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As Chinese Refiners Flood The World, Gasoline Tankers Pile Up In New York City Harbor
by Tyler Durden
Jul 13, 2016 9:33 PM
Just over a month ago, when we pointed out that that the gasoline curve was about to shift from contango into backwardation, we said that the gasoline tanker armada off the coast of Singapore was about to start offloading as it would soon become uneconomical to hold product in offshore storage. This meant one thing: China was about to unleash a wave of accelerated gasoline exports across the entire world.
We pointed out the unprecedented surge in Chinese gasoline stocks...
... and added that as China continues to imports tremendous amounts of both crude and product, far greater than actual demand, this would send "China's gasoline stocks to even higher record levels. In other words, the global glut is now not only at the crude and distillate level, but also in global gasoline stocks."
One month later we find out that this was a correct assessment of the situation.
According to the WSJ, while initially China’s demand for oil helped soak up some of the surplus crude sloshing around the world, China is no longer the handy excess supply "buffer" it once was and as a result China's teapot refiners are now flooding markets with products including diesel and gasoline, in the latest example of how surging Chinese exports are shaking the commodities industry.
China’s total exports of refined fuels jumped 38% on-year to 4.2 million tons, or roughly 1.02 million barrels a day, in June, according to the latest data released Wednesday by the customs administration. Its refined fuel exports are up 45% overall so far this year. Much of the surge is attributable to a leap in China’s shipments of diesel. In May, China’s exports of the fuel mainly used in heavy industry had quadrupled on-year to 1.5 million tons; detailed data for June is due later this month.
The sharp rise is merely a confirmation of what many have said all along: in its relentless bailouts of all enterprises, the Chinese government is unleashing a deflationary wave around the globe, which forces Chine to dump its products to any and every buying around the globe, in the process massively undercutting prices. This mirrors similar increases in China’s exports of processed basic materials like steel in recent months, a trend that has provoked anguished complaints from governments and industry bodies across the world.
Worse, what many thought was stable Chinese domestic demand, ended up being just the filling of every possible container, not to mention the now almost full SPR, in lieu of actual domestic commodity demand. As such, China's sagging demand as the economy slows once more has left the country’s oil and metal refiners with huge surpluses they are increasingly looking to sell abroad.
“[China’s] demand for diesel continues to disappoint, mainly as a result of slower industrial output compared to [the] same period in 2015,” according to a recent report from the Organization of the Petroleum Exporting Countries.
Thus, unable to sell at home, China is aggressively exporting the latest deflation tidal wave, and the flood of Chinese diesel and other refined products spilling outward is bringing down prices in Asia, hitting China’s regional rivals hard. Refining margins—the difference between what refiners pay for crude versus the prices of the refined products they sell—have dropped by a third to around $4 a barrel since the first quarter across Asia, according to a report by J.P. Morgan.
Gasoline hasn’t proved immune.
Despite relatively strong demand within China as passenger vehicle sales continue to rise, China has been exporting more, with shipments doubling in May from last year to 780,000 tons. “[Global gasoline] demand was off the chart last year and margins were in the double digits. All the refiners were incentivized to produce gasoline,” said Michal Meidan, a China specialist at Energy Aspects, a London-based energy research firm. “But demand for this year is not as stellar, so you have a surplus of gasoline everywhere,” she said.
That is most certainly true not only for China, but as we noted earlier in our post about oil's "death spiral" in the US as well, where plunging crack spreads likewise confirm that the US also now finds itself with far too much product (albeit due to different dynamics). As we have explained previously, much of the increase in Chinese refined product exports is due to shifts in the way the industry is regulated at home. Beijing has more than doubled the amount it allows refiners to sell abroad this year, according to Energy Aspects data. The resurgence of China’s independent crude refiners, known as teapots, has also been key.
Last year, Beijing allowed these teapots to directly import crude from abroad for the first time, rather than having to buy more expensive crude from domestic state-owned oil companies. Their subsequent ramp-up in production has provided big state-owned refiners such as Sinopec and China National Petroleum Corp. with greater competition at home, leading them to sell more abroad.
But the worst news is that this is just the beginning:
Teapot refiners could also soon export more too: Some are aiming to ship 50% of their total output abroad within three years, up from around 10% currently, says Nelson Wang, energy analyst at brokerage CLSA, based on recent conversations with a number of such operators.
But who will they sell too? After all the world is already flooded with gasoline? Well, for a low enough price, they will find buyers. Teapots already often sell refined products at a discount compared to their rivals at home and abroad to attract customers. “This is just the beginning, and the bigger threat [on margins] is yet to come,” Mr. Wang said.
But the worst possible case is if China's economy were to hit another major snag. As the Chinese government seeks to steer the economy from an industry-heavy focus to a consumption-based one, domestic demand for refined fuels could wane further, in turn stoking more exports of diesel, analysts say. In turn, analysts say China’s crude imports could also decline: they hit a five-month low in June at 30.62 million tons, though that was still up 3.8% on-year.
Chinese refineries’ rising output could keep its gasoline exports high too. The country’s gasoline production could outpace domestic demand growth by 9% this year, according to analysts at energy researcher ICIS.
“Exports are still the main solution for China to mitigate the oversupply of gasoline,” said ICIS, forecasting China’s shipments this year to hit 8 million metric tons, or 160,000 barrels a day, a jump of 40%.
And while Chinese gasoline exports have not hit the US yet (and they well may eventually), the US is already having a major problem with storing all the gasoline the rest of the world has to export. None other than the IEA in its monthly report said that the global gasoline glut is so big that tankers are now storing in New YOrk's harbor. “Brimming” inventories, concern over gasoline demand in key markets, “weighed down” prices for the fuel in June. The IEA also adds that some companies "have been forced to turn to floating storage in the New York Harbour area."
As Reuters reported last week, at least two tankers carrying gasoline-making components have dropped anchor off New York Harbor for nearly a week, unable to discharge their cargoes in the latest sign that storage for the fuel is running out, traders said. Several tankers with gasoline have also been diverted from the New York region to Florida and the U.S. Gulf Coast in recent days, a rare move that underscores oversupply in the pricing hub for the benchmark U.S. gasoline.
The 74,000 tonne tanker EMERALD SHINER , carrying a cargo of alkylite from the west coast of India has been anchored off the New York Coast since June 28, according to Reuters shipping data and traders.
The 37,000 tonne ENERGY PROGRESS , with a cargo of reformate from Turkey, has similarly been waiting outside New York since June 28.
Furthermore, at least three cargoes of gasoline from Europe, which heavily relies on exports to the U.S. East Coast, have been diverted in recent days from New York Harbor to Florida and the U.S. Gulf
Coast, ship tracking showed.
Those include the tankers ENERGY PATRIOT , SEASALVIA and ANCE.
“Tanks are full to the brim in New York Harbor,” a trader said.
There is much more on this topic, but at its core it is a very simple story of too much supply and not enough demand.
And now that the market is finally realizing what happened, the understanding that oil's "death spiral - edition 2016" is being catalyzed not just by oil market dynamics, but by oil products such as diesel and gasoline, is finally being appreciated by the market... just as we predicted would happen back in February.
Why Oil’s Downward Slide Is No Joke
By Ellen R. Wald, Ph.D. 1 hour ago
At the end of last week, the price of oil suddenly dropped 5%. This slide comes on the heels of news that crude oil stockpiles in the United States did not fall enough – only 2.2 million barrels during the week of July 1. This means that refineries used much less crude oil than anticipated for this this early summer season. Gasoline inventories fell less than expected as well – only 122,000 barrels were used when over 300,000 were expected.
This data indicates what world events have been hiding for the past few months – that there is still a global glut of oil and gasoline. Absent new events, the price of oil should continue to slide to reflect this.
Glut in the United States
Americans are driving. They just aren’t driving enough to make a dent in the fundamentally oversupplied oil market and in the massive inventory of stored crude oil. Typically, U.S. refineries draw extra crude oil at this time of year to make more gasoline for the vacation season demand. However, when oil was cheap in prior months, refineries drew more crude oil, meaning they already met today's increased demand months ago. This extra gasoline explains the EIA’s July 1 numbers and exposes the oil glut that global events had been hiding.
Tanker Overload
Satellite photos tracking oil tankers around the world illustrate the oil glut visually. Dots and arrows indicate a traffic jam of super-tankers clogging lanes between the Persian Gulf and China. The worst bottlenecks are visible around Singapore, where ground photographs reveal a parking lot of ships waitingto enter ports in Asia and unload cargoes. The contango situation also exacerbates these traffic jams because it is still cheap enough to keep oil stored on ships while owners wait for oil prices to climb. However, this risks a sudden flood on crude oil into the market and a corresponding slide in oil prices.
Masking the Glut
Global events in Nigeria, Canada, Libya, and Iran have helped hide the oil glut situation so far this summer. The Niger Delta Avengers, a terrorist organization in Nigeria dedicated to destroying Nigerian oil infrastructure, have done significant damage, but not enough to make a serious dent in global oil production. Wildfires in Canada shut down production in the Alberta tar sands, temporarily, but the fire has been extinguished.Hostility between rival producers in Libya resulted in a suspension of Libyan oil exports for several weeks. News of possible strikes amongst Norwegian and Kuwaiti oil workers also lifted oil prices temporarily, though these labor issues were resolved before any serious stoppage occurred. Speculation has magnified the effects of geopolitical, labor, and environmental events and helped push the price of oil higher than it should have been.
Oil’s Current Slide
News that China’s so-called “teapot” (aka independent) refiners are processing less crude oil, alongside news of increased production in U.S. shale oil regions helped push the price of oil lower as markets opened this week. The question is whether this current slide will bring the price of oil down to the low $40s or if some geopolitical, labor, or environmental issue will pop up and hide the glut again.
http://www.investing.com/analysis/oil%E2%80%99s-slide-is-no-joke-200141227
27.19. Bought to soon.
Added more at 27.92.
Good job!
I sold some of mine at 78.74 :(
WTI 48.20 -0.79 -1.61%
WTI 46.16 -1.48 -3.11%
WTI 46.83 -0.81 -1.70%
After Friday’s Epic Trading Day, This Week’ Price Action Now Extra Critical For Many Markets
By Jim Wyckoff of Kitco News
Sunday June 26, 2016 12:27
(Kitco News) - The surprising vote last Thursday by U.K. citizens to leave the European Union sent shock waves throughout the world marketplace. Very few times are markets “wrong-footed” on fundamental news events, but the Brexit vote was a huge miscalculation by the general marketplace. Many markets on Friday experienced huge and even record daily price trading ranges. Gold futures saw a whopping daily trading range Friday of $110.00.
Now is an extra important timeframe for many markets. High volatility may continue this week. And by the end of this week, new price trends in many markets could be well established that will dictate price action into autumn, and even beyond.
Let’s take a look at some of the key markets most likely to see volatile price action this week, and their implications on other markets.
Gold: Once again the gold market has proven the “perma bears” wrong. Gold prices surged to a 27-month high Friday on the uncertainty surrounding the Brexit news and on the high volatility in other markets. A price uptrend on the weekly continuation chart for nearby gold futures has been established, to suggest more upside price action in the coming weeks.
History once gain repeats itself in the marketplace
Importantly, gold is one example of the powerful cyclical nature of raw commodity market prices. Earlier this year gold prices began to rally, along with crude oil and some other major raw commodity markets, for no clear-cut reason. What happened was that the major “bust cycle” in the raw commodity sector petered out and the beginnings of a new “boom cycle” were under way. A look at longer-term charts for most raw commodity markets shows the keen boom and bust cycles that those markets experience every few years.
U.S. Treasury Bonds: I wish I had a dollar for every time over the past 20 years that I’ve said the bond market bulls are resilient and that the trading landscape is littered with would-be top-pickers. I could probably buy a good meal for my wife and I. On Friday nearby U.S. T-Bond futures scored a new all-time modern historical high in prices. The weekly bond chart shows a big and bullish “outside week” up was scored, whereby the week’s high was higher and low was lower than the previous week’s trading range. If bond market bulls continue to march higher, there would be serious economic and financial implications. Such would suggest continued tepid world economic growth, or stagnation, a very low inflationary environment continuing, or even price deflation, and likely further stimulatory monetary policy moves by the world’s major central banks. None of the above is at all good. If indeed U.S. Treasury bond prices continue to climb in the coming months, look for the other safe-haven markets to also benefit: gold and the U.S. dollar.
U.S. Dollar Index: The weekly continuation chart for U.S. dollar index futures shows a bullish “outside week” up was scored last week. Also, the price downtrend on the weekly chart was negated. The greenback bulls have gained good upside technical momentum. I suspect the U.S. dollar index will continue to trend sideways to higher in the coming weeks, or longer. That’s a bearish element for the raw commodity sector. Most major commodities are priced in U.S. dollars on the world markets. When the dollar appreciates, it makes those commodities more expensive to purchase with non-U.S. currency.
British Pound: The Brexit vote late last week caused the biggest one-day price fluctuation in the history of British pound and Euro currency trading. Nearby British pound futures prices fell to a new modern historical low on Friday. The serious technical damage produced on the charts suggests there is more downside pressure coming for both the pound and the Euro currency. Such would be a bullish element for safe-haven assets like gold, the U.S. dollar and U.S. Treasuries.
S&P Stock Futures: Friday’s price action in the U.S. stock indexes again proves that history repeats itself in the marketplace. Prices Friday saw a huge and technically bearish “outside week” down, to strongly suggest we’ve probably already seen the highs in the U.S. stock indexes for this year. Again, if that’s the case, you will see continued price appreciation in the safe-haven assets like gold.
Nymex Crude Oil: Friday’s events in the world marketplace also worked to pressure crude oil prices. However, the losses were not severe in oil and an uptrend line remains in place on the weekly continuation chart for nearby Nymex crude oil futures. Still, Friday’s price action in other markets suggests it will very difficult for crude oil prices to make headway on the upside in the coming weeks or few months.
By Jim Wyckoff, contributing to Kitco News; jwyckoff@kitco.com
http://www.kitco.com/news/2016-06-26/After-Friday-s-Epic-Trading-Day-This-Week-Price-Action-Now-Extra-Critical-For-Many-Markets.html
Dow Futures down 700.00.
Dow Futures down 618.00
Gold was up $104 earlier this evening!
BREAKING: Dow futures plummet 600 points as ITV, BBC project that U.K. will leave E.U.
CNBC Now
Retweeted by CNBC
4:48 AM - 24 Jun 2016
http://www.cnbc.com/2016/06/23/live-margets-edgy-as-voting-closes-in-historic-eu-referendum.html
WTI 46.98 -3.13 -6.25%
WTI 46.85
Remain 48.4% - 11,897,770 votes
Leave 51.6% - 12,692,601 votes
301 / 382 declarations
WTI 47.35 -2.76 -5.51%
WTI 47.60 -2.51 -5.01%
Gold is at 1297.20 up 41.80
Remain 48.5% - 7,757,768 votes
Leave 51.5% -8,236,715 votes
202 / 382 declarations
Dow Futures: down 372!
Gold is up $22.60.
Remain 49.2% 5,059,777 votes
Leave 50.8% 5,226,315 votes
142 declarations
WTI 48.03
WTI 48.89 -1.22 -2.43%
WTI 50.05 +0.92 +1.87%
I added more at 69.11.
WTI 49.62 +0.49 +1.00%
Crude Is Crashing (Again)
by Tyler Durden - Jun 22, 2016 1:41 PM
What goes up (on the back of a headline about the death of a UK lawmaker) comes down faster (on the back of fundamentals - DOE inventories rising and China demand slowing)...
It appears crude is even more senstive to the Brexit polls than cable... thank you Johnny 5!
http://www.zerohedge.com/news/2016-06-22/crude-crashing-again
WTI 49.24 -0.72 -1.44%
WTI 49.75 -0.81 -1.60%
WTI 51.56 +0.33 +0.64%
WTI 51.06 +0.70 +1.39%
I added more earlier this morning at 64.87
WTI 50.54 +0.18 +0.36%
WTI 50.07 +0.38 +0.76%
DWTI was at 70.16 earlier this morning.
WTI 49.05 +0.43 +0.88%
WTI 48.69 -0.48 -0.98%