Thursday, 14 January 2016

Crude oil prices have declined 51 % since June, 2015

Warning: I'm no economist.

The news here is that crude oil prices have declined 51 % since June.

It seems to me that price messages and geopolitical events should by right have driven prices back up.

Instead of that they are falling rapidly - $30 a barrel and below.

This means, together with all the other indicators (like all commodities prices), the fall-off in world shipping that there is a major fall-off in global demand although Saudi's games with Russia may also have initially played a role.

This is a rapidly-moving game.

Watch this space.

Tanker Rates Tumble As Last Pillar Of Strength In Oil Market Crashes

13 January, 2015

If there was one silver-lining in the oil complex, it was the demand for VLCCs (as huge floating storage facilities or as China scooped up 'cheap' oil to refill their reserves) which drove tanker rates to record highs. Now, as Bloomberg notes so eloquently, it appears the party is over! Daily rates for benchmark Saudi Arabia-Japan VLCC cargoes have crashed 53% year-to-date to $50,955 (as it appears China's record crude imports have ceased).

In fact the rate crashed 12% today for the 12th straight daily decline from over $100,000 just a month ago...

China imported a record amount of crude last year as oil’s lowest annual average price in more than a decade spurred stockpiling and boosted demand from independent refiners.

China's crude imports last month was equivalent to 7.85 million barrels a day, 6 percent higher than the previous record of 7.4 million in April, Bloomberg calculations show.

China has exploited a plunge in crude prices by easing rules to allow private refiners, known as teapots, to import crude and by boosting shipments to fill emergency stockpiles. The nation’s overseas purchases may rise to 370 million metric tons this year, surpassing estimated U.S. imports of about 363 million tons, according to Li Li, a research director with ICIS China, an industry researcher.

But given the crash in tanker rates - and implicitly demand - that "boom" appears to be over.

Shipbroker analysts blame fewer January cargoes and oil companies using their own vessels for shipment as the main reasons for the dramatic decline. As Bloomberg adds,

Oil tanker earnings boomed thanks to the very thing that drove down crude prices: an abundance of supply that made ship-fuel cheaper and shipments plentiful. This month, shipbrokers report a slump in spot cargoes from the Middle East.
While they say it would be premature to suggest that has implications for the region’s output, the plunge in ratesshows just how sensitive owners are to monthly fluctuations in shipments.

The good news after all this carnage is that, even before today's plunge, collapsing tanker rates were already pushing economics for floating storage (the carry trade) closer to be proditable.

You have to look for it, but it there. The SMH has live coverage of the stock market rout - Markets Live: Investors rush to the exits

Oil prices have dropped 51 per cent since June, 2015

The crude oil rout, which pushed the spot price under $US30 for the first time in 12 years, may be hurting the producers, but it's delivering windfall profits for Australia's four remaining oil refineries.

BP, ExxonMobil, Caltex and new local player Viva Energy are enjoying some of the strongest profit margins on refining for years, in stark contrast to the bloodbathtaking place in oil and gas production and expectations just 18 months ago.

While crude oil prices have dropped 51 per cent since the end of June, petrol priceshave fallen about 15 per cent.

Retail petrol prices in Sydney fell close to $1 a litre early this month and have since risen despite the slide in crude oil prices. Across the country, the price for regular unleaded petrol averaged $1.22 a litre last week, up 2¢ from the first week of the year, according to the Australian Institute of Petroleum.

One of the beneficiaries is a large refinery in Geelong, which commodities trader Vitol bought from Shell in early 2014 when most expected the ageing, unprofitable plant to be forced to close. Vitol owns Viva Energy, which operates the plant.

"Lower oil prices and lower exchange rates have overall been good for refining in Australia," Viva chief executive Scott Wyatt said.

"A high Australian dollar has been particularly challenging for manufacturing businesses, so the currency depreciation over the last 12 months has certainly been a very welcome relief."

Refining margins are set in Singapore and local players have no control over them. But margins on retailing petrol and diesel have climbed and were the highest in the September quarter since at least 2002, the competition watchdog said last month.

The findings triggered accusations of price-gouging that were roundly rejected by the industry, which includes refineries that were suffering heavy losses until recently.
The weaker dollar, which traded at US70.13¢ on Wednesday, means the drop in global crude prices hasn't been fully felt at the petrol pump. Also, pump prices typically rise sharply when crude prices rise, and then only show a slow decline as retailers try to undercut their competitors, industry sources say.

Oil price in terms indicates petrol should be near 90 cents/litre. Big rise in refiner margins.See today's AFR p1

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