To see oil at sea?

1.4 billion barrels on water as tankered "dark" crude up 82% in a year

Steve Sutherlin

for Petroleum News

Alaska North Slope crude, along with West Texas Intermediate and Brent, staged a two-day slide that erased three days of gains as oversupply worries dominated trading.

On Dec. 9, ANS slid 58 cents to close at $63.16, WTI slid 63 cents to close at $58.25, and Brent slid 55 cents to close at $61.94.

Dec. 8 saw ANS and Brent each plunge $1.26 to close at $63.74 and $62.49 respectively. WTI plunged $1.20 to close at $58.88.

Traders continued hand wringing over possible peace in Ukraine returning Russian production to market, but a growing related geopolitical supply side specter loomed -- becoming difficult to ignore.

The White House in October put sharp teeth into sanctions against trading in Russian crude, targeting Lukoil and Rosneft as well as oil buyers, leading to reluctance for Russia's top customers China and India to take deliveries.

Production from sanctioned producers Russia, Iran and Venezuela has concurrently spiked, according to a Dec. 10 Wall Street Journal report.

"The number of 'dark' barrels on the ocean has jumped 82% in a year, with a rapid rise in the past three months," the Journal said, adding that "the oil market is grappling with whether sanctioned Russian and Iranian cargoes should still be counted as supply."

There was a 16% year-over-year surge from mainstream producers, Vortexa data showed.

A total of1.4 billion barrels of oil is 'on the water...' -- 24% higher than the average for this time of year between 2016 and 2024, it said.

"Sanctions are making it very difficult to judge where the market will head next," the Journal said. "The result has been an unusually steady oil price despite growing oversupply, but any sign that the glut of sea oil is moving onshore could cause the floor to fall out from under the oil price."

Crude futures tick up slightly

Support was bolstered by a drawdown in U.S. commercial supplies.

U.S. commercial crude oil inventories for the week ended Dec. 5 fell 1.8 million barrels from the previous week to 425.7 million barrels -- 4% below the five-year average for the time of year, according to U.S. Energy information Administration data released Dec. 10.

Analysts answering a Wall Street Journal survey on the average called for a 1.6-million-barrel decline in commercial crude.

Gasoline supplies surprised to the upside, however.

Total motor gasoline inventories leapt 6.4 million barrels over the week to 220.8 million barrels -- 1% below the five-year average for the season, the EIA said. Distillate fuel inventories increased by 2.5 million barrels to 116.8 million barrels -- 7% below the five-year average for the time of year.

Analysts in the WSJ survey estimated just a 2-million-barrel increase in gasoline.

Crude was further supported on the demand side as the U.S. Federal Reserve decided to lower the target range for the federal funds rate by 1/4 percentage point to 3-1/2% to 3 3/4%.

The Fed said in a statement that reserve balances have declined to ample levels so it will "initiate purchases of shorter-term Treasury securities as needed to maintain an ample supply of reserves on an ongoing basis."

Both actions are stimulative and likely to boost U.S. oil demand.

On Dec. 5, ANS and WTI each gained 41 cents to close at $65.00 and $60.08 respectively. Brent rose 49 cents to close at $63.75.

ANS leapt 79 cents on Dec. 4 to close at $64.59, as WTI leapt 72 cents to close at $59.67, and Brent jumped 59 cents to close at $63.26.

ANS and WTI each edged up 31 cents on Dec. 3 to close at $63.80 and $58.95 respectively. Brent added 22 cents to close at $62.67.