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The global oil market is broken, drowning in crude nobody needs
- aantix 7y agoThe demand will rise again once this virus is done with.
- avvt4avaw 7y agoRemember that the initial fall in oil price was a supply shock (Saudi Arabia upping production) that was only exacerbated by lack of demand. If demand comes back it won’t push oil back into the 50s/60s.
- chii 7y agoBut what's the saudis' end game? Are they really gonna try to starve out russia, and cause them to capitulate? Game of chicken till one country bankrupts? The saudis are losing money doing this (they have to eat into their reserves to fund the country). Russia at least has other industries, however small it may be.
- lstodd 7y agoRussia has just lost about 20-30% yearly income in these first months just from the oil price war. Saudis cannot care less because they have about three times of Russia reserves nominally. In fact I suspect about five to seven times that, because Russia reserve structure is basically unknown. Saudis can certainly afford a year or three of having no income. This is on top of the virus panic (which just cut any remaining tax revenues). Russia, Venezuela, Iran for that matter are done for. EDIT: Which is why I think the whole OPEC+ deal went to the crapper. Middle East is able to weather this, others - not so much.
- chasd00 7y agoI hope this doesn't mean war. I have a feeling Russia will take out capacity by force if it becomes an existential threat.
- lstodd 7y agoNo it does not. There is no one in Russia able to execute such a decision. There were some people in 2008 maybe, but that was almost 12 years ago. Arguably there isn't anyone like this in the rest of the world either, but I digress.
- empath75 7y agoWouldn’t it be nice if it didn’t, though. Large numbers of people working from home, cruise and airlines running fewer routes, people staying local instead of traveling so much, more local farming and manufacturing so less money spent on shipping....
- MadSudaca 7y agoIt wouldn't be too nice if you lose your job in the process.
- jniedrauer 7y agoUnless "jobs" stopped being an end goal. Then it would still be nice.
- sheeshkebab 7y agoWould be nice.... hordes of people on roads in metro areas driving their 3ton chunks of metal, one person per chunk is just obnoxious unbelievable waste, and all to mostly sit and write emails and chitchat a bit at “work”.
- deleted 7y ago[deleted]
- fulafel 7y agoNot just nice, but necessary, to avoid megadeaths from unchecked global warming.
- buboard 7y agoi hope it doesnt go back to the same levels. So many people are learning to work remotely, i hope they stick to it. i dont know what that means for overall energy usage but it seems it will be cleaner
- crimsonalucard 7y agoIt will go back to the same level. Nobody likes the situation right now and once the threat of death and disease disappears people will begin to behave as they once did. Our entire culture and urban physical infrastructure is built around a certain level of oil consumption. The current situation is temporary, the real solution is to replace the source of energy of fossil fuels. We are projected to have green energy be 30% of all energy consumption by 2024 with much of this effort lead by China. The extreme central control and lack of freedoms that the western world hates so much is exactly what makes China so effective at protecting themselves against COVID-19 and saving the world from an energy crisis. We value freedom but the cost is too high.
- ufo 7y agoI find it odd that the article does not mention the oil price war between Saudi Arabia and Russia. https://www.reuters.com/article/us-opec-oil-policies-idUSKBN20W21S https://www.reuters.com/article/us-opec-oil-policies-idUSKBN...
- diminish 7y agois the price war the reason, the consequence or the accelerator of the current market?
- mattmaroon 7y agoIt’s the consequence of the slowdown in demand.
- toomuchtodo 7y agoThe price war was unintentionally started just as demand began to be wholesale destroyed by the response to the COVID pandemic. Supply was reduced, but demand was reduced even more by a halting of the global economy. Saudia Arabia was trying to bring Russia in line with OPEC+ price targets, but Russia has enough state cash reserves and a much lower state budget break even point (~$40/barrel vs Saudi Arabia's ~$80/barrel), so here we are.
- wyxuan 7y agoSaudi Arabia has a much lower break even point: around 20 dollars. Hell even deepwater only costs 80 dollars to break even.
- toomuchtodo 7y agoFor production, not supporting their generous benefits to their citizens. They’re going to burn up their state reserves on the gravy train.
- deleted 7y ago[deleted]
- gregorymichael 7y agoWhat happened to "Peak Oil"? Was there some assumption in those projections that proved to be wrong?
- ipython 7y agoA near-instantaneous drop in global demand almost 50 years later?
- evjrob 7y agoExtracting oil from shale reservoirs was though to be too difficult and expensive to ever really flood the market like this. Turns out it wasn't.
- empath75 7y agoIt is too difficult and expensive for this. Most of them are taking a loss at this price.
- evjrob 7y agoTrue, but tight oil production that was previously though to be impossible to extract economically has more than offset losses in conventional production. Peak oil predictions of decades past presumed this could only happen when oil prices rose so high that alternative energy sources would be competitive. Therefore these reservoirs would remain uneconomic. Instead fracking got really cheap.
- api 7y agoI think there is/was validity to the concept of EROEI: energy return on energy invested. The EROEI of oil has decreased over time. What they got wrong was the overall estimate of how much of this stuff there is to be extracted. The easy oil is indeed being used up, but as you invest more and more energy (EROEI decreases) the amount of oil available actually increases. Look at how much tar sands, oil shale, offshore, and heavy crude there is, but all that requires more energy to get. We would eventually run out of oil to be had at a reasonable energy (and thus economic) cost, but after that if we still needed it we could get it by converting coal. That assumes we decide we don't need the ice caps, or the coastal cities. We probably have enough carbon to destroy the world.
- _yhdy 7y agoHow to bypass free article limit?
- 9nGQluzmnq3M 7y agohttps://outline.com/A2HZWv https://outline.com/A2HZWv
- biharibaboo 7y agoBy paying, you leech
- robin_reala 7y agoFrom the FAQ: Are paywalls ok? It's ok to post stories from sites with paywalls that have workarounds. In comments, it's ok to ask how to read an article and to help other users do so. But please don't post complaints about paywalls. Those are off topic.
- crimsonalucard 7y agoHe's not complaining about a paywall. He's offering a solution to get around it. The sentiment of paying for things so businesses can survive is also valid. The insult was what was unnecessary.
- samizdis 7y agoDelete the associated cookies - or nuke everything in your browser cache.
- stevoo 7y agoTwo ways in Bloomberg. Either search in debug mode and disable two displays that are what is disabling them or simply disable Javascript on their page. It will be limited in functionality but you can read the article.
- charliesome 7y agohttps://github.com/nextgens/anti-paywall https://github.com/nextgens/anti-paywall Chrome users can install this directly as an unpacked extension. For Firefox users, there's an xpi hidden in the releases tab.
- 9nGQluzmnq3M 7y agoSerious question: how do I invest in some of those $10 barrels of oil? It seems like a contract to deliver oil at $10 in 2021 is likely to be worth more than by next year.
- lstodd 7y agoFind a broker, buy some futures.
- delusional 7y agothe article says the futures are still trading high, meaning you probably couldn't make a lot of money buying them right now, likely because traders know the prices are going to come up too. Am I misunderstanding?
- apxice 7y agoYou’re correct. Selling the futures is the profitable end of the trade. Spot prices for WTI are about $20. That same oil can be sold in May 2021 for 35.53. Part of that difference is cost of carry (storing and insurance), but there is still a profit to be made.
- blablabla123 7y agoThat's risky though, it's possible to get ruined by buying futures (or put options for that matter) since it's basically a contract that must be fulfilled at some point in the future. AFAIK normally they function as insurance for buyers and sellers, to create more market stability.
- donnellycc 7y agoCrude futures are liquid enough that you can almost always sell them before fulfillment date if you do not want to be on the hook for the obligation. They can't be early exercised like options can.
- shawabawa3 7y ago
- fulafel 7y agoMarkets are broken when oil usage develops towards sustainable levels? We have to drastically cut down oil use, let's not pretend that the pre-corona oil consumption was tolerable, much less desireable. Now would be a good opportunity make internaltional agreements to cap oil consumption and extraction to its current level in shutdown, and when the shutdown starts to get rolled back, the shock will be smaller as rising demand and price mechanisms reconcile how the remaining lower oil supply gets used.
- bamboozled 7y agoThis!!! This seems like great news to me.
- johnchristopher 7y agoFrom what I read (analysts and decision makers) that's not what's going to happen. Money is injected and more will be to salvage industries and make up the loss (by increasing production after the crisis (or before the end)). This will increase pollution and energy demands in the coming months at a higher level than before the crisis. Well, from what I've read. I am a total idiot in these matters.
- bitreality 7y agoGovernment and industry will want demand to ramp back up, but it's doubtful that will be supported by consumers. I don't think you're going to see an instant rush back to international travel. Same goes for most other industries. This isn't a situation where you just wake up one day and it's over. It's not a war where you just make up and get back to work. This virus is out there, and most experts say even if you were already infected, you will only become temporarily immune (similar to flu). So until you see a vaccine develop, coronavirus is not going away by any stretch. It will continue to cause problems in the medium term.
- Robotbeat 7y agoCitation for “most experts.” Most actual virus experts I’ve seen say the opposite: the virus is mutating slowly (at least in the spike protein, which is the part the immune system responds to) and the “reinfection” measurements are likely measuring residual virus genetic material, not necessarily true reinfection. @trvrb on Twitter. And this other guy, with this thread: https://mobile.twitter.com/PeterKolchinsky/status/1244029896453754880 https://mobile.twitter.com/PeterKolchinsky/status/1244029896... (Which doesn’t mean I disagree with your overall point that this won’t be an instant-bounceback.)
- Synaesthesia 7y agoKeeping oil prices low punishes not only Russia but Iran and Venezuela, so that could be a major reason why the Saudis are flooding the market.
- wyxuan 7y agoSaudi couldn't care less about Venezuela and Iran isn't even supposed to be in international oil markets (sanctions).
- mardifoufs 7y agoSaudi arabia still need a barrel price of 80$ to keep their budget balanced. They have also mostly eaten through their reserves and are economically 100% oil dependant. Yeah it costs them only 2-3$ to get the oil from the ground but Saudi Arabia is basically just a huge welfare state and a kleptocracy for it's ridiculous number of princes and royal family members. Russia has more flexibility imo and can cope a lot better with low oil prices, but Iran will probably see an even bigger economic collapse since they were already selling at a steep discount to offset trade sanctions. Venezuela was also selling at really low prices and couldn't even afford to keep It's oil infrastructure from collapsing at 50$/barrel so I have no idea how they will avoid total economic destruction soon. Maduro won't be able to pay off the army for long now So they are all going to be badly hurt, I don't see how saudi arabia can afford prices these low for long. They can't do like they did in the past and just drive everyone else from the market by crashing prices at will.
- Waterluvian 7y agoDespite Canada's dollar doing terribly, gas stations are selling it for $0.64/Litre where I live. I haven't seen it this low in maybe 20 years.
- mardifoufs 7y agoThat's because Canadian oil is way cheaper than the 2 benchmark crude grades right now! Western Canadian Select is at 7.2$ a barrel compared to 21$/barrel for the WTI. In fact, the oil itself is probably worth 0 (or less) since some sand oil producers are literally paying to get rid of their crude. It's hard to sell even sweet oils right now, so heavy blends that have little access to international markets like the Western Select are especially hurt by this enormous supply glut.
- slfnflctd 7y agoIt allegedly hit $0.99/gal somewhere in the U.S. midwest. Driving through Oklahoma last week, I saw it as low as $1.28/gal. I don't exactly have much sympathy for the fossil fuel industry, but like it or not they're deeply entangled with our economy, and these prices indicate a lot of upheaval.
- axus 7y agoThe market is broken because demand is way down, but production isn't being lowered to match. Saudi Arabia intends to keep their production high. The other producers are losing money but haven't reduced output, because changing output levels is more expensive than taking the loss.
- fossuser 7y agoI think I read they were doing this in part to hurt Russian producers who would not cooperate with OPEC (KSA wanted to reduce production in a coordinated way). As a side effect this hurts American producers too and could drive them out of business. Which would be bad for energy independence and in the end give more price control back to OPEC.
- hackeraccount 7y agoI'm unclear how that's supposed to work. Oil goes below $30 for an extended period of time. So long that all the shale producers go bust. So long that no one buys up all those assets but instead just lets them go fallow. After all that time Saudia Arabia now lets the price rise. How much time will it be over $30 before the shale producers start up again? Will it really pay off compared to the amount of time they had to spend with it under $30? And say they keep it _just_ over $30 - just how much over $30 can they go and for how long? It seems like in the long run you'd better be prepared to keep it not much over $30 if you want to keep the shale producers out for good. That the idea of "put them out of business and then double the price" won't really work in a practical manner. I'm failing to think of an example where this did work. Diamonds? I thought that the producers either bought or colluded to create an effective monopoly. That would be like S.A. just buying producers. That doesn't seem practical but who knows -maybe it is.
- fossuser 7y agoI think it’s more a side-effect of the Russia pricing fight than the goal itself. If the price drops and shale producers don’t have the capital to whether the storm then they don’t have much of a choice. Sure later they could come back when prices are high again, but in practice that’s probably hard and takes time.
- JimTheMan 7y agoThe oil isn't just magically coming from some unstoppable font. They're going to have to bite the bullet and shut some wells. They say as much at the bottom of the article. It's not like we haven't had oil downturns before...
- praptak 7y agoThat's another piece of good news. Two countries with a particularly shitty track records are in a lose-lose situation.
- jsjddbbwj 7y agoYes, citizens of those countries becoming poorer because you disagree with the politics of their leaders is good news.
- praptak 7y agoThat money didn't go to the citizens anyway.
- sanid 7y agoNot as a check. Because of the continuous stream of oil money in KSA, it has been possible to grant subsidies on goods or handouts to people. Even not collecting any VAT on good or if so a rather low VAT. When you are losing a lot of your income as a state, you can't really keep that standard up. I suggest reading this, it's an older article, but the circumstances are the same: https://www.businessinsider.com/saudi-arabian-social-contract-unsustainable-2017-11?r=DE&IR=T https://www.businessinsider.com/saudi-arabian-social-contrac...
- legolas2412 7y agoBut far more people have a better life because the oil cartel isn't United anymore. Cheap oil is better for billions of people in India, China, and Africa
- bpsh 7y agoUnfortunately the goal is to drive out US Shale ...
- CydeWeys 7y agoSo fracking stops in the US. Win-win-win?
- 14 7y agoI know this is the wrong attitude but with no ties to the oil industry that I am aware of I personally am enjoying watching the market crash and my cost of gas go way down. However my understanding of the economy is poor. Does this negatively effect the average joe or mainly oil producers?
- gbear605 7y agoThe oil crash is contributing to the stock market crash, and thus to the overall economy being down, potentially meaning layoffs for the average joe. Plus this might cause smaller producers to go bankrupt, meaning that prices could rise even higher in the future. Of course that’s only true if we continue to use oil, which we need to divest from as a species.
- burlesona 7y agoIt depends on the region, but the energy sector is one of the major global employers, and one of the best and biggest sources of quality blue collar jobs (with benefits etc) when energy prices are high. That’s one of the reasons oil and gas is so politically favored.
- mythrwy 7y agoWhat if the price of advertising or SAS apps was forcibly cut by 70% or more? Great for consumers. Not so good for Google and SAS companies and thus their employees. (but I'm not crying for oil either).
- lottin 7y agoDemand for oil drops, prices fall, stocks pile up, production scales down. There is nothing broken here. This is exactly how a market-based economy works.
- eruci 7y agoThis is great news!
- tech-historian 7y agoI love the different names for various types of oil: sweet, sour, light, etc. As if it was edible. Description of the names: https://en.m.wikipedia.org/wiki/Sweet_crude_oil https://en.m.wikipedia.org/wiki/Sweet_crude_oil https://www.thebalance.com/the-basics-of-crude-oil-classification-1182570 https://www.thebalance.com/the-basics-of-crude-oil-classific...
- wyxuan 7y agoI mean in the old days, they did try to distinguish then by tasting them
- crazygringo 7y agoI thought you were joking but that's actually what the first link says! "Nineteenth-century prospectors would taste and smell small quantities of oil to determine its quality." Thanks, TIL.
- chiefalchemist 7y agoThe upside is - damange to the environment aside - oil is a universal currency. Lowing the cost of energy is like printing money and mailing everyone a cheque; without the inflation. (It's also why oil is has been used as an economic weapon). Lowing the cost of energy impacts everyone. It's like being The Fed and lowing interest rates, but better since Joe & Jane Q Public benefit every time they pull up to the pump. This is the same reason the Obama administration did little to discourage fracking from hockey stick'ing. Given the state of the economy was one of the few tools they had to goose the economy. Essentially, like it or not, selling out Mother Nature for the economy. https://www.forbes.com/sites/rrapier/2016/01/15/president-obamas-petroleum-legacy/#4cfd5637c10f https://www.forbes.com/sites/rrapier/2016/01/15/president-ob...
- vikramkr 7y agoFracking is also better for carbon emissions and helped price out coal, which is a huge environmental benefit. Nothing is black and white
- chiefalchemist 7y agoYes and no - but perhaps mostly no. Let me explain, please. Coal was a fraction of market share. It was on its way out regardless. However, a lower oil price increases consumption across the board. Thus it wouldn't take much increase for oil's aggregate pollution to exceed oil + coal. Yes maybe on a per kilowatt basis oil is better than coal. But given the usage of oil, that is the scale, the price drop triggered increases in consumption could in fact cover and then exceed the gain from less coal.
- downrightmike 7y agoExcept, the benefit isn't realized if you can't or won't go anywhere.
- csours 7y agoIt's easy to say "we live in a Just-In-Time Economy", but it's things like this that really demonstrate the implications. The supply chain is set up to flow, so when demand drops or spikes up you get a flood or a shortage. If there's a flood, some companies will go out of business, leaving the survivors with a bigger slice of the pie. If there's a shortage, companies will respond, and some will over-react and build over-capacity and then fail when the shortage evens out, leaving the survivors with a bigger slice of the pie. I think this may happen with ventilator companies. After this event, there may be an over-supply of ventilators, leading to failure of some companies or lines of business.
- wallacoloo 7y agoIf there’s a shortage, new players might enter to fill that gap though. It doesn’t have to lead to concentration in that direction.
- csours 7y agoSure, but there will still be an oversupply when demand goes back to normal.
- unlinked_dll 7y agoIs there any way to model a supply chain as a control system? Like what you're describing is why PID controllers exist and they do a pretty good job of preventing failure conditions.
- csours 7y agoPeople do, but there's too much chaos and too many individual actors making crazy decisions.
- blaser-waffle 7y agoPID controllers have a closed system -- the system is gonna do X, Y, or Z, but that's about it. Maybe expand out those options by an order of magnitude, but it's still fairly limited compared to all of the weird clusterfucks that happen in the real world. Like, who foresaw COVID? Who foresaw fidget spinners? etc. How do you plan for a central supply system when a news story about kids eating Tide pods drops the demand (increasing the supply) by 20% overnight? The soviets essentially tried to do this with a communist style-command economy -- and it didn't work well. Maybe modern tech can do it better but it would have to be able to predict the social, political, and logistical challenges enough to outperform the alternatives.
- doggodad 7y agoSaudis want to put Putin out of the oil biz. As such, gasoline in some parts of the US is currently going for $0.99/gal (0.24€/L, 0.21£/L or 20 Rs/L). And it's sort of funny/sad that what is called "blacktop" can be had for less than free. Transportation and steamroller not included.
- kindly_fo 7y agoI guess storage producers stocks are soyrocketing
- jc01480 7y agoClearly lots of people commenting here that are losing money every day.
- a3n 7y agoI'm a truck driver, been in the LA area a few days. It's surprising how large the area looks without oppressive smog and haze, and how sharp and detailed the hills and mountains have become. For what that's worth.
- jayd16 7y agoThe city is a bit taller now. Twenty to thirty years ago you could see even further (although only just after rain cleared up the pollution).
- kumarski 7y agoThere are approximately 7500 crude tankers on planet earth. I bought and sold tanker stocks based on the following: IMO 2020 regulatory retrofits. Coronavirus Saudi Russian Oil Price War Shipyard Shutdowns My next bet is going to be based on the drawdown in US Oil operations. I'm gambling on $FCG based on the notion that the price of natural gas will go up a bit because the associated gas from oil wells is no longer in play. Right now, the volatility is a gambler's paradise.
- christophilus 7y agoSame. What tankers do you own? I’m looking at STNG.
- olivermarks 7y agoThe idea of supertankers storing 100 million barrels of oil at sea is an environmental catastrophe waiting to happen, especially if the boat is old, as is sometimes the case. https://www.reuters.com/article/us-asia-oil-storage/in-latest-sign-of-crude-glut-aging-supertankers-used-to-store-unsold-oil-idUSKBN19709N https://www.reuters.com/article/us-asia-oil-storage/in-lates...
- alfianHac 7y agoSo how to fix that broken
- lazyjones 7y agoIt's not crude "nobody needs". It's just storage being too expensive to expand infinitely. If it weren't, it'd be a great opportunity to stock up, because the need will be there for decades.
- chantelles 7y agoOr, to shift perspective, we are also in a class-war position of a general strike.
- rossdavidh 7y agoSo, I have not yet seen any informed analysis of how this is impacting the solar panel and wind turbine industries. I assume it would be bad, but I don't know how bad. If anyone has knowledge of that, feel free to chime in.
- maallooc 7y agoIt's an irony that in 1960 we believed oil would be extinct on 2000. Turns out we are drowning in them in 2000+20.
- neonate 7y agohttps://archive.md/JynCI https://archive.md/JynCI
- qbaqbaqba 7y agoDrowning Russia in cheap oil is an old trick.
- wuwuno 7y agoSaudi Arabia, our ally, is working hard to completely destroy the U.S. Shale Oil industry, as well as the Russian Oil industry, and every other oil producing country in the world. The cost to produce oil in Saudi Arabia is about $6 a barrel and they are taking this opportunity to undermine everything. Only Iraq is close in cost to produce oil as the Saudi's, and the U.S. has worked to make sure that Iraq is not a threat to the Saudi's.
- jazzyk 7y agoYes, but the Saudis reportedly need to charge ~$80/barrel to balance their budget - and oil is their only source of income. I am really not sure what game the Saudis are playing.