Oil at $40

On 4/16/2019 at 8:00 PM, Jan van Eck said:

No need to wait, Tom, here I am!  Now, here is why WTI oil is headed for twenty seven bucks:   

First up, that EV car thing is not going to happen as fast as might be surmised, for the elemental reason that they cost too much. Further, the biggest cost by far in auto operation is not the fuel nor the complications of repairing the ICE engine.  It is far more prosaic: the mundane application of vast amounts of salt on the road surfaces, in the misguided idea that this gets you a bare road with no ice and snow.  All that salt gets in everywhere and rusts everything to oblivion.  An auto in the Rust Belt will start to perforate in two years flat. Think about the implications of that. 

Second up, the big shift will not be to EVs, it will be to electric bicycles, electric motorcycles, and electric sidecars. And manual bicycles, the really cheap versions. Cheap to buy, and cheap to run.  The planet is going broke from debt overload, so chopping expenses will be the mantra of the millennial generation - not virtue signaling. Nobody has the money for virtue signaling any more.

Third, the next big push will be in building construction, likely using cross-laminated timber.  That is the way forward to net-zero-energy, in that energy losses for buildings (thus needing heat) in colder climates flows from two points:  convective losses, and radiative losses.  If you build with steel and concrete, or homes with concrete or stick-built wood, then your convective losses can be stayed by wrapping the building in a sheet of plastic, and putting caulking around the windows, that sort of thing. But you are not stanching the radiative losses.  Solid lumber is an effective barrier to heat transfer by radiation.  Will CLT take off as the new building material?  I am betting it will. Buildings have already been constructed up to 19 stories, all CLT, no steel. 

Fourth, you will see both heat and power industries being dominated by new nuke reactor designs.  Those will be yet another disruptor technology, and slash the demand for oil for space heating.   How fast will all this happen?  Very fast.

Agree with most of what you say - hope in my heart it happens.

Except nuclear - that is not going to happen. For a very long time people have questioned what utility economics/investment practice has to offer to the world - we have the answer now, and its called behavioral economics.

It is well known that roads have more accidents per traveling population than airplanes do (air travel is much much safer). Look at the recent Boeing fiasco. I am not saying Boeing was not at fault - or that they should not be set right. But even airlines and regulators, who should be saner and take a more broader perspective of the matter, are hell bent on phasing out the 737 max. Why - because the passengers are scared shitless of traveling in a 737 Max. Cause instead of 1-2 casualties spread across the year (road), the 2 accidents led to the death of 100s of people at one go. Now extend this to nuclear and you know why it will never happen, IMHO.

https://en.wikipedia.org/wiki/Behavioral_economics

There is a reason nuclear power share is going down - its not a good reason - but people dont care.

Lets move on to Wind/Solar.

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5 hours ago, William Edwards said:

Recent history suggests that US production continues to grow at today's prices. Inventory data suggest that the world is adequately supplied with OPEC "underproducing" by two million barrels a day. It might be interesting to imagine the price profile if OPEC, with or without Russia, decided to try to regain that two million barrels a day of market share. The key question is "Where would they put that unwanted two million barrels a day of unwanted production, and how low must they drop the price to try to force it into the market?"

And I am betting the answer is:  $27. 

That said, at those price levels some other demand opportunities will open up.  Logically, you will see an expanded demand for plastics and monomer chemicals.  Plastics, the olefins, the styrenics and the nylons, are materials that are substitute goods, in that whatever es manufactured of say paper, or metals, or wood, can also be made in plastics. If the plastics become cheaper,because the feedstocks become much cheaper, then some of that oil production being rammed into the marketplace will end up being absorbed into plastics. To illustrate, you can build wooden freight pallets out of lumber.  Or, you can mold plastic pellets in some massive injection-molding machine. Which to use?  Depends on which would have the lower cost to the buyer. 

Get the price down far enough, and the plastics industry takes off.  Lots of potential out there. 

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2 hours ago, Jan van Eck said:

And I am betting the answer is:  $27. 

I'll be dyslexic and bet an average of $72 Brent for this year.  (Last year's Brent average was $71.)

$70.00 Brent seems to be my current optimum price, but oil traders seem to insist on going overboard and pushing toward $80 (again) this Summer.

https://www.linkedin.com/feed/update/urn:li:activity:6523800705378197504

 

/ p.s. I really am dyslexic, but over the decades I've learned how to deal with and mostly control my dyslexia, rather than fight it.

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Its not going back to 40 for a long time. Not worried and do not mind paying more for gas.

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8 hours ago, wrs said:

No risk of $40 oil this week anyway, US production dropped and inventories fell across the board with both gasoline and oil inventories now below the 5 year average.  Only 6mmbbl/day were imported last week and I recall back when we had lower for longer that there were plenty of weeks during Feb-Apr when the imports were well into the 8mmbbl/day range.  So the strategy by KSA of not sending much oil to the US is working.  In addition, imports from Venezuela are at zero for the last month and Iraq is only about 150kbbl/day now while many other ME producers are at near zero as well.  Apparently the US either doesn't want imported crude or it's being shunned by outside producers.  The main importer to the US now is Canada, still over 3mmbbl/day.

Imagine what the storage numbers would look like without that Canadian oil sands oil.  Without that oil, Cushing would be empty by now.

455mmb @ Cushing on today eia report. 2% down over 5 year period. I wouldn't sweat it much as of yet. KSA and Russia both re-thinking as we ramp up production and grabbing market share. 

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8 hours ago, William Edwards said:

Recent history suggests that US production continues to grow at today's prices. Inventory data suggest that the world is adequately supplied with OPEC "underproducing" by two million barrels a day. It might be interesting to imagine the price profile if OPEC, with or without Russia, decided to try to regain that two million barrels a day of market share. The key question is "Where would they put that unwanted two million barrels a day of unwanted production, and how low must they drop the price to try to force it into the market?"

China is still amassing their own petro reserve and would take on all the excess IMHO

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2 hours ago, Old-Ruffneck said:

China is still amassing their own petro reserve and would take on all the excess IMHO

China has been on a strategic move to create and develop its petroleum reserves since 2010 if not earlier and the Chinese Gov also gave licenses to private companies to build storage facilities and to import crude oil and other petroleum products. They have  a goal of achieving 500mmbo if not more. They have been steadily buying oil to fill up their storage tanks as they come online.

Edited by ceo_energemsier
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The U.S. exported 2 million barrels per day of crude oil in 2018 to 42 destinations

U.S. crude oil exports

Source: U.S. Energy Information Administration, Petroleum Supply Annual, Petroleum Supply Monthly

In 2018, U.S. exports of crude oil rose to 2.0 million barrels per day (b/d), nearly double the 1.2 million b/d rate in 2017. Export volumes by destination changed significantly during the year, as U.S. crude oil exports to China fell and exports to other destinations such as South Korea, Taiwan, and Canada increased.

The increase in U.S. crude oil exports was the result of increasing U.S. crude oil production and infrastructure changes. U.S. crude oil production increased 17% to 10.9 million b/d in 2018, with U.S. Gulf Coast states—the departure point for more than 90% of U.S. crude oil exports—producing 7.1 million b/d. The increased production is mostly of light, sweet crude oils, but U.S. Gulf Coast refineries are configured mostly to process heavy, sour crude oils. This increasing production and mismatch between crude oil type and refinery configuration causes more of U.S. crude oil production to be exported.

In early 2018, the Louisiana Offshore Oil Port (LOOP) in the Gulf of Mexico was modified to enable the loading of vessels for crude oil exports. LOOP is currently the only U.S. facility capable of accommodating fully loaded Very Large Crude Carriers (VLCC), vessels capable of carrying approximately 2 million barrels of crude oil.

After LOOP was modified to also allow exports, the increase in cargo scale led U.S. crude oil exports to surpass 2 million b/d for 25 weeks in 2018 compared with just 1 week in 2017. In addition to LOOP, other U.S Gulf Coast export facilities in and around Houston and Corpus Christi, Texas, have been investing in increasing the scale of U.S. crude oil export cargos.

In 2018, Asia was the largest regional destination for U.S. crude oil exports, followed by Europe, while, as in previous years, Canada was the largest single destination for U.S. crude oil exports. Canada received 378,000 b/d of U.S. crude oil exports, representing 19% of total U.S. crude oil exports in 2018. South Korea surpassed China to become the second-largest destination for U.S. crude oil exports in 2018, receiving 236,000 b/d compared with China’s 228,000 b/d.

monthly U.S. crude oil exports by destination

Source: U.S. Energy Information Administration, Petroleum Supply Monthly

However, the distribution of U.S. crude oil exports by destination varied significantly from the first half of 2018 to the second half. In the first half of 2018, the United States exported 376,000 b/d of crude oil to China, which made China the largest single destination for U.S. crude oil exports for that period. However, in August, September, and October of 2018, the United States exported no crude oil to China. U.S. crude oil exports to China resumed in the final two months of the year but at much lower volumes. On average, the United States exported 83,000 b/d of crude oil to China in the second half of 2018.

In the summer of 2018, as part of ongoing trade negotiations between the United States and China, China temporarily included U.S. crude oil on a list of goods potentially subject to an increase in import tariffs. Around that time, the difference between the international crude oil benchmark Brent and the U.S. domestic price West Texas Intermediate (WTI) futures prices narrowed: Brent prices went from $9 per barrel (b) higher than WTI in June to $6/b higher than WTI in July.

The rapidly narrowing price discount of U.S. crude oils versus international crude oils and the potential for higher import tariffs caused China’s imports of U.S. crude oil to slow. As U.S. crude oil exports to China fell, exports to South Korea, Taiwan, Canada, and India increased. Ultimately, the rate of crude oil exports to all destinations in the second half of the year (2.2 million b/d) was higher than in the first half (1.8 million b/d).

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18 hours ago, Old-Ruffneck said:

China is still amassing their own petro reserve and would take on all the excess IMHO

Please give me the numbers associated with your suggestion. Use 2 million barrels a day, or 730,000,000 barrels a year. You select the number of years that you expect this amount of storage capacity to be built, along with the $35 billion of capital required, each year, to pay for the accumulated oil.

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19 hours ago, Old-Ruffneck said:

455mmb @ Cushing on today eia report. 2% down over 5 year period. I wouldn't sweat it much as of yet. KSA and Russia both re-thinking as we ramp up production and grabbing market share. 

That's a happy coincidence.  It's been up to nearly 70mmbbl and down to 20mmbbl in that time frame as well.  

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22 minutes ago, William Edwards said:

Please give me the numbers associated with your suggestion. Use 2 million barrels a day, or 730,000,000 barrels a year. You select the number of years that you expect this amount of storage capacity to be built, along with the $35 billion of capital required, each year, to pay for the accumulated oil.

UPDATE 1-Trade tensions could boost pace of China's strategic crude storage

SPR fill to rise to 95 kbd in 2018, up from 75 kbd

* SPR held 287 mln barrels at end of 2017 - IEA

* Trade disputes with U.S. could give filling “renewed impetus” (Updates with reference to China’s March imports, source of IEA’s Dushanzi data)

By Libby George

LONDON, April 13 (Reuters) - China will likely increase the pace of its strategic oil purchases by nearly 30 percent this year compared with 2017, the International Energy Agency said on Friday, and its eagerness to build stocks could get a boost from trade tensions with the United States.

The world’s top oil importer has spent the past 15 years creating what the IEA called “the world’s most ambitious strategic crude reserves programme” since the 1970s.

But its purchasing pace slid by half last year, the IEA said, slowed by technical problems and “reduced urgency in an era of plentiful supply”.

 

In 2018, the IEA said it expects the amount of oil flowing to these sites to rise by 34.5 million barrels, or 95,000 barrels per day (bpd), up by roughly 28 percent from 2017’s fill of 27 million barrels.

The urgency to build and fill sites after this year could get a fillip, the IEA said, from the growing rift between China and the United States - a newly important oil exporter whose President Donald Trump has angered China by threatening to impose billions of dollars in trade tariffs.

“If current trade tensions between the U.S. and China were to escalate, and given that the U.S. is a growing supplier of crude to Chinese refiners, it is possible that the SPR (Strategic Petroleum Reserve) programme will benefit from renewed impetus,” the IEA said.

China’s oil buying plans, and the level of crude stored in strategic sites dotted across the nation, are closely watched by the oil industry as a signal of how much more the key consumer is likely to absorb.

The country’s March imports hit 9.22 million bpd, the second highest on record, with first-quarter imports 7 percent higher at roughly 9.09 million bpd.

But information on strategic stocks is shrouded in secrecy, with government reports on the fill level coming only with several months’ lag, and the IEA said the latest report did not include all the sites that are part of the programme.

 

IEA estimates showed China’s strategic reserves at 287 million barrels at the end of 2017, putting them at 57 percent of the government’s 500 million barrel target for the first three phases of purchasing set in 2004. It added that stocks at Tianjin Phase 2 drew last year, and that information from data analytics company Kayrros showed that CNPC’s Dushanzi reserve also drew to two-thirds of its capacity during 2017.

The Chinese government’s reporting put strategic reserves at 274 million barrels by mid-2017, 33 million barrels higher than the middle of 2016.

________________________________________________________________________________________

 

Why China's Strategic Petroleum Reserve Is All That Matters For OPEC

When OPEC sits down on Thursday, keeping the price of Brent above $50 (to avoid a budget catastrophe and social upheaval in Saudi Arabia) and below $60 (to prevent US production from going exponential), will be just one problem the cartel nations and various hangers-on will be desperate to solve. A much bigger one, literally, is the problem that led to this week's OPEC meeting in the first place, and years of headache for OPEC and non-OPEC nations: a record global oil inventory glut.

The supply glut that began in mid-2014 has dumped almost one billion barrels of petroleum into global inventories. However, of this only 35–45% has ended up in transparent OECD tanks. For OPEC, that is all the matters - in the past, OPEC oil ministers have repeatedly referenced the level of OECD petroleum inventories relative to their five-year average as a gauge of the rebalancing. And, as ScotiaBank notes, those inventories were more than 280 Mbbl above their five-year average as of January and, while European stocks have been falling into a healthier range, the same cannot be said of industry stocks in the US, which despite declining for several weeks, are just below all time highs.

But forget OECD: an increasingly greater concern for OPEC is not the less than a third of above ground oil held in developed nations; it is the rest that is the big challenge. As ScotiaBank's Rory Johnston points out in the following chart, the majority of the remainder was absorbed by China’s vast and growing strategic petroleum reserve (SPR), which means that "the lion’s share of functional—and thus needing to draw from an OPEC perspective—industry inventories remain in the OECD, and specifically in the US (chart 3)."

oil%20above%20ground_0.jpg

 

As we have explained on several occasions over the past year, China's SPR is far more important to the global oil (im)balance and inventory glut than the less than a third of total oil produced since the summer of 2014 and stored. This is due to one main reason: while ScotiaBank is correct that any draws will likely come from OECD storage, it forgets the demand side of the equation.

 

SPR%20china_0.jpg
Storage tanks in China's strategic oil reserve complex in Zhoushan

One year ago, JPMorgan estimated that the daily build of China's SPR, had grown at a breakneck pace, from 491Kbpd average in 2015 to a record 1.191MMbpd in 2016 through May, equivalent to roughly 15% of the country's total crude oil imports.

china%20imports%20jpm_0.jpg

SPR%20filling_0.jpg

More importantly, it was roughly a year ago when JPM calculated that China's SPR was getting dangerously close to its estimated capacity, just over 500 million barrels.

china%20spr_0.jpg

JPM also made a forecast that based on its assumptions, Chinese oil imports would slide by roughly the amount that would have been going into the SPR starting in late 2016 as the reserve hit capacity. When that did not happen, there was much confusion among the commodity space, until in late September 2011, satellite imagery from Orbital Insight revealed that the total size of China's SPR was vastly greater than previously estimated.

According to satellite images by  geospatial analytics startup Orbital Insight, China, has not only misrepresented how much oil it has stored, it has done so at a massive scale, with the real number dwarfing even JPM own estimate: the real amount of Chinese oil in storage, according to Orbital, was a whopping 600 million barrels as of May. Assuming JPM's estimated rate of SPR accumulation of about 1mmbpd, the 600 million number as of May would have grown to well over 700 million barrels as of September. 

 

Orbital’s figure as first reported by Bloomberg, is well over two times larger than China’s official estimates for strategic petroleum reserves and for commercial stocks, said Orbital Chief Executive Officer James Crawford.

To be sure, in late 2016 other skeptics started warning that even with the revised size estimates, China's SPR was likely approaching capacity. Last September, the IEA warned that "recent pillars of demand growth China and India are wobbling." S&P Global Platts' Ernsberger, cited by CNBC, said that the slowdown in Chinese demand was worrying for major oil producers.

"The demand picture is very unsettling for OPEC and for all producers of crude and refined products (and this is seen most significantly in) the slowdown in growth in the Chinese market. China has returned more incremental demand for the oil market in the last five years than any other country in the world and more than almost any of the counties combine. But this year demand growth in China has stalled and that represents a significant change in the environment for producers both in OPEC and outside it."

Then 2016 came and went, and we find ourselves almost mid-way into 2017 and ask: has anything finally changed, and will all those predictions of an imminent Chinese SPR overflow finally prove accurate?

We don't know just yet, but according to data released by the General Administration of Customs data on Tuesday, China's oil stockpiling pace finally tumbled to 1.36mbpd in April, from 1.6mbpd in March, the sharpest decline in reserve accumulation in years, and in line with the recent slowdown from record oil imports. If indeed China is finally at capacity for the SPR, the SPR stocpiling is about to fall off as cliff this month.

__________________________________________________________________________

 

China's strategic petroleum reserve (SPR) depot in Jinzhou officially started filling in August 2018, bringing the existing depot capacity to a total of 249.1 million barrels, according to ESAI Energy's new released China Watch report. The launch of this site suggests that Beijing is slowly progressing towards the end of its Phase II SPR, and that filling the government depot alone could add 70,000 b/d to Chinese crude demand between now and the end of 2018 and another 150,000 b/d in 2019.

According to the report, which analyzes important developments issues impacting China's future petroleum market fundamentals, the last Phase II depot in Zhanjiang should be completed in early 2019, and it is likely to start receiving crude in the second half of 2019. Phase III, however, remains preliminary at best. Because of the delayed development of the three-phase plan, which was supposed to be completed by 2020 with a total capacity of 457 million barrels, Beijing has been relying on industry tanks to build up its SPR. Since 2007, the Ministry of Commerce has granted crude storage licenses to over 40 companies, which makes them eligible to hold SPR. Indeed, as of mid-2017, Beijing must have injected at least 76 million barrels of its SPR into leased industry tanks to make up the announced 275-million-barrel strategic stocks, since the total depot capacity at that time was 199 million barrels.

“Chinese crude imports have averaged 9 million b/d between January and July. With GDP growth slowing down to 6.8 percent in the first half of 2018, Beijing could not have maintained record-high crude imports without significant stockpiling,” commented ESAI Energy Analyst Yao Wu. “Though existing and potential U.S. tariffs could further impact the economy, tensions between Beijing and Washington will encourage inventory building and hence imports.”

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29 minutes ago, William Edwards said:

Please give me the numbers associated with your suggestion. Use 2 million barrels a day, or 730,000,000 barrels a year. You select the number of years that you expect this amount of storage capacity to be built, along with the $35 billion of capital required, each year, to pay for the accumulated oil.

Give the Chinese 2-3 years to keep on constructing above ground storage. One of the articles on OILPrice had a figure of how dizzying a pace they are building. Even if they can take that amount I am inclined to think the dollars will be much lower. I don't think the Chinese would need pay top dollar per barrel when buying in large quantities. Most governments are so far in debt to 'em.  Closed society so to give you actual numbers would be just guessing. 

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2 hours ago, William Edwards said:

Please give me the numbers associated with your suggestion. Use 2 million barrels a day, or 730,000,000 barrels a year. You select the number of years that you expect this amount of storage capacity to be built, along with the $35 billion of capital required, each year, to pay for the accumulated oil.

It is not  new game to the Chinese to build their strategic  petro reserves. They have been doing it for a long time. The costs you mention are way over blown to build above ground and even UST's .

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2 hours ago, William Edwards said:

Please give me the numbers associated with your suggestion. Use 2 million barrels a day, or 730,000,000 barrels a year. You select the number of years that you expect this amount of storage capacity to be built, along with the $35 billion of capital required, each year, to pay for the accumulated oil.

January 6, 2016 / 4:28 PM / 3 years ago

China goes underground to expand its strategic oil reserves

 
 
 

BEIJING (Reuters) - China is building underground caverns capable of holding up to a quarter of its expanded strategic oil reserves by 2020, as it looks for new storage methods away from expensive and exposed above-ground tanks in crowded coastal regions.

In a move to improve its energy security and take advantage of cheap oil, China is spending billions of dollars to build up strategic petroleum reserves (SPR) to meet up to 90 day’s worth of net import demand in case of a disruption.

While many western countries make SPR data public, China rarely gives detailed information on its oil reserves or locations.

So far, China has built almost all of its SPR tanks above ground, but now at least five underground sites have been identified, with one at Huangdao in Shandong province completed and another four under construction, according to local media and several oil analysts surveyed by Reuters.

“Building facilities all on the ground would be like putting all your eggs in the same basket. That is why the government diversified its stockpile centers,” said a senior researcher involved in storage design at the Research Institute of Petroleum Exploration and Development, run by China National Petroleum Corp [CNPET.UL].

 

The official declined to be named because he was not authorized to speak to media.

Despite the cost of drilling the caverns, underground storage can be up to two-thirds cheaper than above-ground tanks, especially as the cost of land surges in coastal regions, and are less prone to potential sabotage, experts said.

“While traditional above-surface storage has the advantage of a shorter construction period, the underground caverns generally have the advantages of lower costs, lower environmental risks, as well as greater perceived level of security,” said Wendy Yong, a senior analyst with energy consultancy FGE.

Underground sites are slated to hold about 130 million barrels, which would account for nearly a quarter of the 550 million-barrel SPR target set by Beijing for 2020, according to local media and analysts.

Three underground rock cavern sites under construction are at Jinzhou in northeast Liaoning province, and Zhanjiang and Huizhou in southern Guangdong, all expected to be ready to take oil over 2016 or early 2017, according to industry sources and analysts. A salt cavern has been partially completed in Jintan, in eastern Jiangsu province.

 

TECHNICAL PROBLEMS

Beijing confirmed the completion of its first underground site, a 19 million-barrel facility in Huangdao in Shandong province, in December when it said its reserves had doubled in the eight months to mid-2015 to 190 million barrels.

However, construction of caverns is taking longer than expected as Chinese builders are new to the technology and challenges such as water seepage during excavations and rock disposal can be daunting, experts said.

Engineers are encountering technical problems in adapting to local geological conditions, resulting in construction delays and the abandonment of one small, pilot underground facility due to oil leakage and high maintenance costs.

“China had a late start on research related to underground oil. In practice we borrowed foreign technologies that don’t apply to China’s scenario,” said Zhuang Duanyang, a researcher at Dalian University of Technology.

Unlike the United States, which stores its vast oil supplies in hollowed-out underground salt domes, China’s different geology means it mainly has to excavate hard rock caverns up to 200 meters (220 yards) below the surface, similar to South Korea.

Once the caverns are filled with oil, pressure from water naturally present in surrounding rock prevents it from seeping away, and Chinese officials say the caverns are relatively cheap, long-lasting and require little maintenance.

China has still identified two salt mines, the Jintan site and Qianjiang in central Hubei province that could be suitable for oil storage.

Work is also being carried out at Jintan by companies including PetroChina and Hong Kong’s Towngas for gas storage.

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17 hours ago, ceo_energemsier said:

It is not  new game to the Chinese to build their strategic  petro reserves. They have been doing it for a long time. The costs you mention are way over blown to build above ground and even UST's .

Thanks for passing along your arithmetic. But there seems to be some misunderstanding of what I said. The only cost that I mentioned was the cost of oil, and I used $50/B. I did not guess the cost of building 365,000,000 barrels of storage, EACH YEAR! This need for storage would be in addition to the 550,000,000 you mention as the 2020 target. Containing the surplus for two years would require the Chinese to increase that target to 1,200,000,000 B by the end of 2020, and over 1,500,000,000 by the end of 2021, three times their current end-2020 target, according to the numbers that you presented. Is that the magnitude that you expect them to reach?

Now turning to the logical side of the issue. Please explain the Chinese motivation for buying up the surplus production at a high price (I used $50/B) that would occur if they assisted OPEC, Russia and the rest of the producing industry by creating artificial demand and storing it away. Since they are a net purchaser of oil, I would think that their objective would be to lower prices, not raise them. So why would they take an action that raises prices? Please explain what I am missing.

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57 minutes ago, William Edwards said:

Thanks for passing along your arithmetic. But there seems to be some misunderstanding of what I said. The only cost that I mentioned was the cost of oil, and I used $50/B. I did not guess the cost of building 365,000,000 barrels of storage, EACH YEAR! This need for storage would be in addition to the 550,000,000 you mention as the 2020 target. Containing the surplus for two years would require the Chinese to increase that target to 1,200,000,000 B by the end of 2020, and over 1,500,000,000 by the end of 2021, three times their current end-2020 target, according to the numbers that you presented. Is that the magnitude that you expect them to reach?

Now turning to the logical side of the issue. Please explain the Chinese motivation for buying up the surplus production at a high price (I used $50/B) that would occur if they assisted OPEC, Russia and the rest of the producing industry by creating artificial demand and storing it away. Since they are a net purchaser of oil, I would think that their objective would be to lower prices, not raise them. So why would they take an action that raises prices? Please explain what I am missing.

The single factor in the Chinese dash to store oil is ENERGY SECURITY. They are short or low on their own readily available oil and gas. and with a growing population they need more of everything IE their Belt & Road Initiative to secure as many resources in large volumes as possible with somewhat lower costs, if possible and hence all their loans and investments across the globe. China would rather pay $50-80$/bbl today and have some form of energy security when the emergency comes calling rather than scramble to get oil resources to run their entire economy and not be exposed to true price shocks of $90-120$/bbl . And in the event of an emergency or crisis who knows how they would be able to get the oil resources safely to their ports and in what amount of time. Not to forget that the insurance and shipping maybe at a premium in the event of the speculated emergency. I know that during non emergency, some Chinese companies (also Japanese-net importers and consumers of oil) have paid upto $158/bbl back in 2007-2008 pre financial meltdown crisis.

As said by reporters, actual data is hard to get from China about their strategic moves in this aspect, but I do tend to agree that they are on point to secure fill upto 500mmbo of crude oil in addition to refined petroleum products in their strategic reserves. Besides they have been buying oil to fill their reserves since 2004.?

On another note that involves physical trade of crude oil, they maybe getting some form of discount from major producers of crude oil including but not limited to OPEC. They need a large amount of crude oil, so any producer is more than happy to contract with them for the long term, say 5 years+ to supply them a given amount of barrels with a discount. They have also made large investments and loans to countries and govs across the world in exchange for oil and other resources which they are more than likely lifting at very favorable prices against set benchmarks.

Not to forget the investments by SOEs from China as well as their banks and privately owned companies into oil and gas companies directly across the globe and or thru JVs, whereby they get equity crude oil which would be lower in cost to them for offtake.

These real life scenarios should explain to you the Chinese need and thirst for oil to build up their reserves. China knows that being a net importer and consumer of oil they cannot create an environment where they can thrive in by paying lower oil costs. They would welcome it if it happened but till then the reality is that they have to pay for it above the levels of the 30-50$/bbl oil overall.  They cannot create an equation that will result in "lower prices" for them as their "objective" simply because of their demand and the world demand.

The Chinese have extensive agreements with the Russians for oil and gas, a pipeline was built to move crude and gas from Russia to China and probably more on the way. Those are long term agreements and therefore probably come with some price benefits. Russia gains a guaranteed market for the oil.

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The State Department is set to announce all countries that continue to import Iranian oil will be subject to US sanctions, The Washington Post reported on Sunday.

Secretary of State Mike Pompeo will announce Monday morning that as of May 2, countries importing Iranian crude or condensate will no longer be granted sanctions waivers by the State Department, two department officials told the newspaper's columnist Josh Rogin, who is also a CNN political analyst.
"The goal of the policy is to drive up the costs of Iran's malign behavior and more strongly address the broad range of threats to peace and security their regime presents," a State Department official told the Post.
The announcement will come nearly one year after President Donald Trump announced the US was withdrawing from the Iran nuclear deal.
 
 
On April 2, Brian Hook, senior policy adviser to Pompeo, said in a State Department briefing that the US is "on the fast track to zeroing out all purchases of Iranian crude." Hook said three of the eight importers who had been granted waivers on the Iran oil sanctions are "now at zero." He said a total of 23 importers were at zero.
Pompeo is set to announce offsets through commitments from other suppliers like Saudi Arabia and the United Arab Emirates, two State Department officials told the Post. Trump spoke on Thursday with the UAE's Crown Prince Mohammed bin Zayed al-Nahyan about the issue, the Post reports.
"The policy of zero Iranian imports originated with Secretary Pompeo," a senior State Department official told the Post. "He has executed this policy in tight coordination with the president every step of the way. Because the conditions to not grant any more (significant reduction exceptions, or waivers) have now been met, we can now announce zero imports."

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