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Crude storage is filling fast as demand tumbles, piling pressure on oilpatch – CBC.ca

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From Oklahoma to Alberta and around the globe, oil storage is filling quickly — flowing into tank farms, tanker ships and salt caverns.

“Or swimming pools,” as one analyst joked last week.

The laughs are rare these days.

Oil prices have plunged, companies are slashing spending and demand for fuel is being crushed by an epic economic lockdown due to the COVID-19 pandemic.

Now, analysts warn the meltdown in crude demand could also test the limits of storage capacity worldwide, further damaging prices and forcing companies to halt production.

The situation hit home again this past week when the United States reported its biggest weekly inventory build on record. Oil prices tumbled again this morning, with concerns about storage capacity making headlines.

“Demand is disappearing overnight, but oil production is going to take longer to react,” Aaron Brady, vice president of energy oil market services at IHS Markit, told CBC News.  

The size of this global imbalance is large enough, Brady said, that he thinks most of the storage could fill up over the coming weeks and months. 

“It’s happening at lightspeed,” Brady said.

Potential production cuts

The implications of storage reaching tank tops would be significant. Producers that couldn’t sell their oil because of crashing demand — and are unable to find places to store it — would have to slam the brakes. 

“This lack of storage is going to cause shut-ins of production,” Brady said.

Quiet streets are seen in Ottawa’s ByWard Market after people were told to stay home in March. Demand for fuel has fallen dramatically due to the pandemic. (Adrian Wyld/Canadian Press)

For operators in Canada’s oilsands, the situation would be particularly painful should they be faced with shutting in some of their complex production. Alberta Premier Jason Kenney noted last week that, in some cases, shutting down oilsands operations can cause permanent damage to the reservoirs, jeopardizing billions of dollars of assets.

Much of the focus today is on what’s happening in the U.S., the primary destination for Canada’s oil.

Total commercial storage in the U.S. stands at about 653 million barrels, or some 780 million barrels including pipeline fills and crude-in-transit. 

Net stocks of crude held at refineries and tank farms amounted to 375 million barrels a little more than a week ago, implying storage facilities were about 57 per cent full, according to Reuters.

It’s believed the system could absorb crude at the current rate for a few more weeks, and longer if the inflow is slowed by production cuts from OPEC and its allies as well as U.S. and Canadian producers.

Western Canada storage under pressure

But some market watchers say if the global oil market remains oversupplied into summer, storage could start to become a more significant problem.

Analysts believe storage in western Canada is feeling the pressure, too. 

Consultants Rystad Energy forecast last month that storage in the region stood a good chance of running out by the end of March, but the pressure eased somewhat as oil companies began ratcheting back production.

A pumpjack works at a well head on an oil and gas installation in rural Alberta. Storage capacity is under pressure in the region, analysts say. (Jeff McIntosh/The Canadian Press)

“It had days away from being filled up,” said Thomas Liles, Rystad senior analyst, in an interview Friday. “I generally do think it tends to be a days-away kind of situation, perpetually, at this point in western Canada.”

Liles says that from the beginning of April, there’s been a noticeable decoupling in the price of some synthetic grades of oil from the region and the U.S. benchmark, West Texas Intermediate. 

“That’s a pretty clear indication of the storage pressure building,” he said.

U.S. refineries hampered

However, Liles said there are a lot of moving parts, like upstream production levels and how much crude finds its way into the American market.

Unlike the U.S., official information about storage levels in Alberta is not released on a weekly basis, so people looking for timely updates often turn to private firms that use some creative means to gather the data.

Genscape, for example, completes weekly flyovers around key energy hubs, using infrared and visual spectrum imagery of individual storage tanks to measure how full they are.

Genscape said Western Canada inventories were at 30 million barrels in the final week of March, utilizing 47 percent of operational capacity. 

“Capacity utilization in Western Canada has not exceeded 67 per cent or dipped lower than 30 per cent since [2011],” it said. “Given this utilization maximum, only 13 million barrels of space remained as of March 27.” 

Hampered U.S. refinery demand could lead to storage builds in Western Canada in April, the firm added.

“Many refineries have cut runs, which cuts demand for Canadian barrels, and that potentially backs into terminals in Western Canada,” said Genscape analyst Dylan White.

Global logistics to be tested

Globally, the situation is also a concern.

The International Energy Agency said last week that the build-up in oil stocks in the first half of the year threatens to overwhelm the logistics of the oil industry — ships, pipelines and storage tanks — in the coming weeks.

“We estimate that available capacity could be saturated in mid-year, based on our market balances,” the IEA said. 

The agency said floating storage is becoming more expensive as traders compete for ships. Chartering costs for Very Large Crude Carriers (VLCC) have more than doubled since February.

“Never before has the oil industry come this close to testing its logistics capacity to the limit,” the agency said.

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HSBC warns it could face reprisals in China if UK bans Huawei equipment: Telegraph – Investing.com

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© Reuters. HSBC’s building in Canary Wharf is seen behind a City of London sign outside Billingsgate Market in London

(Reuters) – HSBC Holdings Plc (L:) Chairman Mark Tucker has warned Britain against a ban on networking equipment made by Huawei Technologies Co Ltd, claiming the bank could face reprisals in China, the Telegraph reported on Saturday.

Tucker made the claim in private representations to British Prime Minster Boris Johnson’s advisers, the newspaper reported https://www.telegraph.co.uk/business/2020/06/06/hsbc-warns-downing-street-chinese-reprisals-huawei, citing industry and political sources.

Britain designated Huawei a “high-risk vendor” in January, capping its 5G involvement at 35% and excluding it from the data-heavy core of the network. It is looking at the possibility of phasing Huawei out of its 5G network completely by 2023, according to officials.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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HSBC warns it could face reprisals in China if UK bans Huawei equipment: Telegraph – Reuters

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FILE PHOTO: HSBC’s building in Canary Wharf is seen behind a City of London sign outside Billingsgate Market in London, Britain, August 8, 2018. REUTERS/Hannah McKay

(Reuters) – HSBC Holdings Plc (HSBA.L) Chairman Mark Tucker has warned Britain against a ban on networking equipment made by Huawei Technologies Co Ltd, claiming the bank could face reprisals in China, the Telegraph reported on Saturday.

Tucker made the claim in private representations to British Prime Minster Boris Johnson’s advisers, the newspaper reported here citing industry and political sources.

Britain designated Huawei a “high-risk vendor” in January, capping its 5G involvement at 35% and excluding it from the data-heavy core of the network. It is looking at the possibility of phasing Huawei out of its 5G network completely by 2023, according to officials.

Reporting by Ismail Shakil in Bengaluru; Editing by Dan Grebler

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OPEC+ Agrees On Extending Record Output Cuts – OilPrice.com

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OPEC+ Agrees On Extending Record Output Cuts | OilPrice.com

Tom Kool

Tom majored in International Business at Amsterdam’s Higher School of Economics, he is Oilprice.com’s Head of Operations

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    OPEC and its partners concluded their meeting on Saturday afternoon, announcing that it would extend its current production cut deal.

    Algeria’s Energy Minister Mohamed Arkab, OPEC’s current President summed up the group’s sentiment by saying that “Despite the progress achieved to date, we cannot afford to rest on our laurels,”.

    The last couple of days, the cartel’s de-facto leader Saudi Arabia negotiated with other OPEC members and some non-OPEC countries including Russia, Kazakhstan and Azerbaijan to extend the current 9.7 million bpd output cuts for at least another month.

    Most countries partaking in the record production cuts were willing to continue the current deal, but poor compliance from countries like Iraq, Nigeria and Kazakhstan has caused discontent among other OPEC members, some of which have even made deeper cuts than agreed on in April.

    During the virtual meeting on Saturday, the cartel agreed that the countries that were unable to reach full conformity in May and June will have to compensate for this in July, August and September.

    Oil prices effectively doubled during the month of May as global demand started to recover and record output cuts and worldwide well shut-ins decreased the monster glut.

    While the OPEC+ deal extension undoubtedly will have a bullish effect on markets, prices aren’t likely to rip much higher on Monday as the OPEC+ news has largely been priced in already.

    For oil prices to make a full recovery, global demand will have to recover and crude inventories have to be drawn down, both of which will likely take up to two years. Pioneer’s Scott Sheffield said that the quick rebound of demand to around 94-95 mb/d following the “reopening” of so many economies will give way to stagnation, saying that demand won’t reach pre-pandemic levels until 2022 or even 2023.

    For now, the next bullish catalyst for oil could come from Saudi Aramco, which could set the trend for higher oil prices in June as it is expected to release its OSPs (official selling prices) on Monday. Aramco’s OSPs are often a leading indicator for Iraqi, Iranian and Kuwaiti crude prices, and last month, Brent futures rallied after Riyadh hiked its prices for crude to Asia.

    By Tom Kool of Oilprice.com

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