Tuesday, December 29, 2009

 

Tanker Glut

There is a big oil tanker glut. Let’s consider what this means. One interpretation leads to the conclusion that there is also an oil glut, and therefore, peak oil is a crock of baloney. In fact, it’s estimated that about 100 million barrels of crude and distillates are stored at sea in tankers, waiting for higher prices. But is 100 million barrels a “glut”? Considering that the world consumes well over 80 million bpd, the oil and distillates stored in tankers come to a little over one day’s supply. Some may call that a glut; I call it a mighty thin cushion. If the world’s oil supply were disrupted even for a short time, those 100 million barrels would disappear in no time. And as I write this, the price of crude is again closing in on $80/bbl as we head into the coldest part of the year in the northern hemisphere. If there truly is an oil glut, why isn’t crude half that price or less?

So if this does not signal an oil glut, what’s really going on? The answer is that there’s a glut of shipping capacity for everything. Since the world economy experienced its first wave of collapse in 2008, far less of everything is being shipped, as reflected by the Baltic Dry Index. In fact, about the only thing that has been propping up the BDI these days is Chinese stockpiling.

Therefore, the many tankers and dry-bulk ships sitting idle at sea are a manifestation of world economic collapse, not of a glut of anything. Prior to the first wave of collapse in 2008, dry-bulk shippers were enjoying high rates, which is why there are so many new ships on order. When the next wave of collapse washes over the world, we’ll see a lot more idled capacity.



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