Thursday, February 26, 2009

Parking Crude Oil

Parking Crude Oil

Here is a bit of information that is hard to digest.

Speculators are leasing Super Tankers called Very Large Crude Carriers (VLCC’s) (tankers holding 2 million barrels or 84,000,000 gallons each.) to store crude oil. There are currently between 35 and 45 of these behemoths sitting, many in the Gulf of Mexico and Persian Gulf holding approximately 80,000,000 (80 million) barrels or 3,360,000,000 (3.36 billion) gallons of crude.

This is almost one day’s worldwide consumption. The speculators are and have been paying $60,000.00 to $75,000.00 dollars per day to lease each of these tankers to sit holding this oil.

Factoid: If you lined 35 VLCC tankers end to end, the total length would be about 7 miles.

Why would someone pay this huge amount of money to park oil in the ocean? Well look at it this way, using the $60,000.00 per day figure to store 2,000,000 gallons of crude works out to approximately $.03 (three cents) per barrel per day. If it sits there 100 days that’s only $3.00 per barrel.

Now let’s say that you purchased crude that was $35.00 per barrel and today (02/26/2009) it is $45.00 per barrel. Even if you have stored it for 100 days at $3.00 per barrel or $6,000,000.00 ($60,000 X 100 days) you will still profit $7.00 per barrel or $14,000,000.00.

So this might us to conclude that the current rise in crude oil prices is a manipulation of the market rather than the result of supply and demand.
Right now the market is off by about 1,000,000 barrels per day, there are at least 80,000,000 barrels floating around, every land storage tank in the world is full, all waiting for the price to go up.

OPEC would have us believe they are reducing production to stabilize (this means “drive up”) the price of crude oil. In reality they are reducing production only because they have no where left to put it.

In a true supply and demand world, prices should be going down, not up.

One thought is that our government should be filling the national Strategic Petroleum Reserve (SPR) as fast as they can get it in the ground. If all of these speculators believe crude will go up in the future then this a worthwhile investment to make.

In spite of the fact the current price is based on market manipulation, I doubt that the government will ever be able to police it. The ability to move staggering amounts of oil around the world with little or no regulation or accountability makes tracing it virtually impossible.The best things we can do are to reduce consumption through more efficient vehicles, equipment and practices and to work on alternative fuels to reach a point where we are able to produce most if not all of our fuel domestically.

Diesel Doctor

Copyright 2009© - William Richards

1 comment:

  1. Interesting blog. It would be great if you can provide more details about it. Thanks you
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