For educational and research purposes only: Something's definitely up in the oil patch. Petroleum Intelligence Weekly reported this week that Iran has been storing physical crude off Kharg island in a virtual armada of VLCC's there were 9 mentioned in the article including a ULCC, altogether the armada is capable of holding a total of about 14 million bbs. (PS-if you're in the oil industry and you don't read PIW, then you're probably should reconsider your career choice, they are VERY well respected).

Then I got word today that they chartered another 2 greek ULCC's which hold an additional 7 million bbls. total. The carry cost of 5 million bucks per month in dead freight and probably 2.6 million dollars per month interest expense is not an insignifigant number. But the real pisser hear is the length of the charters, 5 MONTHS minimum.

Now there's quite a bit of discussion as to why they are doing this. Some think it's an incentive plan to keep OPEC honest, some think they are just trying to keep their production going blah blah blah.

But the name of the game really is connect the dots. These guys are probably getting in front of the price spike which will inevitably come in Nov and Dec. Since they don't have any leased storage, they have to lease floating storage.

The world is gonna suck up some bbls. and these guys know it. NIOC is still lead by a guy named Zangeneh who is one sharp cookie. I think they're storing ahead of Y2K which was a scenario not mentioned by PIW. I also don't think Zang. would risk pissing on the Saudi's shoes. You just don't do that kind of stuff. (the Saudi's WOULD be pissed if they thought Iran was usurping them as the "enforcer".)

Also, I have been wondering for some time, just as oil analysts are prone to wonder, "How in the hell did OPEC manage to get their act together". At the same time, I have been wondering why crude oil has been so unusually strong. Yeah, the funds are long, but I don't happen to think those guys are all that much ahead of the curve, and yeah EU margins have been better, but it just didn't add up. Well if it doesn't usually look like a duck, or usually walk like a duck.......and then all of a sudden you hear quacking, CHECK YOUR EARS AND EYES!

Here's my scenario and it's a good one for Y2K. The OPEC nations are all probably cheating like bandits and filling their storage as much as possible ahead of this event. They managed to tighten up the price phenomenally in the short term by pretending to not be cheating.

Hell, they may have even asked for permission from world powers to cheat on reported production figures (yeah, I know that sounds extreme, I don't care). This staunch adherence to "quotas" stopped the not unsubstantial bleeding on their debt (combined OPEC losses from the last overhang were estimated at $64 billion dollars) and they are actually going to come out with these barrels at a time when they will make a freaking fortune on them.

I had been scratching my head as had many of my colleagues saying "Wow, OPEC finally got it together, wonder how that happened?". IT DIDN'T! The crude is out there. And now that we're getting really nervous, I think the buying for stockpiles is commencing, they will cheat even more. This is good for the world. We need those physical barrels out there.

The questions for all you crude analysts out there are these:

1. How much tankage are you seeing tighten up and fill up? 2. Have you seen signs that VLCC freights are strengthening? 3. What is the demand out of Asia?

C'mon boys, I know you're out there. Lets pencil it in.

As an aside, the Japenese are buying the shit out of physical food commodities. They are buying about 20% more than normal corn etc. in the commod markets. Dollar got living shit beat out of it today and the swap spreads are going the wrong way again. If you think our Trade Deficit was high today, wait til you see next month!

-- Gordon (g_gecko_69@hotmail.com), August 19, 1999

Answers

Gordon.......I think I can speak for some of the lady lurkers- you can get your point across without that foul language. Time out to wash your mouth out with soap!!!!

-- Jo Ann (MaJo@Michiana.com), August 19, 1999.

Sorry to the lady lurkers. I actually have toned it down quite a bit. The trading floor I work on is probably one of the most vulgar places on the planet and sometimes I forget that I'm not there.

I will try to be more considerate.

-- Gordon (g_gecko_69@hotmail.com), August 19, 1999.

Just a SWAG, but what if they are pumping as fast as they can before their oil rigs go "boink" on January 1? If I was in charge of an oil exporting state, I'd be grabbing all the storage I could, all the time saying "Y2K? It's just an American hoax."

-- Margaret (janssm@aol.com), August 19, 1999.

Gordon, THANKS for the insight. Appreciate your information and explanation.

-- Nancy (HAYSandCO@aol.com), August 19, 1999.

Trading floor?? Gordon, I thought you said you were an airline pilot?

-- a (a@a.a), August 19, 1999.

Nope, that's the other Gordon, hey a, gecko could be a clue.... :)

Wall Street? :)

-- Andy (2000EOD@prodigy.net), August 19, 1999.

Let's see...VLCC and ULCC off Kharg Island...wonder what a few 'tin fish' would do in the right hands??

-- K. Stevens (kstevens@It's ALL going away in January.com), August 19, 1999.

Great info Gordon. It helps to have people with so much diversity in business backgrounds on this forum. This is what it is all about.

-- Mike Lang (webflier@erols.com), August 19, 1999.

I would be really pissed if some Iranian pissed on my shoes!

-- don't piss (Don'tpissonmy@shoes.com), August 19, 1999.

Gordon,

Do you know of any way to find out if home heating oil retailers in the US are or are not stocking up for a cold 1999/2000 winter?

Jerry

-- Jerry B (skeptic76@erols.com), August 20, 1999.

I'm a former refinery rep and commodity brokerage firm owner with an energy contract focus. I've actively traded oil markets for about 10 years. A couple of months ago, I was amazed at the lack of y2k risk reflected in oil economics. We get 2 much imported crude from 3rd world backwaters....Africa...Mideast, not to mention the computing complexity of distribution channels and refineries. The new President in Venz. came to office in Feb and came out publicly and said his predicessor had done zero for y2k. This is prob true for many other countries, but they haven't had a change of administration to blame probs on. Another example=Russia. They're exporting nearly 4 mmbls/day of crude and products, much of Europe's nat gas, and a lot of refinery catalysts. That's gonna be a big disruption. BUT.... whether these post 2000 probs are substanitive or not....MARKETS DONT LIKE UNCERTAINTY, whether its stock markets or oil markets. Everyone who has tankage is gonna use all of it. The scramble for barrels has started. In the last few weeks the NYMEX (oil futures market) backwardation has widened big time (pre-2000 barrels are starting to trade at big premiums). On Friday Aug 20 there were so many 1000 lot orders (each lot = 1000 bls or 420000 gallons) coming in for Dec gasoline, it's spiking up relative to further out months and was the only oil sector contract to move higher on the day.

Good analogy= G Bush's Jan 15th deadline to Iraq. That date came and went. In retrospect it wasn't much of a risk...it was the most lopsided military victory ever. But what happened before the deadline? MARKET UNCERTAINTY = $40 crude oil and a 20% stock marekt correction.

Bottom line your heating oil distributor IS going to try and stock up but he and you had better get in early and cheap (relatively spreaking). THE SCAMBLE FOR BARRELS HAS STARTED AND THE OIL MARKETS |ARE JUST STARTING TO REFLECT IT. CARPE DIEM

-- Downstreamer (downstream@bigfoot.com), August 21, 1999.

Downstreamer,

Thanks for the heads-up. Let me ask you to go the extra mile: can you suggest a web site that reflects the activity that you observed? When I tried to find gasoline activity on the NYMEX site, what I located was:

http://www.nymex.com/markets/quotes.cfm?showAll=on&contract=HU #HU

which does not appear to reflect what you observed.

Jerry

-- Jerry B (skeptic76@erols.com), August 21, 1999.

Fascinating ... Wow .... heart pumping action. It's getting real interesting.

Thanks for the headsup.

sdb

-- S. David Bays (SDBAYS@prodigy.net), August 21, 1999.

Now if I could show you where this was fully deliniated and verified it wouldn't be an opportunity, now would it?

In terms of the 1000 lot Dec gasoline orders coming into the NYMEX gasoline pit, we're still kinda old fashioned in futures markets. I'm relating phone conversations from the guys that 'fill my paper' in the NYMEX gasoline trading pit. They think all the Dec gasoline buy orders were mostly from Tosco, an independent refiner who bought Exxon's former Bayway NJ refinery and has become one of the more aggresive trading firms. I think they're gonna put a squeeze play on Dec gasoline. They control much of the physical barrels in the NY Harbor area (where the NYMEX specifies delivery on their gasoline contract). They'll buy up much of the physical barrels and dominate the longs on the Dec futures and the shorts will have to pay up to get out. Unlike y2k, its a game as old as markets themselves. Its just a hunch though in light of all the other hoarding and other y2k fundamentals.

In terms of websites Futuresource.com has about the best or these markets but nothing on what I'm relating.

Check out the NYMEX 'gasoline strip'. Sept=6597 Oct=6404 Nov=6264 Dec= 6149 & the only contrat to close higher on the day on Fri Jan=6059 Feb=6004

Now get an old newspaper and compare with "the strip" a month or 2 ago. 1999 gasoline barrels are starting to get bid up relative to 2000 deliveries. Part of this is just normal seasonality but as we all know this wont be just a normal season. In oil and alot of other markets, 1999 deliveries are getting bid up relative to 2000 months. With everyone who has tankage filling it, and people wanting to rent crude carriers and even just gasoline tank trucks just to store product at the rollover, we're in for huge demand levels whether y2k mis substantive or not.

As for the Iranians, they were publically pleading for y2k help a couple of months ago. I think they concluded they were too late and so they're gonna stockpile. Major oil co operations like ARAMCO (Saudis) and Kuwaitis will probably be ok but the Nigerians, Syrians, Iraqis, Russians and anyone else who just suffered through $12 crude oil right when they needed y2k remediation funds are gonna sputter. The NYMEX markets still don't reflect enough of this risk.Its a huge prob and a huge opportunity.

-- Downstreamer (Downstream@bigfoot.com), August 22, 1999.

Downstreamer, The "gasoline strip" numbers that you gave do match the "most recent settle" column at the NYMEX web page for NY Harbor unleaded at (let's see if this works as a hot link): August 20 Gasoline Futures Other numbers there do indicate an uptick for December (and apparently also for February), but the volume column says "Previous day's total volume", so I will take a look Monday to see how it looks. The corresponding web page for heating oil at: August 20 Heating Oil Futures

indicates a bulge for December, both in open interest and in volume.

Will have to follow these data for a while. Thanks again for the heads-up.

Jerry

-- Jerry B (skeptic76@erols.com), August 22, 1999.

Let's try to fix that first hotlink: August 20 Gasoline Futures Jerry

-- Jerry B (skeptic76@erols.com), August 22, 1999.

It occurs to me that I should have left the date out of the name of those hotlinks, since the data will change from day to day.

Jerry

-- Jerry B (skeptic76@erols.com), August 22, 1999.