Tag Archives: Oil prices

Oil prices, Oil storage

US running out of room to store oil; price collapse next?

Repost from The Associated Press

US running out of room to store oil; price collapse next?

By Jonathan Fahey, AP Energy Writer, Mar 4, 1:01 PM EST
Older and newly constructed 250,000-barrel capacity oil- storage tanks north of Cushing, Okla. Extra crude is flowing into storage tanks now, especially in Cushing. (Michael Wyke/AP)
Older and newly constructed 250,000-barrel capacity oil- storage tanks north of Cushing, Okla. Extra crude is flowing into storage tanks now, especially in Cushing. (Michael Wyke/AP)

NEW YORK (AP) — The U.S. has so much crude that it is running out of places to put it, and that could drive oil and gasoline prices even lower in the coming months.

For the past eight weeks, the United States has been producing and importing an average of 1.1 million more barrels of oil every day than it is consuming. That extra crude is flowing into storage tanks, especially at the country’s main trading hub in Cushing, Oklahoma, pushing U.S. supplies to their highest point in at least 80 years, according to the Energy Department.

If this keeps up, storage tanks could approach their operational limits, known in the industry as “tank tops,” by mid-April and send the price of crude – and probably gasoline, too – plummeting.

The supply growth may even be speeding up.  U.S. crude supplies rose 10.3 million barrels last week, the government said Wednesday, the largest weekly increase since October 2002.

“The fact of the matter is we are running out of storage capacity in the U.S.,” Ed Morse, head of commodities research at Citibank, said at a recent symposium at the Council on Foreign Relations in New York.

Morse has suggested oil could fall all the way to $20 a barrel from the current $50. At that rock-bottom price, oil companies, faced with mounting losses, would stop pumping oil until the glut eased. Gasoline prices would fall along with crude, though lower refinery production, because of seasonal factors and unexpected outages, could prevent a sharp decline.

The national average price of gasoline is $2.44 a gallon. That’s $1.02 cheaper than last year at this time, but up 37 cents over the past month.

Other analysts agree that crude is poised to fall sharply – if not all the way to $20 – because it continues to flood into storage for a number of reasons:

– U.S. oil production continues to rise. Companies are cutting back on new drilling, but that won’t reduce supplies until later this year.

– The new oil being produced is light, sweet crude, which is a type many U.S. refineries are not designed to process. Oil companies can’t just get rid of it by sending it abroad, because crude exports are restricted by federal law.

– Foreign oil continues to flow into the U.S., both because of economic weakness in other countries and to feed refineries designed to process heavy, sour crude.

– This is the slowest time of year for gasoline demand, so refiners typically reduce or stop production to perform maintenance. As refiners process less crude, supplies build up.

– Oil investors are making money buying and storing oil because of the difference between the current price of oil and the price for delivery in far-off months. An investor can buy oil at $50 today and enter into a contract to sell it for $59 in December, locking in a profit even after paying for storage during those months.

The delivery point for most of the oil traded in the U.S. is Cushing, a city of about 8,000 people halfway between Oklahoma City and Tulsa at an intersection of several pipelines. The city is dotted with tanks that can, in theory, hold 85 million barrels of oil, according to the Energy Department, though some of those tanks are used for blending or feeding pipelines, not for storing oil.

The market data provider Genscape, which flies helicopters equipped with infrared cameras and other technology over Cushing twice a week to measure storage levels, estimates Cushing is two-thirds full.

Hillary Stevenson, who manages storage, pipeline and refinery monitoring for Genscape, says Cushing could be full by mid-April. Supplies are increasing at “the highest rate we have ever seen at Cushing,” she says.

Full tanks – or super-low prices – are not a sure thing. New storage is under construction at Cushing, and there are large storage terminals near Houston, in St. James, Louisiana, and elsewhere around the country that will probably begin to take in more oil as prices fall far enough to cover the cost of transporting the oil.

Also, drillers are quickly cutting back because oil prices have plummeted from $107 a barrel in June. And demand is showing signs of rising.

Despite the enormous increase in crude stocks reported Wednesday, inventories of gasoline did not rise and diesel fuel inventories have fallen slightly over the past two weeks. That leads some to conclude that demand for crude could soon pick up, easing the surplus somewhat.

But many analysts believe oil prices will fall through the spring, before summer drivers start to relieve the glut.

Oil Industry, Oil prices, Oil producers

AP: Oil on wild ride: How will it end?

Repost from The Seattle Times (AP)

Oil on wild ride: How will it end?

Predicting oil prices is especially tricky now because the oil market has never quite looked like this. Oil-price collapses of the past were triggered either by plummeting demand or an increase in supplies. This latest one had both.

By JONATHAN FAHEY, 2/10/15

An oil well owned by Apache Corp. in the Permian Basin in Texas. As prices have fallen globally, many U.S. communities that depend on oil revenue are bracing for hard times.
An oil well owned by Apache Corp. in the Permian Basin in Texas. As prices have fallen globally, many U.S. communities that depend on oil revenue are bracing for hard times. | Spencer Platt / Getty Images

NEW YORK — The price of oil is on a wild ride, and there is little agreement on where it’s headed.

After falling nearly 60 percent from a peak last June, the price of oil bounced back more than 20 percent as January turned to February. Then, on Tuesday, it sank 5 percent, closing just above $50.

Oil has fallen or risen by 3 percent or more on 14 of 27 trading days so far this year. By comparison, the stock market hasn’t had a move that big in more than three years.

Predicting prices is especially tricky now because the oil market has never quite looked like this. Oil price collapses of the past were triggered either by plummeting demand or an increase in supplies. This latest one had both.

Production in the U.S. and elsewhere has been rising, while slower economic growth in China and weak economies in Europe and Japan mean demand for oil isn’t growing as much as expected.

As recent trading shows, any sign of reduced production inspires traders to buy oil, and every new sign of rising supplies sends prices lower. In a report Tuesday the U.S. Energy Department, citing unusual uncertainty, said the price of oil could end up anywhere from $32 to $108 by December.

“There are many more laps to come on this roller coaster,” said Judith Dwarkin, chief economist at ITG Investment Research.

As oil bounces up and down, so will the price of gasoline, diesel and other fuels. Almost no one expects a return to the very high prices of the past four years, so drivers and shippers will continue to pay lower prices. It’s a question of how much less, and for how long.

Those expecting a quick and lasting price jump see mounting evidence that drillers in the U.S. are pulling back fast because they’re no longer making money. A closely watched survey by the oil-services company Baker Hughes shows that the number of rigs actively drilling for oil fell to 1,140 last week, down 29 percent from a record high of 1,609 in October.

Oil companies have announced spending cuts in the billions of dollars; oil-service companies have announced layoffs of thousands of workers.

If companies stop drilling new wells in North Dakota and Texas, the centers of the U.S. oil boom, overall U.S. production could fall fast. Output from most of those wells declines far more quickly than production from more traditional wells. Analysts at Bernstein Research estimate that U.S. production declines at 30 percent a year without constant investment in new wells.

A quick decline in production would send prices higher by reducing global supplies. At the same time, demand could be on the rise. The U.S. economy seems to be improving rapidly, and demand for gasoline is increasing. Global demand may also rise somewhat simply because low prices tend to encourage more consumption.

If the oil bulls are right, it means prices for transportation fuels would rise and the slowdown in drilling activity in the U.S. would perhaps be short-lived.

Others say oil production is still rising and demand isn’t yet catching up — a recipe for lower oil prices.

The oil bears argue that there are plenty of rigs still working, and they are now focused only on the most prolific spots. Also, oil-services companies are charging significantly less for equipment and expertise. This means oil companies may be able to keep oil supplies rising from already high levels despite low prices.

The Energy Department reported last week that there was a record 1.18 billion barrels of oil in storage in the U.S. ITG’s Dwarkin estimates that in the first half of this year the world will be producing, on average, 2 million barrels per day more than it will be consuming.

Analysts at Bank of America Merrill Lynch say $32 a barrel is possible. Ed Morse, an analyst at Citi, called the recent rise in prices a “head fake” and predicts oil could plunge into the $20 range, the lowest since 2002.

The bears also don’t expect much increase in demand. Many developing nations are cutting back on fuel subsidies, which means that consumers could be buying less fuel, not more.

And demand in the United States and other developed nations won’t rise much, they argue, because of environmental policies and high fuel taxes.

After its recent rise, some think oil may already be close to finding its level.

The International Energy Agency said in a report Tuesday that prices will stabilize in a range “higher than recent lows but substantially below the highs of the last three years.”

In the past, once production went offline it took years to bring it back. Now, the IEA said, drillers can quickly and easily tap shale deposits to bring new oil to market as soon as supplies fall or demand rises. That should help keep a lid on prices.

Tom Pugh, an analyst at Capital Economics, forecasts that Brent crude, the most important benchmark for global crude, will end the year around $60 a barrel, within $4 of where it closed Tuesday — and to be at $70 by the end of 2020.

That doesn’t mean, however, that there won’t be further bumps along the way. “We wouldn’t be surprised to see more large price movements before the market settles down,” Pugh wrote.

 

Oil Industry, Oil prices

After brief rally, oil price slumps again as US crude inventories surge

Repost from ABC News (AP)

Oil Price Slumps Again as US Crude Inventories Surge

NEW YORK — Feb 4, 2015

Oil prices plunged on Wednesday, ending a four-day rally, after the U.S. government reported that crude inventories surged last week.

The 6.3 million barrel increase was far more than analysts had expected and renewed worries in the market that supplies of oil are still outstripping demand.

Oil had rallied 19 percent over the previous four days as traders hoped that low prices would force more energy companies to curtail exploration and production.

U.S. benchmark crude dropped $4.60, or 8.7 percent, to settle Wednesday at $48.45 a barrel in New York.

The price of oil reached its highest point of the year Tuesday, leading to speculation that a long-running collapse was abating. The price has been falling sharply since last June, when it peaked at $107 a barrel.

Brent crude, a benchmark for international oils used by many U.S. refineries, declined $3.75, or 6.5 percent, to close at $54.16 a barrel in London.

In other futures trading on the NYMEX:

— Wholesale gasoline fell 12 cents to $1.482 a gallon.

— Heating oil fell 8 cents to close at $1.767 a gallon.

— Natural gas fell 9.2 cents to close at $2.662 per 1,000 cubic feet.

Bakken Crude, DOT-111, Federal Regulation (U.S.), Oil Industry, Oil prices, Rail industry, Tank car manufacture, Tank car retirement, Tank car retrofit

Rail Tank-Car Orders Threatened by U.S. Crude’s Collapse

Repost from Bloomberg News

Rail Tank-Car Orders Threatened by U.S. Crude’s Collapse

By Katherine Chiglinsky, January 22, 2015

(Bloomberg) — Add tank-car makers to the list of U.S. industries bracing for the effects from the plunge in crude prices.While 2014’s record orders, including an all-time high 42,900 in the third quarter, will drive deliveries this year, according to Susquehanna International Group, manufacturers from Carl Icahn’s American Railcar Industries Inc. to Warren Buffett’s Union Tank Car Co. are facing a decline. New bookings in 2015 may plunge 70 percent, Macquarie Capital USA Inc. said, putting earnings at risk when scheduled deliveries drop in 2016.

Oil prices down 49 percent since June have crimped investment in U.S. fields including the Bakken range, where horizontal drilling and hydraulic fracturing is more expensive than conventional oil drilling. That has hurt industries from steel to heavy equipment. It also has slowed the boom in oil-by-rail shipping, which along with new federal safety rules, had fueled the record orders.

“The confidence of the industry has been shaken quite seriously,” Cleo Zagrean, a New York-based analyst for Macquarie Capital said by phone Jan. 15.

Tank-car maker stocks have suffered amid the oil price decline, with shares of Trinity Industries Inc. dropping 40 percent in the fourth quarter, according to data compiled by Bloomberg. American Railcar shares fell 30 percent and Greenbrier Cos. dropped 27 percent.

“It’s having an impact already,” said Art Hatfield, a managing director of equity research at Raymond James & Associates Inc. in Memphis, Tennessee. “I think the forward-looking minds are realizing that we may have hit a cyclical peak within the industry.”

New freight-car orders fell to 37,431 in the fourth quarter, down 13 percent from record highs, according to data from the Railway Supply Institute, reported Thursday. Leasing company GATX Corp.’s deal with Trinity added 8,950 new car orders in the fourth quarter. Those cars will be delivered over a four-year period beginning March 2016.

Backlogs swelled to a record 142,837 orders the Washington-based RSI said. These may bolster the industry through 2015.

Throughout last year, buyers piled on requests for cars amid an oil boom in North Dakota and Texas. Freight-car bookings and backlogs swelled to record highs even as West Texas Intermediate crude oil prices fell 14 percent between July and the end of September, according to data compiled by Bloomberg.

Orders for cars that carry cement and frac sand, a resource instrumental in the U.S. shale boom, declined in the fourth quarter from a record, according to Bascome Majors, an Atlanta-based transportation and rail-equipment analyst for Susquehanna International. Falling oil prices might temper future demand for frac-sand cars, he said.

Significant Hit

Oil prices tumbled 18 percent in November and 19 percent the next month, ending the year with the steepest monthly loss in six years, data compiled by Bloomberg show.

“The oil price drop is a significant hit” to the tank-car industry, Macquarie’s Zagrean said. As customers re-evaluate the cost of new cars, even extensions on orders can weaken manufacturers’ earnings, she said.

Freight-car producer Greenbrier has dodged order cancellations as oil prices fell. Only one customer approached the company about canceling an order but has yet to call the deal off, William Furman, chief executive officer, said in a conference call Jan. 7.

Trinity had not seen any “appreciable impact” on its business from the low oil prices in the third quarter, Stephen Menzies, group president of the company’s rail and railcar leasing group, said in an earnings call October 29. The company stands by those comments, spokesman Jack Todd said in a Jan. 21 e-mail.

Union Tank Car spokesman Bruce Winslow declined to comment on the company’s orders. GATX’s director of investor relations Jennifer Van Aken didn’t return phone calls seeking comment.

In addition to concerns that low oil prices will threaten demand, the industry faces new regulations spurred by accidents including the July 2013 derailment and explosion in Lac-Megantic, Quebec, that killed 47 people.

Phase Out

The U.S. Pipeline and Hazardous Materials Administration plans to issue rules to phase out older rail cars that carry crude in the coming month, Susan Lagana, a PHMSA spokeswoman, wrote in an e-mailed statement Jan. 15. The type of tank car most implicated in spills, known as the DOT-111, would be phased out or rebuilt to meet the new standards within two years for the most volatile crude oil, according to the proposal.

New rules may create “quite a lot of replacement demand,” Greenbrier CEO Furman said in the earnings call. Currently, the Lake Oswego, Oregon-based company’s tank-car orders comprise just slightly more than a quarter of its backlog, according to company spokesman Jack Isselmann.

Owners are expected to scrap more than a fifth of an estimated 117,000 tankers that would require modifications. The work, which may include adding full height steel shields at the ends and adding a metal jacket around the body, is estimated to cost between $27,000 and $46,700 per car, an RSI study said.

Safety Concerns

BNSF Railway Co., which like Union Tank Car is owned by Buffett’s Berkshire Hathaway Inc., delayed an order of 5,000 new and safer oil-tank cars until the new safety standards are set. The railroad said last year that it would buy the new cars because of safety concerns even though railroads typically don’t own the cars that their locomotives haul on the track.

Many of the orders for safer tank cars might already be included in the backlog as buyers line up in anticipation, Hatfield of Raymond James said.

“This industry has really earned a lot of money in the last few years due to this tank-car boom and when that goes away, it’s going to have an impact on peoples’ businesses,” he said.