Released November 22, 2022 | SUGAR LAND
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Researched by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--The amount of crude oil considered in floating storage is at its highest level since May, and it's the U.S. that's doing much of the heavy lifting, analysis finds.
UBS strategists Wayne Gordon and Giovanni Staunovo, in a research note, found that tapping into the Strategic Petroleum Reserve (SPR) offered something of a cushion for high export volumes from the U.S.
Domestic inventories of crude oil and refined petroleum products are at their lowest levels since 2004--but this, in turn, results in a dramatic increase in onboard oil, known as "floating storage." Many of those vessels could be headed to Europe as the continental economies prepare for a moratorium on waterborne crude oil from Russia.
"In our view, this build-up has been driven by higher crude exports from OPEC countries and by U.S. SPR sales, which have boosted U.S. crude exports," Gordon and Staunovo wrote.
Combined with oil considered to be in transit, UBS estimates there are about 2.2 million barrels of oil that are yet to reach their destinations. That compares with the estimated 1 million barrels per day (BBL/d) of Russian crude oil that will need to find another home once Europe enforces its moratorium in early December.
That would likely lead to more volatility in the price of crude, rather than a major rally as Russian oil becomes displaced, not absent. Meanwhile, the economies of Asia--particularly China--are slowing, so it's possible that Russian barrels will move into the storage column before the year's end.
"Russia is diverting larger quantities of its crude to non-EU countries ahead of the ban, while Europe is importing its crude from further locations; longer routes mean the shipped oil spends more time on a tanker," the UBS analysts wrote.
Combined with economic concerns, floating storage could be among the reasons for the deep selloff for crude. The price for Brent crude oil, the global benchmark, lost 8.7% last week, while West Texas Intermediate, the U.S. benchmark, shed close to 10% last week and lost its grip on $80 per barrel by Monday morning.
UBS nonetheless expects prices to recover, which could support upstream activity, assuming companies use at least some of their premiums for investments rather than shareholder returns.
The U.S. Energy Information Administration (EIA), the statistics office for the U.S. Department of Energy, estimates total domestic crude oil production will average 11.8 million BBL/d this year and jump to 12.3 million BBL/d on average for 2023. That increase comes even against a lower estimate for crude oil prices next year--EIA is betting Brent will average $102 per barrel this year and $95 for 2023.
All this comes amid fears that U.S. crude oil production is reaching its peak. OPEC said that some of the supply-chain issues that were inhibiting U.S. production growth are easing a bit and the market itself is supportive to upstream growth.
And yet the number of drilled-but-uncompleted wells--known as DUCs--has been on a steady decline for the better part of the year, as producers focus their spending on existing operations rather than drilling new wells.
DUCs can serve as a barometer for future production, so it looks like the pace of production growth will continue to decline. That said, and regardless of the pace of the expected increase, U.S. crude oil production next year would be a record-setter if forecasts prove accurate.
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) platform helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking more than 200,000 current and future projects worth $17.8 trillion (USD).
UBS strategists Wayne Gordon and Giovanni Staunovo, in a research note, found that tapping into the Strategic Petroleum Reserve (SPR) offered something of a cushion for high export volumes from the U.S.
Domestic inventories of crude oil and refined petroleum products are at their lowest levels since 2004--but this, in turn, results in a dramatic increase in onboard oil, known as "floating storage." Many of those vessels could be headed to Europe as the continental economies prepare for a moratorium on waterborne crude oil from Russia.
"In our view, this build-up has been driven by higher crude exports from OPEC countries and by U.S. SPR sales, which have boosted U.S. crude exports," Gordon and Staunovo wrote.
Combined with oil considered to be in transit, UBS estimates there are about 2.2 million barrels of oil that are yet to reach their destinations. That compares with the estimated 1 million barrels per day (BBL/d) of Russian crude oil that will need to find another home once Europe enforces its moratorium in early December.
That would likely lead to more volatility in the price of crude, rather than a major rally as Russian oil becomes displaced, not absent. Meanwhile, the economies of Asia--particularly China--are slowing, so it's possible that Russian barrels will move into the storage column before the year's end.
"Russia is diverting larger quantities of its crude to non-EU countries ahead of the ban, while Europe is importing its crude from further locations; longer routes mean the shipped oil spends more time on a tanker," the UBS analysts wrote.
Combined with economic concerns, floating storage could be among the reasons for the deep selloff for crude. The price for Brent crude oil, the global benchmark, lost 8.7% last week, while West Texas Intermediate, the U.S. benchmark, shed close to 10% last week and lost its grip on $80 per barrel by Monday morning.
UBS nonetheless expects prices to recover, which could support upstream activity, assuming companies use at least some of their premiums for investments rather than shareholder returns.
The U.S. Energy Information Administration (EIA), the statistics office for the U.S. Department of Energy, estimates total domestic crude oil production will average 11.8 million BBL/d this year and jump to 12.3 million BBL/d on average for 2023. That increase comes even against a lower estimate for crude oil prices next year--EIA is betting Brent will average $102 per barrel this year and $95 for 2023.
All this comes amid fears that U.S. crude oil production is reaching its peak. OPEC said that some of the supply-chain issues that were inhibiting U.S. production growth are easing a bit and the market itself is supportive to upstream growth.
And yet the number of drilled-but-uncompleted wells--known as DUCs--has been on a steady decline for the better part of the year, as producers focus their spending on existing operations rather than drilling new wells.
DUCs can serve as a barometer for future production, so it looks like the pace of production growth will continue to decline. That said, and regardless of the pace of the expected increase, U.S. crude oil production next year would be a record-setter if forecasts prove accurate.
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) platform helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking more than 200,000 current and future projects worth $17.8 trillion (USD).
