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Tempest in a Teapot: Russia Will Sell Its Excess Oil

Written by Gary North on March 24, 2015

A teapot is an oil refinery plant in Russia.

The teapots are being shut down. Oil prices are too low. The excess oil will be sold to the West.

Watch oil prices drop when this happens. Storage facilities are filling up. Oil must be sold. So, its price at the margin will fall.

The next big threat to oil prices isn’t from OPEC or Bakken shale. It’s Russian samovars, or teapots.

Simple refineries that process crude into fuel oil are scaling back, because when oil prices slump, the government reduces the discount that these refiners — known as teapots to those in the industry — get for exporting fuel. They use less crude, freeing it up for sale abroad, which in turn adds to the global glut.

Russia may increase oil exports by as much as 250,000 barrels a day this year, according to James Henderson, a senior research fellow at the Oxford Institute for Energy Studies who’s followed the country’s energy industry for more than 20 years. That would equate to 5% growth in shipments, the most in at least a decade.

“The pain Russia is feeling from low oil prices has made more crude available for export,” Henderson said by phone March 18. “Quite a few of Russia’s simple refineries could reduce their runs.”

Rising shipments from Russia, which ranks with Saudi Arabia and the U.S. as the world’s biggest oil producers, would put more pressure on crude, already down more than 50% from last year. Falling energy prices and U.S. and European Union sanctions imposed last year in response to the Ukraine crisis have pushed Russia to the brink of recession, damping demand for refined fuel products in the country.

This is good news for consumers.

It’s good news for American auto companies, which will sell more pickup trucks.

Winnebago sales will climb . . . just in time for the next recession.

Then oil prices will fall again. They have to do something with the oil.

The shale oil boom has busted.

Real estate in Houston will take a hit. Wait for bargains. They’re coming.

Continue Reading on business.financialpost.com

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