Yes the Saudis have been trying to take down the American fracking oil industry and probably the Russians too. (With much success to date at least in the USA.) But this glut of oil is not only the result of our Middle Eastern “friends” turning on the oil spigots. It is also because the world’s second largest economy, China, is slowing and likely will continue to slow. The decline in the price of oil is setting off alarm bells (again) in other markets including equities which had seen a nice rally as of late. Commodities in general have ebbed with the oil price.
What does this mean?
Primarily it means that despite the official ra ra coming from official circles in the USA and elsewhere the world is teetering economically. It is also teetering geopolitically. (The rather pathetic manufactured triumphalism from Prime Minister Cameron this morning on news of the death of “Jihadi John” is certainly indicative of that. “See, see, WE did it. Not Putin. We got that one bad guy. Hooray!”) It also puts more pressure on Janet Yellen at the Fed to put off raising rates. (The futures markets still see a much better than 50% chance that she will raise rates in December.)
This renewed downdraft in the price of crude is yet another warning to investors and the public at large. Things are unstable right now. More unstable than most people realize.
Having exposed the world yesterday to the 2-mile long line of tankers-full’o’crude heading from Iraq to the US, several weeks after reporting that China has run out of oil storage space we can now confirm that the global crude “in transit” glut is becoming gargantuan and is starting to have adverse consequences on the price of oil.
While the crude oil tanker backlog in Houston reaches an almost unprecedented 39 (with combined capacity of 28.4 million barrels), as The FT reports that from China to the Gulf of Mexico, the growing flotilla of stationary supertankers is evidence that the oil price crash may still have further to run, as more than 100m barrels of crude oil and heavy fuels are being held on ships at sea (as the year-long supply glut fills up available storage on land). The storage problems are so severe in fact, that traders asking ships to go slow, and that is where we see something very strange occurring off the coast near Galveston, TX.