My oh my.
We’re getting an inkling of the chaos to come in the oil market right now. And no one else is even remotely watching this.
The Financial Times reports that the cost to chart an oil supertanker has tripled in the past two weeks1.
The expense is now a staggering US$140,000 a day.
This is why energy stocks should be at the top of your shopping list.
What’s driving this?
Something we’ve been flagging for a long time now — the arrival of the new IMO2020 rules in January 2020. Plus, a dash of Trump’s trade chaos.
Multiple factors are behind this soaring asking price.
One is that the US put sanctions on a Chinese shipowner and knocked them out of the market.
A second is that other vessels are in dry dock to install ‘scrubbers’ to meet the IMO2020 regulations.
But this is what really caught my eye…
‘Traders are calculating that the price of low sulphur shipping fuels could jump in the lead up to the fuel switch, leading them to charter ships to store tanker loads of the fuel in Singapore, a key shipping and refuelling hub.’
Get the picture?
Trading firms are starting to hoard petroleum products on the assumption they can cash in once global ships have no choice but to use a specific type of fuel.
That’s two months away.
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You and I should be doing the same thing.
All this has the potential to send refining margins and the cost of crude oil soaring.
We can already see this brewing…
The margin to produce Asian gasoil hit its highest level in six years last month, according to The Business Times in Singapore.
This has all sort of implications. US energy exports are booming right now.
But the economics of shipping US oil to Asia begins to break down the more expensive travel expenses get. It’s a big trip.
That means Asian refiners may not produce as much diesel and gasoil that the world is relying on to meet IMO2020.
That’s not all…
America: not even close to ‘energy independent’
It also has the potential to punch a big hole in the myth that the US is now ‘energy independent’ because of the shale boom taking US production to 12 million barrels a day.
Here’s the reality…
The US imports roughly the same amount of barrels as it did in 1972 when the first oil crisis hit. Yep — that’s a surprise to all.
A lot of the US refining industry on the Gulf Coast was built to process Middle Eastern oil. That’s why the imports keep coming.
The US exports a lot of its domestic oil because its refiners can’t use it.
Point being: Another attack on Saudi Arabia or a further decline in the situation in Iraq could be a major problem for the world.
There’s very little spare capacity left and inventories are already drawing.
We already know about the problems in Iran, Venezuela and Iraq. Profit Watch has reported on these all year.
The chaos is spreading further…
Another oil producer in a ‘state of emergency’
Now we have the Ecuadorian president suggesting he’s the victim of a potential coup as protestors instigate a state of emergency across the country2.
Ecuador’s state run oil company has suspended three fields after protestors occupied them.
Oil producing countries are under stress all over the world.
One wonders if Trump might even move to block US energy product exports if the price of oil really gets out of hand.
Don’t forget that US crude oil exports were banned for 40 years until Obama overturned that ruling in 2015.
Trump is exactly the type of president that wouldn’t hesitate to reverse this decision.
I can sense an objection.
What about electric cars? Perhaps the world is not quite as dependent on oil as years gone by?
Please, don’t make me laugh.
Dyson bails on his electric car dream
Electric cars currently have 1% market share. That leaves 99% of the 276 million cars in the US running on oil.
The outlook for electric cars has become a lot fuzzier in the last six months, compared to a year ago.
There’s no doubt the world will head in this direction. But the economics of it don’t really work just yet.
That’s why British billionaire James Dyson just announced he’s pulling plans to create his own electric vehicle.
Even a man as rich as him can’t subsidise the losses for long enough to make it work.
Certainly, there’s nothing the auto industry can do in the next 12 months to alleviate any pressure from a rising crude price.
You’re unlikely to see the heat bubbling in the energy market if you take your cue off of the headline price right now.
I suspect this stress will begin to show up in the headline price by November.
That’s a good thing. It gives you a chance to pick up energy stocks before the wider public catch on to what’s happening here.
I just updated my energy report on the best ‘wildcatter’ oil firm you can buy on the ASX.
The CEO said this week that he’d be disappointed if the share price isn’t 200% higher within 18 months. I feel the same way. And that’s at today’s oil price.
It could be higher again if I’m right about oil taking off in the next six months. Go here for the fully story now.