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Oil “Death Spiral” Emerges

Consumption

One week ago, we looked at an epic build up of gasoline inventories on the East Coast, also known as PADD1, which had slammed the crack spread to record lows for this time of the year, and asked if “This What Finally Drags Crude Oil Lower.” We were referring to the collapsing Crack Spreads, which show that something disturbing is taking place for US refingers who are no longer able to “internalize” the massive crude glut.

U.S. gasoline crack spread a proxy for refiner margins, has dropped 34 percent in two weeks. On Wednesday, it hit a five-year low for this time of year below $13 a barrel. That is less than half the crack spread of $28 a barrel at this time last year.

 

As of today, the WTI crack spread was $13.1, largely unchanged from a week ago.

We then quoted Andrew Lebow, senior partner at Commodity Research Group in Darien, who summarized it best by saying that “PADD 1 is a holy mess. It is very unusual. If a market becomes extremely oversupplied, like PADD 1, they are going to have to cut runs.” That is another way of saying refiners will have to stay shut, which in turn will force crude to  build up in various on and offshore storage locations.

Our summary of the strange events taking place in the US refining industry:

with the inventory bottlenecking having reached all the way to the gasoline level, in lieu of refiner buying, crude producers will be forced to start selling oil and dumping prices just to get marginal demand as both onshore and offshore storage is near capacity. Most likely this will happen in the next few weeks, when coupled with the near full Chinese SPR, the slump in Chinese oil demand, the elimination in Nigerian supply overhangs, the resumption of Libyan exports, it will send the price of oil tumbling, and incidentally replaying the summer of 2015 when crude crashed…

 

 

One week later, and with gasoline and distillate inventory builds continuing to rise precariously, it appears that this sentiment is starting to permeate the analyst community.  This is how WSJ’s Market Talk blog describes what is going on:

Inventories of gasoline and other refined products in the US rose strongly last week, weighing on prices today. It’s the result of months of cheap crude prompting refiners to buy more crude and run at higher rates to turn it into products. Lipow Oil Associates sees the start of a “death spiral” as “product inventories are high, margins come under pressure, refiners reduce crude runs and therefore the crude-oil glut grows to the point where someone wants to discount” to unload it–inspiring refiners “to kick up their runs again.” .

End result: today WTI closed the NYMEX session at its lowest level since May 10. It may be only the beginning.

zerohedge



34 Comments on "Oil “Death Spiral” Emerges"

  1. shortonoil on Wed, 13th Jul 2016 7:08 pm 

    I was hoping that PO News would publish this article.

    The never ending inventory is here, and the price will continue to fall.

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

    Page was put up in September of 2014

  2. Apneaman on Wed, 13th Jul 2016 7:55 pm 

    Short, you got a mention over on professor Ugo’s blog in the comments.

    Some reflections on the Twilight of the Oil Age – part I
    Guest post by Louis Arnoux

    “AnonymousJuly 13, 2016 at 1:23 PM

    Thank you, Ugo and Louis !!
    Finally, a well-known scientist writes about the EPT-Modell. As a physicist working in normal industry i have been afraid, to speak free about the ETP-Model, because i have to work with customers and collegues and because discussions about the ETP_Model could disturb the company processes. Since 18 months i have been convinced that the thermodynamic approach of the Hills group is valid and now only about 9 years of oil are left at static consumption. It is absolutely necessary, that this knowledge spreads to the public. I do not know, how chaotic the public reaction will be, but we have to spread this knowledge to prepare the whole infrastructure to create a functioning world for our children. Again, many thanks !”

    http://cassandralegacy.blogspot.ca/2016/07/some-reflections-on-twilight-of-oil-age.html

  3. Rob on Wed, 13th Jul 2016 8:08 pm 

    Short- understand your main points (I bought and read your report, thank you), but what about the impact of debt expansion by governments to ensure that all remaining oil gets used up eventually (and then everything collapses)? Helicopter money will ensure it all gets sopped up first, right?

  4. Davy on Wed, 13th Jul 2016 8:37 pm 

    The problem is a similar situation is occurring with the economy that is occurring with oil. The structures and networks are losing their economic productivity. Social and political decay and dysfunction is reducing the ability of the economy to utilize things like oil. If it were only oil that is the problem. The economy is in fact more fragile near term than the oil complex. We are basically seeing a demand and supply destructive cycle but a cycle that is a vicious cycle of decay and deflation. This cycle will have no recovery. We are in the prelude period where near normal conditions are present but with a momentum of normal decelerating from the inertia of limits and diminishing returns.

  5. Northwest Resident on Wed, 13th Jul 2016 9:06 pm 

    Anyone with a brain and knows how to use it understands that the ETP model is telling us a very fundamental truth. And you don’t have to be a math wizard or a geologist to get it. Corroborating evidence is everywhere.

    Serious trouble brewing. But we all know that too — just stating the obvious.

    Oil Traders Hoarding Most Oil Since 2009 Amass North Sea Fleet

    “Oil traders increased the fleet of ships deployed in the North Sea to store crude, the latest sign of faltering demand that has triggered the biggest build up of stockpiles at sea since 2009.”

    http://www.bloomberg.com/news/articles/2016-07-13/oil-traders-hoarding-most-oil-since-2009-amass-north-sea-fleet

  6. Northwest Resident on Wed, 13th Jul 2016 9:12 pm 

    “This cycle will have no recovery.”

    Or, as I like to put it, this is the LAST BUST. No more booms. We rode that boom/bust cycle like a rollercoaster to hell, burning through every resource we could pillage, right up to the end of the track. And now, here it comes.

  7. GregT on Wed, 13th Jul 2016 11:07 pm 

    “Anyone with a brain and knows how to use it understands that the ETP model is telling us a very fundamental truth. ”

    Well that pretty much excludes about 99% of the world’s population NWR. Human beings in general, are not overly bright.

  8. Boat on Wed, 13th Jul 2016 11:18 pm 

    greggieT,

    When world civilization does not collapse in 2 1/2 years you and NR will be amongest the fools. I’ve been waiting for you to take a stand.

  9. GregT on Wed, 13th Jul 2016 11:29 pm 

    Sorry Boat,

    If world civilization does collapse in 2 1/2 years, NWR and myself will be positioned well. You will not. If it takes 10 years, or 20 years, all the better. More time to get things in order.

    You’ll still be royally fucked Kevin. I don’t normally wish bad things on others, but you deserve everything that’s coming your way.

  10. GregT on Wed, 13th Jul 2016 11:51 pm 

    And also Kevin,

    “Human beings in general, are not overly bright.”

    You would be amongst the lowest common denominator. A complete and total fucking moron.

  11. Kenz300 on Thu, 14th Jul 2016 6:44 am 

    and how many oil producers filed for bankruptcy this year………… how many more will file in the next 6 months…………

  12. dooma on Thu, 14th Jul 2016 7:10 am 

    Nothing like a “good” old war to use up that surplus oil.

    And the storage facilities either static or floating would make nice targets.

    Too bad all those troops that are amassing on the Russian borders are only playing war games….

  13. Davy on Thu, 14th Jul 2016 8:04 am 

    Dooma, a little research into the troop deployment size on the Russian border and you see the amounts are insignificant compared to the Russian forces. This is not a massing of troops it is a joke of a token deployment meant to irritate and is nothing but militaries bluster. Even US generals have admitted Russia would role Over these deployments like a hot knife through butter. It is a dangerous a stupid policy and nothing related to massing.

  14. shortonoil on Thu, 14th Jul 2016 10:39 am 

    Some reflections on the Twilight of the Oil Age – part I
    Guest post by Louis Arnoux

    Thanks Apn – I missed that post.

    Before we published the report in 2013 we sent copies of it to over 50 people who we felt would be qualified critics. Being, mostly engineers ourselves, the majority of those recipients were professors of thermodynamics at engineering schools. Their response was unanimous! Everyone of them stated that they could not find a thing wrong with the theory, or its implementation.

    Everyone of them also stated that the results of the study were so overwhelming that they did not want to take a public stand to defend it. We understood! If for some reason it turned out to be incorrect it would be a career destroyer. Even if it is not incorrect, its advocacy could easily result in the termination of even a tenured professor. The Etp Model is an incredibly dangerous study – no matter how one views it!

    After completing the report we sat on it for almost two years. It took that long for us to even admit to ourselves that it could be accurate. Its conclusions are so devastating! Most of the folks who prepared it bailed out, and are still spending their time preparing for what they know is to come. They have mostly adopted a policy of silence. Having worked in the corporate world they are very aware of the fate of bearers of bad news.

    A couple of us volunteered to bring its results to the world, even though we knew that we would mostly be facing derision, malice, and a plentiful dose of ignorance. We decided to take a low profile approach. We put up a web site, and dished our results out a spoonful at a time. Any more than that was likely to put the world into a state of shock; which would not help the situation one bit.

    Over the next year we can now expect many more qualified persons to come forward. We know that the Russians are aware of the Model and its implications. So also are the Saudis and the Chinese. How this will play out I can not know, but play out it must.

    Thank you Mr. Ugo and Mr. Arnoux

    BW Hill
    http://www.thehillsgroup.org/

  15. ghung on Thu, 14th Jul 2016 11:22 am 

    But wait! 100,000 oil jobs could be coming back!:

    “Good news laid-off oil workers: U.S. energy companies could soon face a serious worker shortage.

    Goldman Sachs believes the American oil industry is about to stage a big comeback from the painful downturn and big job losses caused by oversupply.

    As more oil fields come on line and America’s oil boom gets back on track, there simply won’t be enough people to do the required drilling, well completion and other logistical work. Cheap oil wiped out nearly 170,000 oil and gas jobs since late 2014 as desperate companies scrambled to cut costs and avoid bankruptcy.

    That means just to keep up with the expected ramp-up in drilling activity, the oil and gas industry would need to add 80,000 to 100,000 jobs between now and the end of 2018, Goldman predicted in a recent report.”

  16. Davy on Thu, 14th Jul 2016 11:23 am 

    Short, copied and pasted this comment to include with the ETP model PDF I save the other day you graciously offered to us. Your work is profound and has helped reinforce my doom view of life. It has also given me a reliable timeline for the dead state of oil.

  17. godq3 on Thu, 14th Jul 2016 1:24 pm 

    But if oil gives us now so little net energy, why world economy is still functioning? Why PMI’s indexes are still around or over 50?

  18. godq3 on Thu, 14th Jul 2016 1:26 pm 

    …And we still see hundreds of millions of cars on the roads, thousands of planes, ships, etc.

  19. dooma on Thu, 14th Jul 2016 9:03 pm 

    So Davy, I would be interested in hearing what your theory or opinion is in relation to NATO build up of troops in the former USSR states?

    I would also like to know how you would feel if Russia started building bases all around the US?

    I read plenty. And I don’t like what I am reading. Not one little bit.

  20. Outcast_Searcher on Thu, 14th Jul 2016 9:20 pm 

    And the global energy intensity per unit of GDP continues to fall — and almost certainly will continue to fall for multiple decades.

    But let’s pretend the sky is falling every day zerohedge is feeling pessimistic.

  21. Davy on Fri, 15th Jul 2016 4:59 am 

    Dooma, different question intended to satisfy your subjective feelings. I clarified your statement of NATO is massing troops to accurately state that Russia has an overwhelming advantage in troop numbers and force projection on and around their border. That is clear and a few American generals have run war gaming scenarios and stated a war there would be a disaster for NATO.

    NATO is following a failed policy of irritating Russia for political reasons. It is a dangerous policy. I am hoping this ends because I know collapse is coming and would rather it not come from the NUK variety. I would rather see the good old fashion collapsed economy and dead state of oil.

  22. Davy on Fri, 15th Jul 2016 5:45 am 

    Global energy intensity per unit of GDP in and of itself is not an accurate number to portray the energy dynamics going on today in our global world compared to an earlier period. You can include it as one of the numbers in a general analysis but using it as many cornucopians do to prove a vague point of optimism on its own merit is sloppy and a typical deception on the part of the cornucopian agenda.

    GDP and energy today is not grandpa’s GDP and energy. The world has changed. What the world is producing has changed. How it is producing has changed. There is less heavy industry as there once was with more services. There is less large scale infrastructure buildout in relation to the economy now in comparison to then. Trends of beneficial transition and substitution is ending. This fact makes it necessary to dig into the way energy is being used to clarify how much of the drop in intensity is from improvements and how much is from changed applications of energy per a different economy. The energy type has changed. The economy is stagnating and the rate of the growth rate is falling impacting GDP numbers. We are not seeing significant improvement lately in the scale and application of improved fuel economy rates in rolling stock or thermal power improvements. Where we have made great strides has come from sweet spots that was low hanging fruit picked already. The hard part is ahead. Scaling up expensive efficiency and innovation is not happening. Spending more money than you are saving lowing energy intensity is happening significantly but this is dismissed. How much improvement has there been in a coal plant. Cars are not significantly improving MPG now over 10 years ago. Efficiency and innovation is hitting a diminishing returns from limits. There are physical limits and systematic limits to energy intensity improvements that skew the analysis. Energy use per capita has dropped way down because of a trebling of population. The GDP number has changed. We are calculating GDP differently. The quality of energy is dropped because of depletion. So many things make the statement “global energy intensity per unit of GDP continues to fall” inaccurate as a bullet point without deep analysis at multiple levels.

    I am not refuting the statement of falling energy intensity per GDP. I am taking the wind out of the sails of that point being an optimistic condition of a macro trend. The statement proves little without temperance from dissecting such a broad statement. We saw several periods of innovation and efficiency gains previously that has made a difference in our use of energy but that is over. We are now out of tricks in the bag. There is a physical limit to efficiency and a ceiling for innovation. The quality of our resources is dropping faster than our efficiency and innovation of using them. This is a trend in the wrong direction which questions any optimistic assumption. We should be worried. We are approaching that wall of the end of positive gains and it is not good because the problems GDP and its associated components of technology with innovation and efficiency is creating more problems than it is solving. To Crow about energy or GDP is to miss that point.

  23. marmico on Fri, 15th Jul 2016 6:18 am 

    Cars are not significantly improving MPG now over 10 years ago

    Doofus. That is the only number in your indigestible word salad solipsism.

    http://www.umich.edu/~umtriswt/EDI_sales-weighted-mpg.html

    Wait another 10 years for another 20% improvement in fuel efficiency.

  24. JuanP on Fri, 15th Jul 2016 7:00 am 

    Marmi, Efficiencies can’t improve forever. There are physical limits that cannot be ignored. You cannot produce more energy with a PV panel than the energy that falls on it from the sun.

    Also, LEDs are already so efficient that they couldn’t increase their efficiency in any significant way any more. Incandescent bulbs were much better at producing heat than producing light with an efficiency of around 5% and 95% of the energy lost as heat, and their efficiency could be increased by almost 20 times. Today’s LEDs are more than 90% efficient and could not physically improve their efficiency by more than a few percent.

    Today’s water heaters are up to 99% efficient and can’t be made any better no matter what we do. We could of course use solar water heaters more, but they’ve been around for decades and how many people use them?

    Some things still could be improved some, say like batteries or some crops, but there are physical limits to any technology.

    The problem is not a lack of scientific knowledge or technological applications; it never has been. The problem is human nature, our ambition, selfishness, stupidity, and greed, and these things truly have no limits.

  25. Davy on Fri, 15th Jul 2016 7:03 am 

    Marm tard what’s new with that. Your routine statements with no proof just more failed expectations that your point will occur someday because it happened in the past. The “wait and see because it has and was” BS talk is typical out of your lame bullet points. Over the months since you ventured on to this board you look ever more pathetic as the numbers paint. When will you drop off the board like the many others that have realized the failure of their false optimism?

  26. marmico on Fri, 15th Jul 2016 7:27 am 

    The CAFE standards are in place such that the weighted average fuel economy of model year 2025 vehicles in miles per gallon is supposed to be 50 (CAFE) and 40 (EPA).

    https://www3.epa.gov/otaq/cert/mpg/documents/420b14015.pdf

    The increase in fuel efficiency from 25 mpg in year 2016 to 40 mpg in year 2025 is 60%. Anyone who says that 60% improvement in 10 years is not significant is a retard.

    Cue more indigestible word salad from Davy Greenacres and Juan “Toe Nail Entrails” P.

  27. JuanP on Fri, 15th Jul 2016 7:45 am 

    Marmi, Are you DH and JJ, too? Or do you all have the same toenails fetish? Please explain to me your obsession with my toenails. I am sitting here looking at them and for the life of me I can’t understand why you are fixated on them. My toenails seem perfectly normal to me and not worthy of much attention. I just clip them when they grow too long and ignore them the rest of your time. Is this a sexual fetish of yours? Do you like to look at and lick toenails or something? Please explain your insane obsession!

  28. JuanP on Fri, 15th Jul 2016 7:53 am 

    Yes, Marmi! Efficiencies will keep improving forever and you will never have to worry about things you can’t control. Pollution will be cleaned using infinite fussion energy and environmental destruction will be solved by our technological progress. Our never ending scientific discoveries will help us stop and reverse Climate Change and Global Warming, too. Fossil fuel and food production will never peak and our bellies will always be full and we will all live happily ever after. LOL!

    God, you are stupid! Go clip and suck your momma’s toenails or something, fucktard!

  29. ghung on Fri, 15th Jul 2016 8:10 am 

    Ignore the MarmiFool. He exposes himself as a simpleton citing ‘efficiency gains’, which are meaningless in a waste-based economy. I see it everywhere; people consuming as much as they can afford to, and they’ll continue to take back any so-called efficiency with their mindless consumptive behavior. Whatever they save in motor fuel, they’ll dispose of in endless other ways. Just more low-hanging fruit for lazy apes…

  30. MikeX11.2 on Fri, 15th Jul 2016 8:41 am 

    Efficiency CAN improve forever. An EV uses no oil.

    Also:
    http://cleantechnica.com/2016/07/15/france-issues-20-gigawatt-solar-tenders/

    You’re now at the tipping point. Solar is now cheaper than ANY Other Power Source ( except for wind in the right place ).

    The industry needs to MOVE NOW – Out of Oil.
    The smartest move would be for oil to move into wind and build out solar farms and electric networks. Unless they prefer to go bankrupt, like coal.

  31. MikeX11.2 on Fri, 15th Jul 2016 8:43 am 

    ghung, that theory is proven incorrect.

    Say I buy an EV, now my cost of transportation miles is nearly zero, I do not Double my yearly miles driven, because I’m constricted by another variable: TIME.

    People who buy EV’s may increase miles driven by not more than 5%. The efficiency savings are in no way wiped out.

    The world is a multi-variable game, and We’re Losing with Carbon.

  32. ghung on Fri, 15th Jul 2016 8:51 am 

    Mike: “Efficiency CAN improve forever.”

    Next time, stay awake in math and physics classes, Mike*. Anyway, at this point, incremental change-overs to so-called renewables is tantamount to rearranging chairs on the deck of the Titanic. The hull has been breached even as we add more passengers. Best one can do is to leverage fossil fuels to build lifeboats and hope they stay afloat. Help isn’t coming…..

    * unless by ‘efficiency’ one means far fewer humans….

  33. GregT on Fri, 15th Jul 2016 9:02 am 

    “We’re Losing with Carbon.”

    EVs are 100% reliant on fossil fuels in their manufacture, repair, maintenance, and highways infrastructure. Pretending otherwise is to be completely disingenuous.

  34. JuanP on Fri, 15th Jul 2016 12:43 pm 

    MikeX “Efficiency CAN improve forever.”

    I think Mike might win the first prize for the most ignorant quote of the day! I can’t be 100% sure though because we do have a bunch of ignorant fools posting here lately.

    Tell me Mike, can population, energy production, and resource consumption grow forever on planet Earth, too? LOL!

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