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Stockpiles at the biggest U.S. crude depot are quickly approaching critically low levels. The last time that happened, crude cost more than $100 a barrel.
The storage tanks in Cushing, Oklahoma, require a minimum level of oil to maintain normal operations, which traders generally believe is around 20 million barrels. Unusually for this time of year, stockpiles declined more than 4 million barrels over the past two weeks to 31 million and are expected to keep dropping rapidly due to the world's insatiable demand for U.S. light sweet crude.
It’s a stunning reversal from last year when the pandemic prompted a glut of oil so big that traders resorted to storing it in tankers at sea. The drawdown, driven by a rapid demand recovery, has been exacerbated by an energy crisis that has sent European and Asian buyers on the hunt for cheaper barrels. Over the coming weeks, stockpiles are likely to fall further to the operational low, traders at some of the biggest oil merchants in the world said, prompting the market to turn even more bullish.
“Crude oil could justifiably trade to the next level higher on the storage drought at Cushing alone,” said Bob Yawger, director of the futures division at Mizuho Securities USA. “Forget about fuel switching, whether OPEC+ adds additional barrels, or dollar weakness: if Cushing continues to slide, it could get ugly quickly.”
The rapid depletion of Cushing signals just how tight global oil supplies are and threatens to drive prices even higher from their current levels. Surging oil prices are already driving costs up for road fuel, freight activity and air travel and stoking inflation just as many countries are only just recovering from the pandemic-driven economic slump.
At the current rate of draws it could be just weeks away from Cushing being effectively out of crude, JPMorgan Chase & Co. analysts including Natasha Kaneva said in a report.
Demand for Cushing oil surged because it was the cheapest in the world and stockpiles declined very quickly, according to a senior trader at one of the biggest U.S. crude exporters. Demand for U.S. barrels is higher than ever, the person added, noting that South Korea will have bought the most U.S. crude in their history in November.
Asian buyers, including India and Taiwan, are still in the market to purchase U.S. crude cargoes loading in early November, according to traders, highlighting the rush to secure supplies.
The global energy crisis has made the light, sweet, crude from Cushing more attractive on the global market because it has less sulfur than some other types of oil that must be processed through units at refineries called hydrocrackers. Hydrocrackers rely on hydrogen usually generated from natural gas — the cost of which has surged to record highs in parts of Europe and Asia recently.
Cushing, which is the delivery point for U.S. crude futures, weighs heavily on the forward oil curve, a key indicator of how tight the market is. The price difference between oil contracts for immediate delivery compared with a month later, known as the prompt spread, is at its strongest level in more than three years. When more immediate prices are higher than later ones, it is called backwardation and is normally viewed as a bullish indicator.
The recent move in WTI spreads indicates concern that the recent strong draws on Cushing will persist, pushing the hub’s inventories to near tank bottoms, said Jenna Delaney, Head of North America Crude at Energy Aspects.
Another indicator of the situation in Cushing was the WTI cash roll, which allows traders to transfer long positions from one contract to the next in the days after expiry. It reached 75 cents a barrel on Thursday, the strongest since 2018.
So far, there are no signs of a slowdown. Inventories at Cushing fell by a further 1.9 million barrels between Friday and Tuesday, traders said, citing data from Wood Mackenzie.
Source: Bloomberg
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Valaris Limited announced new contracts awarded subsequent to issuing the Company’s most recent fleet status report on February 21, 2023. Three-year contract with Petrobras for drillship VALARIS DS-8. The rig will be reactivated for this contract. The total contract value is approximately $500 million, including a $30 million mobilization fee. 100-day contract with a TotalEnergies affiliate for drillship VALARIS DS-12. The contract is expected to commence in second quarter 2023. 70-day contract with Beach Energy offshore New Zealand for heavy duty modern jackup VALARIS 107. The contract is expected to commence in third quarter 2023. The total contract value is approximately $26 million. President and Chief Executive Officer Anton Dibowitz said, “We are particularly pleased to have secured the award for preservation stacked drillship VALARIS DS-8, for a contract that is expected to generate a meaningful return over the firm contract term, and we remain focused on exercising our operational leverage in a disciplined manner. This most recent award represents the sixth contract awarded to one of our high-quality stacked floaters since mid-2021, and speaks volumes about our demonstrated track record of project execution when reactivating rigs.” Dibowitz added, “Following the reactivation of VALARIS DS-17 and DS-8, we will have ten floaters working across the golden triangle, including four drillships in Brazil, a market where we expect to see continued growth over the next several years.” Updated Guidance As a result of the contract awarded to VALARIS DS-8, which will require the rig to be reactivated from preservation stack, we are updating our first quarter 2023 and full-year 2023 guidance provided on our fourth quarter 2022 conference call on February 21, 2023. First Quarter 2023 Contract drilling expense is expected to increase by approximately $5 million to $385 million to $395 million. Adjusted EBITDA is expected to decrease by approximately $5 million to negative $5 million to breakeven. Adjusted EBITDAR, which adds back one-time reactivation expense, is expected to be $25 million to $30 million, unchanged from the guidance provided on our fourth quarter 2022 conference call. Full-Year 2023 Revenues are anticipated to be $1.8 billion to $1.9 billion, unchanged from the guidance provided on our fourth quarter 2022 conference call. Contract drilling expense is expected to increase by approximately $60 million to $1.49 billion to $1.59 billion. Adjusted EBITDA is expected to decrease by approximately $60 million to $180 million to $220 million. Adjusted EBITDAR, which adds back one-time reactivation expense, is expected to be $280 million to $320 million, unchanged from the guidance provided on our fourth quarter 2022 conference call. Capital expenditures are expected to increase by $60 million to $320 million to $360 million. Source: Valaris Join our mailing list here We are #1 on Google and Bing for the "Largest Mobile Energy Network" Come join our community! Download the Rig Lynx app here
Seadrill Limited announced that the West Neptune has executed approximately six months of term extensions with LLOG Exploration Offshore, L.L.C in the US Gulf of Mexico. The extensions will commence in direct continuation of the existing term, and will keep the rig busy until Q3 2024, furthering Seadrill and LLOG’s long-term association. Total contract value for the extension is approximately $79 million. Source: Seadrill Join our mailing list here We are #1 on Google and Bing for the "Largest Mobile Energy Network" Come join our community! Download the Rig Lynx app here
Semisub rig owner Dolphin Drilling has inked a new contract with Peak Petroleum in Nigeria for its 1974-built Blackford Dolphin. The firm contract, which follows the letter of award in January, gives the Euronext Growth-listed owner of three rigs the potential to extend the unit’s backlog by a minimum of 120 days and up to 485 days. The deal adds to and will be a direct continuation of the previously announced 12-month contract with General Hydrocarbon Limited (GHL). Øystein Stray Spetalen-backed company said the effective dayrate associated with the minimum firm period of the contract is $325,000, including the mobilisation fee. “The final award of the contract for Blackford Dolphin shows the opportunities in Nigeria at a strong dayrate, in addition to building on the backlog for the rig. It also underlines the attractiveness of our assets, and we look forward to returning to revenue-generating operations in 2023,” noted Bjørnar Iversen, CEO of Dolphin Drilling. Source: Dolphin Join our mailing list here We are #1 on Google and Bing for the "Largest Mobile Energy Network" Come join our community! Download the Rig Lynx app here
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