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BP Claims That Oil Storage Limit Is Far Nearer Than We Realize

It was just last week when we said that Cushing may be about to overflow in the face of an acute crude oil supply glut.

“Even the highly adaptive US storage system appears to be reaching its limits,” we wrote, before plotting Cushing capacity versus inventory levels. We also took a look at the EIA’s latest take on the subject and showed you the following chart which depicts how much higher inventory levels are today versus their five-year averages.

Finally, we went on to present two alarm bells that offer the best evidence yet that inventories are reaching nosebleed levels: 1) some counterparties are experiencing delays in delivering crude due to unspecified "terminalling and pump" issues (basically, it’s hard to move barrels around at this point because there’s so much oil sitting in storage); 2) the cash roll is negative.

Related: Who Would Be The Best Presidential Candidate For Energy Companies?

On Wednesday, BP CEO Robert Dudley - who earlier this month reported the worst annual loss in company history - is out warning that storage tanks will be completely full by the end of H1. "We are very bearish for the first half of the year," Dudley said at the IP Week conference in London Wednesday. "In the second half, every tank and swimming pool in the world is going to fill and fundamentals are going to kick in," he added. "The market will start balancing in the second half of this year.”

Maybe. Or maybe excess supply will simply be dumped on the market once all the "swimming pools" are full.

If that happens, don't be surprised to see crude crash into the teens as attempts to clear and dump excess inventory spread like wildfire across the market.

Related: IEA: Increasing OPEC Production Keeps Oil Prices Down

Earlier this week, the IEA called any respite for crude prices "a false dawn." Here's why (via The Guardian):

• a deal between OPEC and other oil producing countries to cut production is unlikely

• with Iran increasing production in preparation for the lifting of sanctions, OPEC’s production could rise as strongly this year as in 2015

• there is little prospect falling prices encouraging a pick-up in the rate of demand for oil

• the U.S. dollar is likely to remain strong, limiting the scope for falls in the cost of imported oil

• the predicted large fall in U.S. shale production is taking a long time to materialize

Related: Hopes Fall on Emergency OPEC Meeting

So buckle up, because the collapse in the world's most financialized of commodities has further to go, and once the entire U.S. shale space goes bankrupt, it will emerge debtless only to start drilling and pumping anew prompting the Saudis to continue to ratchet up the pressure in an endless deflationary merry-go-round. We close with a quote from the IEA:

"We suggest that the surplus of supply over demand in the early part of 2016 is even greater than we said in last month’s oil market report. If these numbers prove to be accurate, and with the market already awash in oil, it is very hard to see how oil prices can rise significantly in the short term. In these conditions the short-term risk to the downside has increased.”

By Zerohedge

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  • Don Clifford on February 12 2016 said:
    There are so many projects on hold, or at reduced production, waiting for a higher market price, that as the price creeps higher, each new price level is met with new production. As such, it's hard to see a return to the heady days of $100/barrel any time soon, if ever.
  • William on February 12 2016 said:
    So much for Hubbard's 'Peak Oil.' This lie, alway suspect, has been exposed for 25 years. E85 is the ultimate anticonsumerist, governmental crony- capitalism

    Leftists can't make anything work without bureaucratic mandates, favoritisms and hobbling competition with taxes and regulations.

    You people are mendacious frauds...
  • Brad on February 11 2016 said:
    The only thing finite is not the resources, but the demand. Things can only go so far running on debt. And that is exactly what has been happening since at least 2008 with the Fed holding interest rates so low that it fueled this artificial oil boom in the first place. Eventually a mixed economy has to pay the piper, and that is where we are at now.
  • John on February 11 2016 said:
    I am really enjoying watching capitalism cut its on throat. Infinite growth with finite resources. Yeah right.
  • Billy Bob on February 11 2016 said:
    Glut. Interesting word. I think you mean under demand rather than glut. Completely different connotation. We don't have more oil. We have less demand.

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