In a previous post which talked in part about Oil in tankers , it was the post on Race to the Bottom – part 2,
I subscribe to a number of financial and investment newsletters, and yes they are always touting some special item or other, but they often touch on intelligence items which lead me to search out interesting events and situations which may affect us here in flatland, Canada. With our new NDP government committing us to ever increasing debt and deficit spending it is only sensible to keep a weather ear cocked to the winds of international trade. And it looks again, from another direction, like we may be in for a bit of a protracted era of bargain basement oil compared to a few years ago. Anyway, here is a quote from one of the newsletters:
“I recently learned that Iran has at least 34 large supertankers of oil, anchored and positioned in the Persian Gulf and in other spots across the world. In total, we’re looking at about 50 million barrels of Iranian oil in floating storage. In fact, it may be more than 34 tankers, but I’m using the lowest number. Those 50 million barrels — or more — of Iranian oil afloat are awaiting a date officially to go on sale.
Although there may already be side deals for much of it. That is, one way or another, when Iran sanctions lift, global oil markets will feel the inflow of 50 million “new” barrels, perhaps quickly or perhaps trickled in more slowly over time. It’s not as if this is “long lead time” oil, either. No, since it’s already loaded into tankers, all that has to happen is a set of sailing orders goes to the ship captain and the tanker is on the move.
One way or another, these 50 million (or more) Iranian barrels will affect the global marketplace. They’ll tend to knock down the price of oil — unless there’s an utter catastrophe elsewhere that shuts off entire regions from export markets. Looking ahead, when you read that Iran sanctions are lifting, be prepared to watch the price of oil take a slide. No, it’s not the kind of thing that’ll crash markets like, say, last November and December, but it’ll affect share prices for oil producers and service companies.
If you’re a long-term investor, you’ll see bargains appear overnight. Here at OI, we’re onto the issue, and we’ll discuss potential ideas as they pop up.
Meanwhile, let’s do some oil math. Take 50 million Iranian barrels in storage times (say) $50 per barrel — a low ball number. That’s a $2.5 billion increase to Iran’s national balance sheet overnight when sanctions lift. Hey, no wonder the Iranians are so keen to make a “deal” and kill the sanctions regime. They can sell the oil in storage and take the money and it’s not as if anyone can ever get it back from them.
After sanctions go away, Iran returns to international oil markets in a big way, selling oil every day. Say it’s 1 million barrels per day, to start. There’s another $50 million (or more) to Iran every day. Meanwhile, oil sale contracts tend to evolve into long-term plays, because buyers tailor refineries to particular blends of oil, and it’s expensive to change. So Iranian oil exports will be hard to stop in the event that anyone wants to reimpose sanctions.
All in all, I’m convinced that the Obama administration wants a “deal” with Iran. It’ll mean significant change across the Middle East and through the world — a long story for another note. Meanwhile, a significant part of the Jewish community doesn’t like the state of affairs with Iran, I assure you, so watch for political blowback. And when Iran sanctions lift, watch for 50 million or more Iranian barrels to depress oil markets. ”
… and I think 40 dollar oil is not out of the question. Gee, I wonder what that will do to the NDP budget. $40 oil from existing producing wells and no new drilling anywhere. Maybe the oil sands will be shut down. Wouldn’t that be a kick in the pants for the economy. Well the environmentalists would be just totally orgasmic about that wouldn’t they? And what about the extra 1 million barrels a day that Iran can add to the glut, Added to the 1.9 million barrels a day surplus to needs that the Saudis are already pumping.
So we are looking at, sometime in the near term, the sudden appearance of an extra 50 million + barrels of cheap oil and somewhere around 3 million barrels a day being pumped which are surplus to world needs and I wonder what happens to the world price of oil?
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