Contango shrinks- Shell sells by the sea shore


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OPEC cuts starting to bite.

Saudis back in control of price as excess inventory dissipates.

Shell Sells Oil Cargoes, Phibro Tanker Leaves Orkney

by Alexander Kwiatowski

Jan 27 (Bloomberg) — Royal Dutch Shell Plc sold a cargo of crude stored off the U.K. and a vessel hired by Citigroup Inc.’s Phibro LLC left its anchorage in Scotland for the U.S. as the incentive to keep oil in tankers disappears.

Shell sold 600,000 barrels of North Sea Forties crude for delivery in mid-February at Scapa Flow near Scotland’s Orkney Islands to oil trader Vitol Group yesterday, the companies said. The cargo, already on board the supertanker Oliva, has been anchored off the U.K. coast since at least December, according to Bloomberg vessel tracking data.

Oil companies and traders have stored as much as 80 million barrels of crude on tankers

That’s not quite one day’s world consumption of crude.

as the so-called contango, a market where buyers pay more for supplies later in the year than now, allowed them to profit from storing crude. The incentive to store oil on vessels is shrinking as the spread between first- and 12th month crude narrows to about $10 a barrel from $17 in early December.


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More Saudi cuts


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The consumption numbers I’ve seen show the US now about flat year over year, but markets have been telling us there’s been an inventory liquidation in progress. The contango in crude has recently come in some, but remains at what is probably ‘full carry’, and last I checked WTI was below Brent.

The gasoline contango has also narrowed, and the RBOB crack is moving out to near zero from trading quite a bit negative for a while.

Saudis to Cut Oil Output Below OPEC Target

Jan 12 (Reuters) &#8212 Top exporter Saudi Arabia plans to cut oil output by up to 300,000 barrels per day below its agreed OPEC target — a proactive step to prop up a collapsing market, industry sources said on Sunday.

OPEC’s most influential member has lowered supply this month to 8 million bpd, meeting its target under OPEC’s pact to reduce overall production by a record amount from Jan. 1.

But strict Saudi discipline has failed to boost oil prices–which at close to $40 are far from the $75 a barrel named by Saudi King Abdullah as a fair price. So Riyadh is prepared, from February, to go beyond what is required by OPEC, the sources said.

“We’ve been told Saudi Arabia will cut to about 7.7 million in February,” said a senior oil executive. “They want to prevent a huge stock build up and a further decline in the oil price.”

The kingdom had increased production unilaterally to about 9.7 million bpd in August last year to calm an oil market that had shot to a record of nearly $150 in July.

But by February, it will have reduced its supply to world markets by a fifth as recession steadily erodes demand for fuel.


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Re: US DOE Text: To Resume Filling SPR ‘To Capacity


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(email exchange)

Right, just as prices are moving up anyway?

Gasoline demand is barely down now, and seems to have gone up over the last month or so?

Funds are buying/rebalancing to keep their allocation at a given % as crude underperformed last year?

OPEC cuts are real as Saudis move to regain control of price as the Masters Inventory Liquidation (finally!) winds down?

The contango in crude is moderating some indicating undesired inventory is fading?

Lower prices have also reduced prospects of new, high cost, supply coming online?

>   
>   On Fri, Jan 2, 2009 at 11:24 PM, Russell wrote:
>   
>   Saw that today. Sure took their time. I think it
>   will take oil prices higher.
>   

Thanks, was wondering when they’d get around to it.

It only has room for another 25 million barrels, however,

>   
>   On Fri, Jan 2, 2009 at 3:32 PM, EDWARD
>   wrote:
>   

Congressional Prohibition on Filling Strategic Reserve Ran Out

WASHINGTON (MMNI) – The following is an announcement by the U.S. Department of Energy published Friday:

Oil Acquisition Slated for 2009

WASHINGTON, DC — The U.S. Department of Energy today announced
that it plans to take advantage of the recent large decline in crude oil
prices, and has issued a solicitation to purchase approximately 12 million barrels of crude oil for the nation’s Strategic Petroleum Reserve (SPR) to replenish SPR supplies sold following hurricanes Katrina and Rita in 2005.

In addition, DOE is also moving forward with three other SPR
acquisition and/or fill activities in order to fill the SPR as Congress
directed in the 2005 Energy Policy Act (EPAct): refiner repayments of
SPR emergency oil releases following Hurricanes Gustav and Ike; the
delivery of deferred royalty-in-kind (RIK) oil; and the solicitation of
new RIK deliveries in the spring of 2009.

About the SPR:

Currently, the SPR has a storage capacity of 727 million barrels and an
inventory of 702 million barrels (97%) stored in the SPR’s underground
salt caverns located along the Gulf Coast of Louisiana and Texas.
Activities to resume SPR fill are taken in accordance with the
provisions of the Energy Policy Act (EPAct) of 2005, which directs that
DOE fill the SPR to its authorized capacity of one billion barrels, and
advances the President’s agenda to increase the Nation’s energy
security.


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