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Oil is the crazy part to me, I read an article that said oil could technically even go -negative- because the cost to store it would become more expensive than
by partiallypro 7y ago
Oil is the crazy part to me, I read an article that said oil could technically even go -negative- because the cost to store it would become more expensive than to give it away. With Saudi Arabia pumping, and the economy in a standstill, there is a massive glut. Bonds are selling off, and I don't if it's because people are re-balancing with stocks down so much or if the market is reacting to the likely future of massive bond issuance from the US government.
- pletsch 7y agoCanadian oil went below $10. It's insane.
- mkagenius 7y agoIts weird that country like India has storage capacity of only 40 days. Even if they wanted to store an year worth of cheap oil, they can't.
- hangonhn 7y agoThe US only has capacity for 30ish days... but at US consumption rates.
- _jal 7y agoKind of. It is around 30 days now, but it can't be emptied that fast - I think it takes something like 4 months to draw down the full capacity.
- WrtCdEvrydy 7y agoThink about it, you have a resource that powers the world... why would you need to store it?
- mkagenius 7y agoFor days like todays, it would have saved them $60B, you don't get cheap oil so easily
- lordnacho 7y agoIndeed, it is possible for commodities to go negative, for instance in the electricity market. Saudi decided to have this price war at an interesting time, in the middle of a crash in the rest of the financial market, hence the huge moves were setting now.
- gpm 7y agoElectricity can go negative because some modes of production are slow and difficult to turn off, so they keep producing and we need somewhere to dump the energy. It doesn't help that unlike oil electricity is produced in a just in time fashion, we produce it the same second we want to use it, not days or months before hand. I.e. there is nearly no buffer capacity in the supply chain. Does the same apply to oil? Can we not just turn the pumps off and leave it in the ground with what basically amounts to flipping a switch?
- Analemma_ 7y agoWe could easily turn the pumps off. The issue is the Saudis aren’t doing that, for geopolitical reasons.
- JumpCrisscross 7y ago> We could easily turn the pumps off Can one? I don't know enough about oil wells to know if that's a simple thing to do. It could very well do permanent damage to the well, in excess of selling negatively for a few months.
- scrumbledober 7y agoSaudi Arabia is constantly turning on and off different oil wells to manipulate the price of oil. This current crash is in large part due to them turning on all of their pumps.
- exhilaration 7y agoOnly Russia can't completely turn off its pumps, and only during winter. They'll freeze. Besides that case everyone else can do it or simply slow them down as they've done in the past.
- gpm 7y agoMaybe I'm missing something, are there some weird contracts out there that require accepting fresh oil pumped out of the ground? Otherwise it seems like before oil went negative people would just stop accepting more shipments from oil wells and oil wells would be forced to shut down (for lack of places to pump the oil to).
- lmilcin 7y agoWhat do you mean by "require freshly pumped oil"? The contract is for a commodity at a certain price at some time in the future. There might some quality requirements but other than that nobody cares whether it comes from storage or is freshly pumped. It is beneficial for the buyer that the seller has ample storage because it means less risk that the seller defaults on the contract.
- anticensor 7y agoGovernment productions contracts might require fresh production. No one else would realistically insist on that.
- gpm 7y agoI mean I could imagine some contract where party A agreed to continue to accept/transport/"deal with" all the oil party B produces, and is required to continue even if they are losing money on the deal. I'm not sure why anyone would have signed such a contract, which is why I called it weird, but it does seem plausible.
- dmurray 7y agoSaudi Arabia likes to play games with the market, but they probably won't keep pumping oil if prices go negative. So you might see isolated examples of oil trading free or negative, as gets breathlessly reported when it happens to wind or solar, but it won't happen systematically.
- SilasX 7y agoI'm just confused at today's drop in long-term government bonds (and thus increase in interest rates) -- normally they go in the opposite direction of the stock market, which is what it's done this year. Vanguard's long-term govt bond ETF (VGLT) is up 13% so far this year: https://www.ytdreturn.com/vglt/ https://www.ytdreturn.com/vglt/ Edit: rephrase to clarify what I'm confused about
- OldHand2018 7y agoThe yield of a bond is inversely related to the price you pay for the bond. The prices are going up, thus the yield is going down. To be clear: the price you pay to buy a bond is going up while the price you pay to buy a share of stock is going down. It is exactly how you expected, you were just looking at the wrong number.
- SilasX 7y agoNo, I meant that government bonds today are going down (yield up) while stocks go down. I mentioned the good performance of government bonds YTD as indicative of their normal behavior, i.e. going up (yields down) when stocks go down. I realize now I was phrasing it poorly. Since edited.
- OldHand2018 7y agoGot it :) The President mentioned something about wanting to backstop money market funds, so that may be part of what you are seeing.
- manic85 7y agoThis is confusing to me too. The best explanation I've heard is that the market is expecting a future increase in bond supply (gov bond issuance to fund coronavirus mitigation measures), which would drive prices down and yields up. This future price pressure is being priced into bonds today. Bitcoin crashed as well and gold isn't overperforming either. So rather than having a huge transfer of assets from stocks to bonds/gold/bitcoin like we've seen during past periods of market volatility, I think we are seeing falling prices across all the forementioned asset groups. The one open question for me is Real Estate (I work for a small commercial real estate developer). REITs are down 20%. My contacts in the Broker community have told me individual property sales transactions have dried up due to an inability to do property showings combined with no interest from buyers or sellers to make big moves until things shake out. RE moves slow so we haven't yet seen how this dynamic will impact sales prices.
- deleted 7y ago[deleted]
- xchaotic 7y agoLots of people are complaining but to me it shows the market is working - oil goes down because of decreasing demand and I don’t see why it should be otherwise.
- LarryDarrell 7y agoMy main client works in the reservoir exploration space in the Oil&Gas industry. I'm prepared for it, but I can tell that I'm going to have to replace a big chunk of income very soon.
- paganel 7y agoMy brother is a lorry driver and has traveled through Southern Germany and Norther France these last two days. He told me that there are almost no cars on the roads apart from other lorries and some police/Gendarmerie cars, and the few photos he sent me seemed to corroborate his sayings. I suspect in Italy there are even fewer cars now circulating, and Spain is probably the same. So you've definitely got a huge demand-side crisis, and coupled with whatever Saudi Arabia and Russia are trying to do (fighting between themselves or fighting between themselves in order to bring down the US shale companies, I'm never quite sure) that means that the only way is down.
- harlanlewis 7y agoAnother bit of corroborating evidence for reduced traffic is air quality. The current day over day difference in places like LA (or earlier across China) is dramatic.
- r00fus 7y ago> fighting between themselves in order to bring down the US shale companies This is the key. They are cooperating to destroy US efforts at self-sufficiency. On the bright side, the canals of Venice are clear (you can see the fish) for the first time in recent history.
- tomp 7y ago> They are cooperating to destroy US efforts at self-sufficiency. That's simply impossible. Best they can do, is bankrupt the current owners of fracking oil wells. But the equipment and sites / wells remain, and will be taken over by new owners, which will remain pumping oil as soon as price reaches sufficient levels (or until the US needs it for "national security").
- blaser-waffle 7y agoForeign firms can operate oil companies in the US. The new owners may be Saudi...
- 7y ago
- walkingolof 7y agoI read in the Economist that this price war was initiated by Russia as an attempt to kill off the American oil industry who is in deep debt and in increasingly under pressure..
- fulafel 7y agoIn the global warming discussions there are always lots of people testifying that it's impossible to cut private car use or their world will end, hopefully this will shake those ossified attitudes.
- njarboe 7y agoI would think this current crisis would make people even more leery of public transport and cutting car use is not impossible but that it will take a governmental forced lock down and martial law. Maybe we should think about ways of reducing the downsides of individualized transport instead of promoting 19th century solutions (large crowded subways). Electrification, reduction in size, tunnels, etc.
- leethargo 7y agoMaybe ony more leery of depending on public transport. I've stopped using subway last week, and can still run errands by bicycle, i.e., don't need a car. But I also mostly WFH so it's easy, of course.
- njarboe 7y agoYes. Biking and walking are also great transit modes depending on the distance, speed, and cargo needs of the trip. Although crowded sidewalks is something to avoid at this moment.
- drewnick 7y agoI'm not arguing, but we've cut private car use, and it seems like the world is ending, economically speaking. Hoping this creates habits that are good for climate beyond the immediate disaster. WFH, school changes, etc. Good can come of this in the long run.
- echelon 7y agoDoes it make sense to buy oil/energy stocks now? They have to rebound on a long-term horizon, right? (You can't replace plastics with solar.) I suppose that works unless the companies become insolvent?
- dontparticipate 7y agoNever try to catch a falling knife.
- fulafel 7y agoWe'll have to leave most oil in the ground or face a very bad climate change that will decimate any short term profits.