iBankCoin
18 years in Wall Street, left after finding out it was all horseshit. Founder/ Master and Commander: iBankCoin, finance news and commentary from the future.
Joined Nov 10, 2007
20,344 Blog Posts

Land Locked American Crude is Literally Worthless Now

There isn’t any end user demand because of quarantine and there isn’t any place to store the stuff, so the world has a huge problem on their hands now, when it comes to crude.

As ZH pointed out earlier, producers are essentially floating their inventory on giant tankers now, which is why day rates have exploded from $20k per day to as high as $300k.

“This is a once-in-a-generation type of event,” she said Thursday, quoted by OilandGas360.

As Bloomberg reported separately, citing Robert Hvide Macleod, CEO of tanker owner Frontline Management, “oil is going on ships at a speed never seen before,” as a result of the market’s glut; he added that vessels are being filled at five times the pace of 2015, when oil market was last heavily oversupplied. International Seaways, another owner, said on Thursday that the total volume of oil in floating storage may top 100 million barrels during this glut.

Because of this, I am long FRO — this time for good, or all least until comfortably profitable. The bigger story today is the price of regional crude supplies in the US — junk oil markets. Refiners would buy junk oil from places like Arkansas, Alabama, and Wyoming and made due with it. But with WTI trading at $20, there is zero demand for shit tier crude.

The following landlocked crude is trading minimum 50% discount to WTI, all under $10. I suspect the price to ship the crude makes it untenable.

Colorado Southeastern, North Central Colorado, Central Kansas Sweet, Eastern Kansas Common, Kansas Common, Michigan Sour, Mississippi Extra Heavy Asphaltic Sour, Central Montana, Nebraska Intermediate, Nebraska Western, North Dakota Light Sweet, Oklahoma Sour, South Texas Sour, Upper Texas Gulf Coast, Williston Basin Mixed Sweet, Eastern Wyoming Sweet, Wyoming Asphalt Sour, Wyoming Heavy Sour, Wyoming Sweet.

Wyoming Asphalt Sour trading at negative prices this month and is essentially worthless now.

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14 comments

  1. purdy

    Trump and Vlad chatted about oil today. Maybe we’ll cede our Black Sea harassment in exchange for some relief in the attack on fracking. Ha.

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  2. bambam

    And yet it never trickles down to the consumer. Gas still high in CA. Refiners pay less per barrel and charge the same or more. Making more profits. Why not just buy XOM or CHV and call it a day.

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  3. heckler

    We are seeing gas prices in the $2’s here now.

    Why the fuck do they put the oil on tankers can’t they just store it in warehouses and shit? What am I missing here?

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    • numbersgame

      On-land capacity is full.

      On a related note:
      LArge super tanker (Very Large Crude Carriers – VLCCs) hold 2M barrels -> $40,000,000 worth of oil

      At $250,000/day rate (it varies), this means that it is cheaper to dump the oil in the ocean if you can’t sell it within 6 months.

      (for a graphicsl comparison of the size of monstrously large ship types: https://en.wikipedia.org/wiki/File:Bateaux_comparaison3.png )

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      • heckler

        Must be regulations because I bet you could get some toothless farmer to stack that shit up out on his farm for less than $250k / day.

        I suppose on the plus side, the oil on the tankers is ready to ship

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  4. purdy

    Shorted /NQ right here …right now

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    • purdy

      I will cover precisely at the low of the afternoon. Good day.

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      • numbersgame

        How can you cover **exactly** at the low? You don’t know when the low is except in retrospect.

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      • numbersgame

        For the record, the aftenoon low occurred at 2:13pm, 1 minute after you went short…

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    • numbersgame

      I think that will work out pretty well.

      I was long SQQQ on Friday (-8%), so we’ll how long it takes for me to catch up.

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  5. tradercaddy

    It may be late in the game but a short in the regional banks that lend to the shale cos. and hold oil leases as collateral may be in big trouble.

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    • numbersgame

      A big problem with the markets is that they are non-capitalistic.

      For example, the FED was buying Treasury bonds, and now they are buying corporate investemnt grade bonds. They are also buying Mortgage-Backed Securitries.

      So while in a free-market, you’d be on the nose, you have to factor in whether some governemental entity (FED,SEC, Congress) will practice 1% socialism and save the bank you are betting against. That makes things much more difficult to figure out (which is why volatility acrosss all asset classes is so high). Remember that pension funds and many retail investors also hold High Yield Bonds, so the gov’t has incentive to save them.

      So the shale oil cos could go bankrupt while their bonds may still hold value.. Crazy, who knows, but good luck.

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  6. purdy

    Short TLT, initial stop at 168.7

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  7. numbersgame

    The market sneezed at 3:27pm. Was that a signal to the algos that the bull rally is over?

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