TL;DR: A bizarre sight off the coast of California unveiled itself recently. $20 million barrels worth of oil floats on tankers unable to dock and unload. A perfect storm of politics, pandemic, and legacy finance have combined to shake confidence in a once thought sure investment and, perhaps, the US Dollar, the world’s reserve currency.



Oil Tankers Linger Off California’s Coast, Unable to Dock

Traditional finance and commerce are the reported adults in the room. When all else fails, the public is supposed to find solace in perennial hedges, relying on governments’ policies and global financial arrangements. This year has proven a challenge to such reassurance. The latest evidence comes by way of the fossil fuel industry, specifically oil.

Petroleum is arguably the lifeblood of modern industrial economies. From plastics to combustible automobile engines to energy production, oil is king. Entire nations have been sacked in foreign policy disputes on its behalf, especially in the 20th century and bleeding into the 21st. It’s so pervasive, many analysts will often refer to the globe’s reserve currency, the United States Dollar (USD), as the petrodollar. Oil-exporting nations price Texas Tea, Black Gold, the Devil’s Tar in USD for good reason.

As a result of the above outline, oil is considered a smart longer-term sector to store cash. That appears to be changing rather quickly. If patterns hold, the industry’s reordering could have profound implications. The present scenario began changing before the coronavirus pandemic took full effect. Cartels such as OPEC (Organization of the Petroleum Exporting Countries) and OPEC+, comprising nearly two dozen countries, are engaged in a price war.

OPEC vs OPEC+

OPEC proxy Saudi Arabia and OPEC+ leader Russia are challenging one another for market dominance by way of further manipulating oil supplies. The vagaries of agreements and jockeying can get complicated, but it amounts to a price war determining which cartel can withstand a bottoming out. Think of it as if retailers like Walmart used their relative size to floor prices on all goods and services: Walmart could absorb short-term losses, but its smaller competitors would probably be crushed, thrown out of business.

What few saw coming just as OPEC and OPEC+ were flooding the market with oil, causing consumers around the world to rejoice at local pump prices, was the eventual fallout from coronavirus. Governments responded to the pandemic by limiting foreign travel and domestic movement, delivering speculative oil prices a one-two punch: glut of supply combined with an artificial but very real plunge in demand. By this week oil prices turned negative due to it costing more to house the goop than it was presently worth.

All of which brings us back to the present day. As Robert Tuttle of Bloomberg explained, “Oil tankers carrying enough crude to satisfy 20% of the world’s daily consumption are gathered off California’s coast with nowhere to go as fuel demand collapses.” Dozens of barges, from Long Beach to San Francisco, act now as what he calls “floating storage” for a good nobody wants. This means an immediate cascading effect for refinery production and beyond.

Highest Volume of Crude to Ever Float Off the West Coast at One Time

Gluts and idling oil tankers do have precedence — this has happened at various points in history — but the “more than 20 million barrels of crude is the highest volume of crude to ever float off the West Coast at one time, according to Paris-based Kpler SAS, which tracks tanker traffic. About three quarters of those tankers are holding oil in storage, meaning they have been floating steadily for seven days, also a record,” Tuttle underscored. It’s a sight found also off the US Gulf Coast and Singapore at the moment.

The interplay of cartelization showing cracks, a crashing speculative oil price, inevitable industry weakening, and a USD being handed out by the trillions in relief packages, spells interesting times for cryptocurrency enthusiasts. The recent BTC store of value narrative has taken a hit — maximalists once believed a global economic downturn would send legacy investors into the loving arms of “digital gold.” So far, that hasn’t happened.

Crypto markets have been shaky at best, mostly flat, downright bearish during the coronavirus Great Shutdown. Perhaps that is due to governments’ propping up their economies through various bailouts, preventing monetary refuge-seeking. If the USD does weaken, and that’s always relative due to its pride-of-place, average folks could soon search out less politician-driven forms of money better suited for the digital age, … maybe a peer-to-peer electronic cash system with low fees and fast transaction times.

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