From a glut in the U.S. supply to fears concerning what will happen now that sanctions on Iran have been lifted, the market for oil is tanking considerably — so much so that one supplier of crude in North Dakota finds itself in the odd position of paying people to take its product.
North Dakota Sour, a high-sulfur crude that’s more expensive to refine than other varieties, has now been listed at -$0.50 per barrel — down from $13.50 per barrel a year ago and $47.60 per barrel in 2014, Bloomberg reported.
The number of barrels of oil that a single ounce of gold can buy has never, ever been higher.
For the last 30 years, when the ratio of gold-to-oil spikes, something systemically serious occurs globally (as opposed to the usual bullshit “this is transitory” statements).
So what happens next?
A little over a year ago, Paul Hodges was roundly mocked when in December 2014 he made a drastic call that “Oil May Drop To $25 On Chinese Demand Plunge, Supply Glut, Ageing Boomers.” After oil got as close as 40 cents away from the dreaded 2-handle, Paul had the last laugh.
But the bigger point is that not only is $20 oil not a shocker any more, it is largely expected and could be indeed welcomed, as first Goldman, then practically everyone else has now admitted it is just a matter of time before oil trades to levels not seen since the 20th century.
The low oil price is the signal of the dying dollar.
Sub $30 Oil – When this happens, big banks explode
“The reset has begun, the plug has been pulled. Americans and US and western press watch the dollar and say it’s strong. I watch the oil price and say the dollar’s dead.
After ’71 when the gold standard was broke, called the Bretton Woods Accord, what replaced the gold standard but the de facto petrodollar standard?
H/t reader squodgy:
“Just another hint that the process to dump the dollar is definitely in play…
Saudi is bleeding with this low oil price, but if it cuts the umbilical to the dollar the bleeding should stop. As usual we’ll have to wait and see what the Rothschilds & Rockefellers tell them to do, but from the article above, it’s on the cards anyway.”
The longer oil languishes, the more pressure builds on Saudi Arabia to abandon its currency peg.
Contracts used to speculate on the riyal’s exchange rate in the next 12 months jumped to a 13-year high on Monday. That reflects growing bets for the currency to weaken for the first time in almost three decades, even after Saudi Arabia said it’s ready to cooperate with other oil producers to stabilize prices.
Having exposed the world yesterday to the 2-mile long line of tankers-full’o’crude heading from Iraq to the US, several weeks after reporting that China has run out of oil storage space we can now confirm that the global crude “in transit” glut is becoming gargantuan and is starting to have adverse consequences on the price of oil.
While the crude oil tanker backlog in Houston reaches an almost unprecedented 39 (with combined capacity of 28.4 million barrels), as The FT reports that from China to the Gulf of Mexico, the growing flotilla of stationary supertankers is evidence that the oil price crash may still have further to run, as more than 100m barrels of crude oil and heavy fuels are being held on ships at sea (as the year-long supply glut fills up available storage on land). The storage problems are so severe in fact, that traders asking ships to go slow, and that is where we see something very strange occurring off the coast near Galveston, TX.
FT reports that “the amount of oil at sea is at least double the levels of earlier this year and is equivalent to more than a day of global oil supply. The numbers of vessels has been compiled by the Financial Times from satellite tracking data and industry sources.”The storage glut is unprecedented:
With oil exports to Europe having slipped from 13% of Saudi’s total to just 10% in the last six months, The FT reports, the de facto leader of OPEC has slashed its Official Selling Price (OSP) to Europe in an effort to regain market share. Saudi lowered its OSP for its Arab light crude grade in Europe by $1.30 a barrel for December, taking its discount to the weighted average of the North Sea Brent benchmark to $4.75 a barrel – the largest discount since February 2009… directly going after Russia’s customer base.
“We expect the Kingdom of Saudi Arabia’s general government fiscal deficit will increase to 16% of GDP in 2015, from 1.5% in 2014, primarily reflecting the sharp drop in oil prices. Hydrocarbons account for about 80% of Saudi Arabia’s fiscal revenues.”
On October 27, the Anglo-Dutch oil major announced that it was pulling the plug on its Carmon Creek oil sands project in Alberta, Canada. The project was expected to yield 80,000 barrels per day in oil sands production, which was originally greenlighted in 2013.
However, the markets have turned against Shell. In March, the company said that it would alter the design of the project to “take advantage of the market downturn to optimize design and retender certain contracts.” The logic was that low oil prices are forcing cost reductions up and down the supply chain, potentially allowing the company to lower construction costs.