C is for Contango

From Bloomberg yesterday,

The anticipated decline in oil production resulting from low prices is taking longer than expected, according to Christopher Bake, a member of the executive committee at Vitol Group, the world’s largest independent oil trader. Both conventional crude production and U.S. shale output have been “sustained” better than forecast, he said at the conference in London Tuesday.

About 360 million barrels of crude and refined products — or about 2 million a day — will be placed into storage over the next six months, Bake said. That’s a surplus equivalent to the output of Nigeria, Africa’s largest oil producer. Onshore storage tanks are brimming and now would be a good time to own ships capable of storing oil offshore, he said.

Crude stockpiles in the U.S., the world’s largest consumer, rose above 500 million barrels last month to the highest since 1930, according to data from the Department of Energy. They are forecast to increase for a fifth week, according to a Bloomberg survey before government data released Wednesday. Inventories at the nation’s biggest storage hub in Cushing, Oklahoma, expanded to the highest since 2004 last month.

With capacity to store oil exhausted in some places, prices may need to drop low enough to halt crude output that can no longer be stockpiled, according to Jeff Currie, head of commodities research at Goldman Sachs Group Inc. “I wouldn’t be surprised if this market goes into the teens,” he said in an interview with Bloomberg Television Tuesday.

According to the UBS report today,

April Brent is trading at US$30.67/bbl; down US$0.31/bbl vs. yesterday morning. Despite the data heavy week (or perhaps because of it) crude is remarkably stable net net, although this does hide a spike related to the lower than expected build in crude in the DoE inventory data (plus the implied US supply figure is now down y/y). Record absolute inventories at Cushing became more of a focus once the DoE data was digested pulling crude back to towards the US$30 mark.

Thus, C is also for Cushing.

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