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I know gasoline is a commodity and it doesn't matter what the source is but my understanding is that crude oil from Saudi Arabia is better (probably subjective)

by mcny 7y ago

I know gasoline is a commodity and it doesn't matter what the source is but my understanding is that crude oil from Saudi Arabia is better (probably subjective) than crude oil from Canada? I don't get why people don't just store crude oil and not process it for a bit (I'm guessing six to eighteen months)? I looked online and it seems that for a car, you should fill up the gas tank if you're not going to drive much for months and still go around the block about once a month?

c54 7y ago
Yep, there are different grades of crude (referred to as light vs heavy and sweet vs sour). Alberta tar sands crude is in the heavy/sour range. The differences in the grades of oil require different tooling to process and may be more or less expensive to process. West Texas fracking crude by contrast is light and sweet. https://en.wikipedia.org/wiki/Sweet_crude_oil?wprov=sfti1 https://en.wikipedia.org/wiki/Sweet_crude_oil?wprov=sfti1 As to why people don’t store it.. well, we (as a nation, and also the oil industry) try to but it’s only possible to store limited amounts of liquids (notoriously because liquids are incompressible), especially when you’re talking about thousands to millions of barrels per day. Estimates are that oil demand has dropped by 30% globally, the OPEC+ meeting last week showed us a ~10% global cut by Saudi Arabia/Russia/US... which still leaves a meaty 20% surplus. A lot of the recent contention has been around when all the (strategic) reserve tanks will fill up and cause the price to really plummet... which we’re seeing now.
yellowstuff 7y ago
Crude oil is hard to store safely. All the storage capacity is full, and it's expensive to build more.
ihaveajob 7y ago
They had a story on this at Marketplace. Storage is limited and not free, with oil tankers being used as extra storage units during the glut, at an increasingly large cost. Also capacity reduction is not trivial either, particularly for smaller wells that can't just shut down (vs larger wells that can slow down extraction).
jerf 7y ago
"I don't get why people don't just store crude oil and not process it for a bit (I'm guessing six to eighteen months)?" It's the same answer as a lot of "economic mysteries" right now: At scale, everything is really hard. If we have all this commerically-targeted food that can't go to the consumer market, why can't they just sell it in stores? Well, at scale, everything is really hard. You have to set up supply lines. You have to set up packaging. You have to get the stores to stock it and price it and just a whole bunch of things. Existing consumer supply lines can't be used because they're generally at capacity. Your commercial supply lines are different in numerous ways, from the companies that have it down to the physical nature of the trucks delivering it. And on and on. The other problem you have is that even though bringing this all up is perfectly possible, it's highly risky. What if the companies spend all this money to bring up a new supply chain or massive amounts of new oil storage, only for the problem to resolve itself a week before it opens? You could build a big storage tank only to open into a market of record high prices for all you know. Sure, if you had a magic crystal ball there's probably all kinds of ways you could make make massive amounts of money from this disruption, but nobody has one.
- ajross 7y ago
  > It's the same answer as a lot of "economic mysteries" right now: At scale, everything is really hard. Except this has already been scaled, and is already happening. The US strategic petroleum reserve (and similar programs in other nations) is exactly this: a giant buffer of storage capacity designed to make cartel exploitation of the oil industry infeasible. And it works. The reason we're having this crash now, when the lockdowns started 6+ weeks ago, is precisely because there is a big pool of idle storage able to "store the crude and not process it for a bit". But now all that buffer is exhausted, so we're seeing the crash everyone knew was coming.
  - echelon 7y ago
    > But now all that buffer is exhausted Is it full? I recall that the stimulus bill originally included a provision to buy more oil for the strategic reserves, but that the measure got removed by the Democrats. (Both sides are capable of making mistakes...) We should be buying right now.
rsync 7y ago
It is difficult and dangerous to handle and store crude oil: "After revealing a long-held plan to try to buy a barrel of crude, I was now receiving a disappointingly stern lecture on the dangers of hydrogen sulfides. The wine tasted vaguely sulfuric, too." https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11542286 https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&...

by mcny 7y ago

c54 7y ago

Yep, there are different grades of crude (referred to as light vs heavy and sweet vs sour). Alberta tar sands crude is in the heavy/sour range. The differences in the grades of oil require different tooling to process and may be more or less expensive to process. West Texas fracking crude by contrast is light and sweet. https://en.wikipedia.org/wiki/Sweet_crude_oil?wprov=sfti1 https://en.wikipedia.org/wiki/Sweet_crude_oil?wprov=sfti1 As to why people don’t store it.. well, we (as a nation, and also the oil industry) try to but it’s only possible to store limited amounts of liquids (notoriously because liquids are incompressible), especially when you’re talking about thousands to millions of barrels per day. Estimates are that oil demand has dropped by 30% globally, the OPEC+ meeting last week showed us a ~10% global cut by Saudi Arabia/Russia/US... which still leaves a meaty 20% surplus. A lot of the recent contention has been around when all the (strategic) reserve tanks will fill up and cause the price to really plummet... which we’re seeing now.

yellowstuff 7y ago

Crude oil is hard to store safely. All the storage capacity is full, and it's expensive to build more.

ihaveajob 7y ago

They had a story on this at Marketplace. Storage is limited and not free, with oil tankers being used as extra storage units during the glut, at an increasingly large cost. Also capacity reduction is not trivial either, particularly for smaller wells that can't just shut down (vs larger wells that can slow down extraction).

jerf 7y ago

"I don't get why people don't just store crude oil and not process it for a bit (I'm guessing six to eighteen months)?" It's the same answer as a lot of "economic mysteries" right now: At scale, everything is really hard. If we have all this commerically-targeted food that can't go to the consumer market, why can't they just sell it in stores? Well, at scale, everything is really hard. You have to set up supply lines. You have to set up packaging. You have to get the stores to stock it and price it and just a whole bunch of things. Existing consumer supply lines can't be used because they're generally at capacity. Your commercial supply lines are different in numerous ways, from the companies that have it down to the physical nature of the trucks delivering it. And on and on. The other problem you have is that even though bringing this all up is perfectly possible, it's highly risky. What if the companies spend all this money to bring up a new supply chain or massive amounts of new oil storage, only for the problem to resolve itself a week before it opens? You could build a big storage tank only to open into a market of record high prices for all you know. Sure, if you had a magic crystal ball there's probably all kinds of ways you could make make massive amounts of money from this disruption, but nobody has one.

ajross 7y ago
> It's the same answer as a lot of "economic mysteries" right now: At scale, everything is really hard. Except this has already been scaled, and is already happening. The US strategic petroleum reserve (and similar programs in other nations) is exactly this: a giant buffer of storage capacity designed to make cartel exploitation of the oil industry infeasible. And it works. The reason we're having this crash now, when the lockdowns started 6+ weeks ago, is precisely because there is a big pool of idle storage able to "store the crude and not process it for a bit". But now all that buffer is exhausted, so we're seeing the crash everyone knew was coming.
- echelon 7y ago
  > But now all that buffer is exhausted Is it full? I recall that the stimulus bill originally included a provision to buy more oil for the strategic reserves, but that the measure got removed by the Democrats. (Both sides are capable of making mistakes...) We should be buying right now.

rsync 7y ago

It is difficult and dangerous to handle and store crude oil: "After revealing a long-held plan to try to buy a barrel of crude, I was now receiving a disappointingly stern lecture on the dangers of hydrogen sulfides. The wine tasted vaguely sulfuric, too." https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11542286 https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&...