Traders scramble to sell crude cargoes as glut grows

A glut in the oil market has coincided with record low demand levels. (Reuters)
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Updated 01 April 2020

Traders scramble to sell crude cargoes as glut grows

LONDON: Oil traders are offering cargoes far in advance as rapidly vanishing demand drives physical crude prices to multi-decade lows, with some US oil valued at $10 a barrel.

The market is caught between a demand collapse due to the coronavirus pandemic and a price war between Saudi Arabia and Russia, which are both expected to flood markets with oil.

Trafigura on Monday estimated global oil demand to fall by a third.

Meanwhile, Riyadh is due to announce its official selling prices next week. These typically set the tone for sour barrels and more cuts are expected, adding pressure on traders to sell long-term supplies.

“Get it off before there aren’t any more bids! Get to the front of the queue!” one European trader told Reuters.

In a sign of desperation, traders were offering May cargoes of WTI Midland to Europe, unusually far in advance. Cargoes for May do not appear until at least April.

Commodities merchant Mercuria offered three May cargoes carrying WTI-Midland at dated Brent minus $3.40 for Rotterdam delivery on Monday, while Trafigura offered the same at minus $4.10 a barrel.

JBC consultancy said there could be 6 million barrels per day (bpd) of homeless crude in April, and 7 million bpd in May.

“Since this is not any longer a question of who has the lowest operating costs but who can attract buyers with sufficient midstream capacity to physically take the crude, cuts will be seen across all regions,” JBC said on Tuesday.

Refineries worldwide have started to shut units, with some closing, while major operators have declared force majeure on crude purchases as they struggle with the sudden demand stoppage.

Oil futures have lost more than half their value in March.

West Texas Intermediate crude (WTI) at Midland, the US flagship crude oil grade, fell to its lowest price since late 1998.

It traded as low as $9.75 below the US benchmark, which settled near $20 a barrel on Monday.

The price differential for key North Sea grade Forties fell to a record low at minus $3.25 a barrel versus benchmark dated Brent on Monday. Kazakhstan’s CPC Blend fell to a record low at $7.65 a barrel.

Dated Brent is the physical European benchmark, used to price over half of the world’s crude.

US pipeline operators have told producers to stop sending barrels without proof of buyers, lest pipelines be stuck with barrels. However, some producers that locked in space on new arteries to the US Gulf are forced to ship those barrels due to long-term shipping agreements — meaning they are now flooding the coast with cheap crude.

FASTFACT

Oil futures have lost more than half their value in March.

WTI at East Houston (MEH) crude, one of the biggest Gulf Coast export grades, traded at $6 below benchmark futures, lowest on record. Mars crude, the US Gulf sour benchmark, weakened to $8 below futures, the lowest since 2008.

Canada’s Western Canadian Select heavy oil for April delivery in Hardisty, Alberta, traded at about $7 per barrel, a discount of $13 to US futures, according to NE2 Canada Inc, though volumes were thin.

Mexico’s Maya heavy crude, the primary Latin American oil price benchmark, fell to $9.24 per barrel on Monday, according to S&P Global Platts, the first time it hit the single digits in over 18 years.


EU pledges to stay green in virus recovery

Updated 29 May 2020

EU pledges to stay green in virus recovery

  • To help economies from the 27-nation bloc bounce back as quick as possible

BRUSSELS: The European Commission pledged on Thursday to stay away from fossil-fueled projects in its coronavirus recovery strategy, and to stick to its target of making Europe the first climate neutral continent by the middle of the century, but environmental groups said they were unimpressed.

To weather the deep recession triggered by the pandemic, Commission President Ursula von der Leyen has proposed a €1.85 trillion ($2 trillion) package consisting of a revised long-term budget and a recovery fund, with 25 percent of the funding set aside for climate action.

To help economies from the 27-nation bloc bounce back as quick as possible, the EU’s executive arm wants to increase a €7.5-billion ($8.25 billion) fund presented earlier this year that was part of an investment plan aiming at making the continent more environmentally friendly.

Under the commission’s new plan, which requires the approval of member states, the mechanism will be expanded to €40 billion ($44 billion) and is expected to generate another €150 billion in public and private investment. The money is designed to help coal-dependent countries weather the costs of moving away from fossil fuels.

Environmental group WWF acknowledged the commission’s efforts but expressed fears the money could go to “harmful activities such as fossil fuels or building new airports and motorways.”

“It can’t be used to move from coal to coal,” Frans Timmermans, the commission executive vice president in charge the European Green Deal, responded on Thursday. “It is unthinkable that support will be given to go from coal to coal. That is how we are going to approach the issue. That’s the only way you can ensure you actually do not harm.”

Timmermans conceded, however, that projects involving fossil fuels could sometimes be necessary, especially the use of natural gas to help move away from coal.

The commission also wants to dedicate an extra €15 billion ($16.5 billion) to an agricultural fund supporting rural areas in their transition toward a greener model.

Von der Leyen, who took office last year, has made the fight against climate change the priority of her term. Timmermans insisted that her goal to make Europe the world’s first carbon-neutral continent by 2050 remained unchanged, confirming that upgraded targets for the 2030 horizon would be presented by September.

Reacting to the executive arm’s recovery plans, Greenpeace lashed out at a project it described as “contradictory at best and damaging at worst,” accusing the commission of sticking to a growth-driven mentality detrimental to the environment.

“The plan includes several eye-catching green `options,’ including home renovation schemes, taxes on single-use plastic waste and the revenues of digital giants like Google and Facebook. But it does not solve the problem of existing support for gas, oil, coal, and industrial farming — some of the main drivers of a mounting climate and environmental emergency,” Greenpeace said.

“The plan also fails to set strict social or green conditions on access to funding for polluters like airlines or carmakers.”

Timmermans said the EU would keep investing in the development of emission-free public transportation, and promoting clean private transport through the EU budget.