Saudi Arabia, the world’s largest crude exporter, increased the pricing terms for Arab Light sold to Asia by the most in three years as demand improved. State-owned Saudi Arabian Oil Co. said Tuesday it will sell cargoes of Arab Light in April at 90 cents a barrel below Asia’s regional benchmark. That narrows the discount by $1.40 from March, the biggest price increase since January 2012, according to data compiled by Bloomberg. The company also raised prices it offers to refiners in the U.S. Read more.
US production is still very high and inventories are huge. This will be a good test to see whether or not US producers are the new, price setters at the margin.
7 comments:
We're about to run out of storage space too. All the producers are saying they are cutting capital expenditures but will pump more oil this year. But demand doesn't respond to price, so I think they will have to turn off pumps for a few hours per day. But before anyone will be willing to do it, the contango needs to collapse and prices need to fall so hard that it shocks producers into reality. These oil executives see themselves as producers and not market participants but markets have a brutal way of focusing the mind on prices when people refuse to pay attention.
Ryan have you seen the report out today on accounting periods?
according to GAAP they can still use the price from late last year for valuation purposes... this is going to rollover after Q1... so iow the way I look at it, they are carrying inventories still at $100/bbl if they were to sell inventories here, they would have to realize the hit... if they sit on it, they dont have to take the markdowns (yet)...
So storage is filling up as nobody wants to sell and have to book the losses...
this may buy them some time until after Q1... but if the storage fills up first then what?
I'd have to think that producers will drop prices hard and sell to refiners on a "just in time" basis? .... hard to tell...
rsp
Switch from LIFO to FIFO? :)
Tom it is probably the "middle-men" entities...
here is a link to the Bloomberg report... pretty good piece from Bloomberg:
http://finance.yahoo.com/news/price-oil-blow-hole-corporate-052303837.html;_ylt=AwrBJR_dQPdUuxgAwRuTmYlQ
So if the banks financing these inventories can still rely on these higher valuations, then they are ok for now... but once they have to mark it down, then it creates havoc at the bank....
then if the storage fills up, can the producers bypass the storage and start offering lower prices directly via "just in time" to refiners on the coasts?
rsp,
That was snark, Matt, based the dictum that there is no financial problem that creative accounting can't solve. Of course, that may mean passing the problem up to the central bank.
Might just effect the banks that are heavy into the oil industry Tom.....
Probably a bigger deal for the banks and midstream storage and pipeline companies than anyone. I've seen many legal agreements where alot of these big name banks out of the US, Canada, Australia, UK and Europe secure their financing to mineral property on projects. Not all agreements reference the price of reserves so I think it is safe to assume on the ones that are exposed to price risk on reserves, they would have to hedge some of that risk to satisfy banking regulators. I'm sure though. Norman, Mosler, or Bill Black who have worked in finance and banking probably have a better clue as to what risks must be hedged and which hoops the regulators make them jump through. For oil production the risks and costs are simple and understandable not so much for banks.
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