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The article blames the corona lockdown, but other sources I’ve seen have the OPEC-Russia price war. Does anyone have some good analysis articles that break down

The article blames the corona lockdown, but other sources I’ve seen have the OPEC-Russia price war. Does anyone have some good analysis articles that break down the factors?

quaquaqua1 7y ago
It's both :) Saudis and Russians have decided to increase their output of oil at the exact same time that most companies and businesses are choosing to reduce their oil consumption. Additionally, there are not a lot of cheap ways to store oil long term, and it is difficult and costly to shut down production as well. In Western Canada, pretty soon there will be negative oil prices, because the oil there is of a lower quality than others. Basically, they are paying for it to be trucked away so that it doesn't harm future production efforts.
- lozaning 7y ago
  I know nothing about how oil gets out of the ground. Why is it expensive to stop production at a well site? In my mind you just turn the pump off that's sucking the oil out of the hole.
  - labcomputer 7y ago
    For wells in Western Canada, in particular, the challenge is that the oil is so viscous (they're called "tar sands" for a reason) they have to heat (often with steam) the ground to pump it out. As you'd imagine, this requires a large amount of energy. So stopping production implies letting the ground cool, and restarting implies dumping a lot of (expensive) energy back in before oil will flow.
    - aembleton 7y ago
      To continue production, they'd need to put at least as much energy into the ground as it takes to restart it as it always going to be cooling. The energy has to come from somewhere.
rmrm 7y ago
Its both. Demand shock is leading to a loss of places to put it, so the price must fall to a low enough price to make it profitable to pay increasing amounts to store it until its worth something. The price war has depressed the price enough that to keep revenue up companies must continue to pump flat out. Quite a nasty scenario to find oneself in.
- deleted 7y ago
  [deleted]
Donald 7y ago
Wikipedia actually has a reasonably good summary of the interplay between COVID-19 oil demand destruction and the recent Russia-OPEC / Russia-KSA oil market turning point. https://en.wikipedia.org/wiki/2020_Russia%E2%80%93Saudi_Arabia_oil_price_war https://en.wikipedia.org/wiki/2020_Russia%E2%80%93Saudi_Arab...
rubyfan 7y ago
seems like the week before corona forced wfh is when saudi arabia decided to increase oil production. one of the first stock market drops was in response to that if i remember correctly. https://www.cnbc.com/2020/03/08/saudi-arabia-to-hike-oil-output-above-10-million-bpd-in-april-after-opec-deal-collapse.html https://www.cnbc.com/2020/03/08/saudi-arabia-to-hike-oil-out...
adventured 7y ago
As others have noted, it's both. However, to the point of how dramatic the price war impact has been.... The day the oil war began, Brent dropped from $50 to $31 in two trading days, the greatest rapid decline in many decades. The 24% drop at that time was the greatest one day decline since 1991.

The article blames the corona lockdown, but other sources I’ve seen have the OPEC-Russia price war. Does anyone have some good analysis articles that break down the factors?

quaquaqua1 7y ago

It's both :) Saudis and Russians have decided to increase their output of oil at the exact same time that most companies and businesses are choosing to reduce their oil consumption. Additionally, there are not a lot of cheap ways to store oil long term, and it is difficult and costly to shut down production as well. In Western Canada, pretty soon there will be negative oil prices, because the oil there is of a lower quality than others. Basically, they are paying for it to be trucked away so that it doesn't harm future production efforts.

lozaning 7y ago
I know nothing about how oil gets out of the ground. Why is it expensive to stop production at a well site? In my mind you just turn the pump off that's sucking the oil out of the hole.
- labcomputer 7y ago
  For wells in Western Canada, in particular, the challenge is that the oil is so viscous (they're called "tar sands" for a reason) they have to heat (often with steam) the ground to pump it out. As you'd imagine, this requires a large amount of energy. So stopping production implies letting the ground cool, and restarting implies dumping a lot of (expensive) energy back in before oil will flow.
  - aembleton 7y ago
    To continue production, they'd need to put at least as much energy into the ground as it takes to restart it as it always going to be cooling. The energy has to come from somewhere.

rmrm 7y ago

Its both. Demand shock is leading to a loss of places to put it, so the price must fall to a low enough price to make it profitable to pay increasing amounts to store it until its worth something. The price war has depressed the price enough that to keep revenue up companies must continue to pump flat out. Quite a nasty scenario to find oneself in.

deleted 7y ago
[deleted]

Donald 7y ago

Wikipedia actually has a reasonably good summary of the interplay between COVID-19 oil demand destruction and the recent Russia-OPEC / Russia-KSA oil market turning point. https://en.wikipedia.org/wiki/2020_Russia%E2%80%93Saudi_Arabia_oil_price_war https://en.wikipedia.org/wiki/2020_Russia%E2%80%93Saudi_Arab...

rubyfan 7y ago

seems like the week before corona forced wfh is when saudi arabia decided to increase oil production. one of the first stock market drops was in response to that if i remember correctly. https://www.cnbc.com/2020/03/08/saudi-arabia-to-hike-oil-output-above-10-million-bpd-in-april-after-opec-deal-collapse.html https://www.cnbc.com/2020/03/08/saudi-arabia-to-hike-oil-out...

adventured 7y ago

As others have noted, it's both. However, to the point of how dramatic the price war impact has been.... The day the oil war began, Brent dropped from $50 to $31 in two trading days, the greatest rapid decline in many decades. The 24% drop at that time was the greatest one day decline since 1991.