As global oil futures tumble, U.S. cash crude traders ask: What glut?

Reuters ^ | Oct 6, 2014 | CATHERINE NGAI AND JONATHAN LEFF

[thackney]

An unusual disconnect has emerged in the U.S. oil market, with headline futures slumping to levels below $90 a barrel even as traders in the physical crude market report surprisingly robust demand and strong pricing.

In New York and London, big funds and speculators have turned very bearish on prices due to signs of weakening demand in China and Europe, steady exports from Iraq and Libya and a rallying dollar.

U.S. futures have fallen 17 percent since mid-June and hit $88.18 per barrel on Thursday, the lowest since April 2013.

Among cash traders in Houston and Calgary, where batches of North American crude are bought and sold for delivery in a month's time based on a premium or discount versus futures, a long-anticipated collapse has failed to materialize.

Instead, differentials from Canada to the Gulf Coast are holding steady or even rising as refiners run at their fastest rate for this time of year in over a decade, buoyed by strong profit margins thanks to cheap production from shale hydro fracturing and record fuel exports.

The split views illustrate a surprising twist in the U.S. "fracking" revolution.

This turn is due largely to U.S. refiners expanding their capacity this year far more than expected. That has allowed them to absorb a larger share of oil from North Dakota's Bakken or the Eagle Ford shale plays in Texas, which is illegal to export and would otherwise swell inventories. This underpins local crudes and forces foreign competitors to cut back, knocking global oil prices.

“The differentials didn’t collapse like everybody thought they would," said Daniel Sternoff, senior managing director at consultants Medley Global Advisors. "The U.S. crude market has balanced itself at the expense at the rest of the world."

Traders say the real-world cash crude market often acts as an early...

[thackney]

Excerpted for Reuters

Speculators driving down the price of oil? How could that happen? < /sarc>

[thackney]

Click charts for data source

[TomGuy]

Not sure about a ‘glut’, but local gas prices at 6 of the 8 local stations have dropped under the $3.00 mark for the first time in over a year. They currently range from $2.94 to 3.08.

[thackney]

Glut is just headline rhetoric. But the US increase in oil supply is putting pressure on pricing.

From last month:
http://www.eia.gov/forecasts/steo/

Total U.S. crude oil production averaged an estimated 8.6 million barrels per day (bbl/d) in August, the highest monthly production since July 1986. Total crude oil production, which averaged 7.5 million bbl/d in 2013, is expected to average 9.5 million bbl/d in 2015, 0.2 million bbl/d higher than projected in last month’s STEO. If achieved, the 2015 forecast would be the highest annual average crude oil production since 1970. Natural gas plant liquids production increases from an average of 2.6 million bbl/d in 2013 to 3.1 million bbl/d in 2015. The growth in domestic liquids production has contributed to a significant decline in petroleum imports. The share of total U.S. petroleum and other liquids consumption met by net imports fell from 60% in 2005 to an average of 32% in 2013. EIA expects the net import share to decline to 21% in 2015, which would be the lowest level since 1968.

[Attention Surplus Disorder]

“Speculators driving down the price of oil? “

I demand immediate hearings. Let’s get Sheila Jackson-Lee and other oil experts in this pronto!

Oh, did I say “Pronto”? Perhaps that’s racist. In the case of S-J-L, I must have meant “Bronto”.

[Zuse]

When my lofo neighbors were complaining about high gasoline prices last year, I told them to expect prices to come down substantially before the elections (just like the unemployment rate).

B0 is patting himself on the back taking all the credit while he did everything possible to block domestic production.

[luvbach1]

Still averaging about $3.75 in San Diego

[chajin]

Could it have something to do with the rise of the dollar in global currency markets?

[BarbM]

Maybe the lower price has to do with a greater supply. Can you say NORTH DAKOTA?

[Red Badger]

This turn is due largely to U.S. refiners expanding their capacity this year far more than expected

Expected by whom? Do refineries expand in secret?..................

[Red Badger]

BRAWNDO!.... It’s got electrolytes!...................

[thackney]

Analysts in the industry based on info prior to refinery announcements.

[thackney]

Still averaging about $3.75 in San Diego

California always has higher prices. But still it is coming down.

[Red Badger]

Sounds like their ‘info’ was prematurely in-calculated...................

[RegulatorCountry]

$3.18 is best price for regular here.

[thackney]

Don’t forget Texas.

In the past ten years, North Dakota oil production has climbed 883 thousand barrels a day.

http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MCRFPND2&f=M

In the same ten years, Texas oil production has climbed by over 2 million barrels a day.

http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MCRFPTX2&f=M

[thackney]

I paid $2.96 yesterday.

[RegulatorCountry]

I’m in NC, we have a fairly high “road tax.” I don’t doubt it’s broken below $3.00 in somewhere nearby VA or down in SC. But, we’re always at least $.10 higher.

[Wyatt's Torch]

Baaken and Eagle Ford have revolutionized the US oil industry.

[thackney]

Be aware that chart includes a lot of liquid stuff that isn't crude oil, including natural gas liquids, ethanol and biodiesel.