies, or, demand destruction. From the end of the second world war, until the peak in US oil production in 1973, oil averaged ~$21/bbl in inflation adjusted prices. That is the period when a great deal of our current infrastructure was built out. Much of that infrastructure today is in dire need of repairs and upgrades. Repairs and upgrades that we can no longer afford due in large part to the accumulation of debt from 1973 onwards.

  46. GregT on Fri, 18th Dec 2015 9:01 am 

    The total US debt to GDP ratio leading up to the peak in 1973 was ~143%. After 1973 debt levels began a relentless rise to ~366% in 2009, and pulling back slightly to 334% today.

    http://www.macrotrends.net/1381/debt-to-gdp-ratio-historical-chart

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