16 ms·

Considering that the front-month oil contracts went negative today (paid to buy a barrel of oil), I think more (well funded and adept) players will try to hasti

by scurvy 6y ago

Considering that the front-month oil contracts went negative today (paid to buy a barrel of oil), I think more (well funded and adept) players will try to hastily arrange more storage facilities. There's just no place to put the stuff right now. It's quite difficult to turn-off an active well. Deep-water wells are all but impossible to stop.

Frost1x 6y ago
>Deep-water wells are all but impossible to stop. While I realize you're referring to a functioning deep-water well, working as designed, I can't help but remember the complete mess from Deepwater Horizon. If it's difficult to stop a correctly functioning deep-water well, I have even more respect for that mess of a situation (and a bit more disdain for the practice in general): https://en.m.wikipedia.org/wiki/Deepwater_Horizon_oil_spill https://en.m.wikipedia.org/wiki/Deepwater_Horizon_oil_spill
- tgb 6y ago
  That was ten years ago today, actually. I just watched this wonderful 11 minute video on the failure: https://www.youtube.com/watch?v=FCVCOWejlag https://www.youtube.com/watch?v=FCVCOWejlag
  - CamperBob2 6y ago
    Those videos are great, very educational. Like a mashup of Khan Academy, Derek Lowe, and Calvin & Hobbes.
  - baud147258 6y ago
    I ended up watching a bunch of those videos, they are really well made, thank you for the link
- mastratton3 6y ago
  That occurred during drilling not production so all the standard well head facilities were not in place.
  - scurvy 6y ago
    There were still mechanical failures all over in safety devices. We're drilling much deeper than under higher pressures now than Deepwater Horizon. To imply that deepwater oil production is safe, is crazy. Storms happen. Mudslides (underwater) happen. Pandemics happen. This is why majors contract out to the offshore drillers. They want nothing to do with it.
    - mastratton3 6y ago
      That's not exactly accurate. Transocean was the contract driller on deepwater horizon but BP still took the brunt of the liability and PR backlash. The contract structure actually hasn't changed much in the past 20 years.
jofer 6y ago
Actually, deep water wells are usually quite easy to shut in by design. They frequently need to be shut in due to hurricanes or infrastructure maintenance. You don't drill a $100 million deepwater well without all the bells and whistles. Very cheap wells with low production (onshore, say ~10 barrel per day) are the ones that tend to be difficult to shut in, as they're not designed for easy temporary shut-ins. That having been said, most of the "must produce" issues are contractual. There are plenty of contracts with production quotas/etc. Similarly, pipelines need a minimum volume to keep flowing, and once they're stopped, they can be difficult to start again (inspections/etc, as well as physically starting things flowing).
- bdevine 6y ago
  You've missed your very best chance ever to lead with "Well, actually"!
- scurvy 6y ago
  That might have been true 20-30 years ago. Today, all of the easy oil has been tapped. They're going out farther, deeper, and under much high pressures than before. Oh, and they're less regulated. > You don't drill a $100 million deepwater well without all the bells and whistles. < You will if you can make a couple $B off it. It's a risk. The deep gulf has mudslides that take out rigs. It happened to Taylor Energy in 2004. All the tech in the world couldn't prevent that spill. https://www.nola.com/news/article_a55f87c0-8253-11ea-9f24-232b6de12ea8.html https://www.nola.com/news/article_a55f87c0-8253-11ea-9f24-23...
  - jofer 6y ago
    What does that have do the ability to shut in a well? A shut in isn't stopping something that's leaking or stopping a blowout. It's the ability to deliberately and temporarily stop production. A loss of containment is very very very bad and a huge problem, but it's not related to a shut in. I'm well aware of shallow hazards (e.g. mass wasting aka mudslides). I've mapped them in many areas. I'm well aware of the ongoing Taylor spill. I've actually worked with monitoring it using satellite imagery from the regulatory side. I've also worked with it from the oil industry side... None of that is even remotely relevant here, though... I'm still very unclear how anything you mentioned relates to anything I said... That having been said, if you think _anything_ around the oil industry isn't done with safety and environmental concerns first and foremost, you've _clearly_ never been anywhere around the industry. I'm dead serious. What they do is really, really, really damned dangerous and it's fair to debate whether that risk is worth it at a societal level. However, don't for a goddamn second think that these folks don't care or are sloppy. _Every_ meeting all the way to the top starts with a discussion about safety and possible environmental impacts. I really, really mean that... Every damn one. It's vastly more important than very literally anything else. The first decision is _always_ HSE, never money. Yeah, things can go wrong in very bad ways. It's not because people don't care or are trying to make a buck at the expense of the environment. It's because they're working in a really difficult environment. Yes, deepwater horizon was preventable. Yes it was due to a poor well design. BP fucked up. That doesn't mean that the oil industry is some evil mustache twirling villain. You want cheap vegetables, flights across the continent, and plastics? Right now, we have to have oil for that. It ain't ideal, but it's not because people are out there trying to make money off of environmental disasters.
A4ET8a8uTh0 6y ago
Does it happen often that future contract falls into negative territory?
- asib 6y ago
  No, this is the first time since oil futures began trading in 1983.
- bhl 6y ago
  The technical term for this is contango [1]. Last time this happened to crude oil was after the GFC, as mentioned in the article. [1] https://en.wikipedia.org/wiki/Contango#Description https://en.wikipedia.org/wiki/Contango#Description
  - juped 6y ago
    Contango means that futures prices further out are higher than futures prices in the nearer term, and is normal for oil futures; what's notable is the extreme slope of the futures curve we're seeing.
Digory 6y ago
The negative price has to do with the short delivery date, and the lack of storage at the (landlocked) delivery point. June 2020 WTI is still over $20/barrel. If anyone had storage to bring online in the next few weeks, in Cushing, Oklahoma, they'd make a killing. At this point, they're going to need to ship it to a port, to get on a tanker.
- foota 6y ago
  Anyone got a spare oil tanker? :-) I only slightly kid, makes me wonder how quickly I could acquire a number of oil storage units. edit: this tanker is off the gulf coast right now... https://horizonship.com/ship/274m-suezmax-crude-oil-carrier-2002-dwt-159453/ https://horizonship.com/ship/274m-suezmax-crude-oil-carrier-...
  - rhizome 6y ago
    Just with a cursory "oil tanker for sale" search, they appear to be for sale in the $10-20MM range.
    - ldoughty 6y ago
      If the oil tanker can hold 2,000,000 barrels at -$35/ barrel you are being paid $70 million to store the oil for a few months... Of course, the next question is who pays for transport to/from the tanker, labor, dock fees, employees in ship (unless you can simply "park" it for a fee)
      - foota 6y ago
        Yeah, I was wondering. I think if someone had the experience needed to put this together quickly it would likely be profitable. It looks like most tankers are ~200,000 metric tons which at ~8 barrels per metric ton is roughly 1.6 million barrels. You also really only need to store it for a month, I think June futures are around $20 still, and so it's a diff of ~$60/barrel.
        6y ago
foota 6y ago
So like... why doesn't someone just fill a reservoir or something?
- gowld 6y ago
  You have to dig a hole before you can fill it.
  - foota 6y ago
    Backhoes are cheap. Maybe environmental issues? I imagine someone would have a problem if I just dug a hole and filled it.
    - chha 6y ago
      > Maybe environmental issues? Amongst others. It's not enough to just dig a hole in the ground, you have to make sure it doesn't seep into the ground as well. In addition, you have the always present risk of fire...
      - entangledqubit 6y ago
        Unfortunately, right now it seems that there is incentive out there for oil to "go missing" for a profit -- presumably at the cost of the environment. I'm curious if anyone is thinking about trying to replace their fracking fluid with oil for a while...
        recursive 6y ago
        Why don't the producers turn down the output? Does it cost more money to produce less? Is it mutually assured destruction? A game of chicken? This is so weird.
        ShamelessC 6y ago
        I heard on NPR yesterday that oil producers are concerned that output will be dampened by "turning down the output" because it can make flow rates lower when they reopen.
vkou 6y ago
Nobody's going to spend money to build new storage facilities for an oil glut that will go away in, at most, a month or two.
- jessaustin 6y ago
  If you're sure about that, I hope you're investing accordingly...
  - bluGill 6y ago
    Not exactly. If you are not sure the glut will last for a while and then disappear you don't invest. There is a ton of money to make but only if you get the details right, if any is wrong there is a ton of money to lose.
    - jessaustin 6y ago
      If you're sure the glut will disappear within two months there are lots of safe investments.
      - bluGill 6y ago
        What if you don't know if it is 2 months or 2 years? There are great investments either way, but some investments only work with one and lose badly in the other. Thus if you are not sure you can't invest.
        jessaustin 6y ago
        You describe a different situation than thread parent described.
        bluGill 6y ago
        Not exactly. I'm sure the glut will go away, but my error bars are large enough that I'm not comfortable betting on it.
hanniabu 6y ago
I fully expect some environmental accident b/c that's cheaper than paying people to take it. Also considering at least in the US, the EPA was told not to investigate things during the shut down.
jedberg 6y ago
When the price went negative, it made me wonder if I could legally take delivery of barrels of oil in my back yard. I'd like to assume there are some EPA rules that preclude one from storing barrels of oil just anywhere, but at the same time, the EPA is currently not enforcing any regulations. I also wondered about delivery on these contracts. Does that include delivery to any address I specify? Can I get paid $3000 to take 100 barrels and ask them to drop it off at my house? And then what? After the price recovers and I want to sell the barrels, will someone come get them from house?
- dragonwriter 6y ago
  > When the price went negative, it made me wonder if I could legally take delivery of barrels of oil in my back yard. Typically, the exchange contract is quite specific about where and how delivery can be made, and “in barrels shipped to your backyard” isn't an option. See, e.g., the delivery procedures here: https://www.cmegroup.com/trading/energy/crude-oil/light-sweet-crude_contractSpecs_futures.html https://www.cmegroup.com/trading/energy/crude-oil/light-swee... Also, “barrels” are just a (traditional for the commodity) unit of measure (42 US gallons/35 imperial gallons), not actual containers used for delivery.
  - jedberg 6y ago
    You've dashed all my hopes for a quick buck, but thank you for the enlightening information!
    - throw_away 6y ago
      https://itsalwayssunny.fandom.com/wiki/The_Gang_Solves_the_Gas_Crisis https://itsalwayssunny.fandom.com/wiki/The_Gang_Solves_the_G...
      - jedberg 6y ago
        Similar concept, even older :) https://seinfeld.fandom.com/wiki/The_Bottle_Deposit https://seinfeld.fandom.com/wiki/The_Bottle_Deposit
danieltillett 6y ago
I am surprised there hasn’t been an “accidental” pipeline leak around Cushing. Who could have known that leaving a valve open could dump so much oil onto the ground.
juped 6y ago
Paid to take on the futures contract obligation. If you happened to need or want physical oil delivered in Oklahoma a month from today, you got a good deal as futures traders unloaded their contracts.
takinola 6y ago
The reason wells are hard to shut in has nothing to do with the actual turning off the tap. All wells are designed to turned off with BOPs (blow out preventers, etc). The problem is that if you shut in a well for an extended period of time, you damage the reservoir and will have to do remedial work to get it back to its production rate (if ever). This is why producers are not keen to shut down production. They have to weigh the short term cost of the current prices against the cost of future losses over the lifetime of the reservoir

by scurvy 6y ago

Frost1x 6y ago

>Deep-water wells are all but impossible to stop. While I realize you're referring to a functioning deep-water well, working as designed, I can't help but remember the complete mess from Deepwater Horizon. If it's difficult to stop a correctly functioning deep-water well, I have even more respect for that mess of a situation (and a bit more disdain for the practice in general): https://en.m.wikipedia.org/wiki/Deepwater_Horizon_oil_spill https://en.m.wikipedia.org/wiki/Deepwater_Horizon_oil_spill

tgb 6y ago
That was ten years ago today, actually. I just watched this wonderful 11 minute video on the failure: https://www.youtube.com/watch?v=FCVCOWejlag https://www.youtube.com/watch?v=FCVCOWejlag
- CamperBob2 6y ago
  Those videos are great, very educational. Like a mashup of Khan Academy, Derek Lowe, and Calvin & Hobbes.
- baud147258 6y ago
  I ended up watching a bunch of those videos, they are really well made, thank you for the link
mastratton3 6y ago
That occurred during drilling not production so all the standard well head facilities were not in place.
- scurvy 6y ago
  There were still mechanical failures all over in safety devices. We're drilling much deeper than under higher pressures now than Deepwater Horizon. To imply that deepwater oil production is safe, is crazy. Storms happen. Mudslides (underwater) happen. Pandemics happen. This is why majors contract out to the offshore drillers. They want nothing to do with it.
  - mastratton3 6y ago
    That's not exactly accurate. Transocean was the contract driller on deepwater horizon but BP still took the brunt of the liability and PR backlash. The contract structure actually hasn't changed much in the past 20 years.

jofer 6y ago

Actually, deep water wells are usually quite easy to shut in by design. They frequently need to be shut in due to hurricanes or infrastructure maintenance. You don't drill a $100 million deepwater well without all the bells and whistles. Very cheap wells with low production (onshore, say ~10 barrel per day) are the ones that tend to be difficult to shut in, as they're not designed for easy temporary shut-ins. That having been said, most of the "must produce" issues are contractual. There are plenty of contracts with production quotas/etc. Similarly, pipelines need a minimum volume to keep flowing, and once they're stopped, they can be difficult to start again (inspections/etc, as well as physically starting things flowing).

bdevine 6y ago
You've missed your very best chance ever to lead with "Well, actually"!
scurvy 6y ago
That might have been true 20-30 years ago. Today, all of the easy oil has been tapped. They're going out farther, deeper, and under much high pressures than before. Oh, and they're less regulated. > You don't drill a $100 million deepwater well without all the bells and whistles. < You will if you can make a couple $B off it. It's a risk. The deep gulf has mudslides that take out rigs. It happened to Taylor Energy in 2004. All the tech in the world couldn't prevent that spill. https://www.nola.com/news/article_a55f87c0-8253-11ea-9f24-232b6de12ea8.html https://www.nola.com/news/article_a55f87c0-8253-11ea-9f24-23...
- jofer 6y ago
  What does that have do the ability to shut in a well? A shut in isn't stopping something that's leaking or stopping a blowout. It's the ability to deliberately and temporarily stop production. A loss of containment is very very very bad and a huge problem, but it's not related to a shut in. I'm well aware of shallow hazards (e.g. mass wasting aka mudslides). I've mapped them in many areas. I'm well aware of the ongoing Taylor spill. I've actually worked with monitoring it using satellite imagery from the regulatory side. I've also worked with it from the oil industry side... None of that is even remotely relevant here, though... I'm still very unclear how anything you mentioned relates to anything I said... That having been said, if you think _anything_ around the oil industry isn't done with safety and environmental concerns first and foremost, you've _clearly_ never been anywhere around the industry. I'm dead serious. What they do is really, really, really damned dangerous and it's fair to debate whether that risk is worth it at a societal level. However, don't for a goddamn second think that these folks don't care or are sloppy. _Every_ meeting all the way to the top starts with a discussion about safety and possible environmental impacts. I really, really mean that... Every damn one. It's vastly more important than very literally anything else. The first decision is _always_ HSE, never money. Yeah, things can go wrong in very bad ways. It's not because people don't care or are trying to make a buck at the expense of the environment. It's because they're working in a really difficult environment. Yes, deepwater horizon was preventable. Yes it was due to a poor well design. BP fucked up. That doesn't mean that the oil industry is some evil mustache twirling villain. You want cheap vegetables, flights across the continent, and plastics? Right now, we have to have oil for that. It ain't ideal, but it's not because people are out there trying to make money off of environmental disasters.

A4ET8a8uTh0 6y ago

Does it happen often that future contract falls into negative territory?

asib 6y ago
No, this is the first time since oil futures began trading in 1983.
bhl 6y ago
The technical term for this is contango [1]. Last time this happened to crude oil was after the GFC, as mentioned in the article. [1] https://en.wikipedia.org/wiki/Contango#Description https://en.wikipedia.org/wiki/Contango#Description
- juped 6y ago
  Contango means that futures prices further out are higher than futures prices in the nearer term, and is normal for oil futures; what's notable is the extreme slope of the futures curve we're seeing.

Digory 6y ago

The negative price has to do with the short delivery date, and the lack of storage at the (landlocked) delivery point. June 2020 WTI is still over $20/barrel. If anyone had storage to bring online in the next few weeks, in Cushing, Oklahoma, they'd make a killing. At this point, they're going to need to ship it to a port, to get on a tanker.

foota 6y ago
Anyone got a spare oil tanker? :-) I only slightly kid, makes me wonder how quickly I could acquire a number of oil storage units. edit: this tanker is off the gulf coast right now... https://horizonship.com/ship/274m-suezmax-crude-oil-carrier-2002-dwt-159453/ https://horizonship.com/ship/274m-suezmax-crude-oil-carrier-...
- rhizome 6y ago
  Just with a cursory "oil tanker for sale" search, they appear to be for sale in the $10-20MM range.
  - ldoughty 6y ago
    If the oil tanker can hold 2,000,000 barrels at -$35/ barrel you are being paid $70 million to store the oil for a few months... Of course, the next question is who pays for transport to/from the tanker, labor, dock fees, employees in ship (unless you can simply "park" it for a fee)
    - foota 6y ago
      Yeah, I was wondering. I think if someone had the experience needed to put this together quickly it would likely be profitable. It looks like most tankers are ~200,000 metric tons which at ~8 barrels per metric ton is roughly 1.6 million barrels. You also really only need to store it for a month, I think June futures are around $20 still, and so it's a diff of ~$60/barrel.
      - 6y ago

foota 6y ago

So like... why doesn't someone just fill a reservoir or something?

gowld 6y ago
You have to dig a hole before you can fill it.
- foota 6y ago
  Backhoes are cheap. Maybe environmental issues? I imagine someone would have a problem if I just dug a hole and filled it.
  - chha 6y ago
    > Maybe environmental issues? Amongst others. It's not enough to just dig a hole in the ground, you have to make sure it doesn't seep into the ground as well. In addition, you have the always present risk of fire...
    - entangledqubit 6y ago
      Unfortunately, right now it seems that there is incentive out there for oil to "go missing" for a profit -- presumably at the cost of the environment. I'm curious if anyone is thinking about trying to replace their fracking fluid with oil for a while...
      - recursive 6y ago
        Why don't the producers turn down the output? Does it cost more money to produce less? Is it mutually assured destruction? A game of chicken? This is so weird.
        ShamelessC 6y ago
        I heard on NPR yesterday that oil producers are concerned that output will be dampened by "turning down the output" because it can make flow rates lower when they reopen.

vkou 6y ago

Nobody's going to spend money to build new storage facilities for an oil glut that will go away in, at most, a month or two.

jessaustin 6y ago
If you're sure about that, I hope you're investing accordingly...
- bluGill 6y ago
  Not exactly. If you are not sure the glut will last for a while and then disappear you don't invest. There is a ton of money to make but only if you get the details right, if any is wrong there is a ton of money to lose.
  - jessaustin 6y ago
    If you're sure the glut will disappear within two months there are lots of safe investments.
    - bluGill 6y ago
      What if you don't know if it is 2 months or 2 years? There are great investments either way, but some investments only work with one and lose badly in the other. Thus if you are not sure you can't invest.
      - jessaustin 6y ago
        You describe a different situation than thread parent described.
        bluGill 6y ago
        Not exactly. I'm sure the glut will go away, but my error bars are large enough that I'm not comfortable betting on it.

hanniabu 6y ago

I fully expect some environmental accident b/c that's cheaper than paying people to take it. Also considering at least in the US, the EPA was told not to investigate things during the shut down.

jedberg 6y ago

When the price went negative, it made me wonder if I could legally take delivery of barrels of oil in my back yard. I'd like to assume there are some EPA rules that preclude one from storing barrels of oil just anywhere, but at the same time, the EPA is currently not enforcing any regulations. I also wondered about delivery on these contracts. Does that include delivery to any address I specify? Can I get paid $3000 to take 100 barrels and ask them to drop it off at my house? And then what? After the price recovers and I want to sell the barrels, will someone come get them from house?

dragonwriter 6y ago
> When the price went negative, it made me wonder if I could legally take delivery of barrels of oil in my back yard. Typically, the exchange contract is quite specific about where and how delivery can be made, and “in barrels shipped to your backyard” isn't an option. See, e.g., the delivery procedures here: https://www.cmegroup.com/trading/energy/crude-oil/light-sweet-crude_contractSpecs_futures.html https://www.cmegroup.com/trading/energy/crude-oil/light-swee... Also, “barrels” are just a (traditional for the commodity) unit of measure (42 US gallons/35 imperial gallons), not actual containers used for delivery.
- jedberg 6y ago
  You've dashed all my hopes for a quick buck, but thank you for the enlightening information!
  - throw_away 6y ago
    https://itsalwayssunny.fandom.com/wiki/The_Gang_Solves_the_Gas_Crisis https://itsalwayssunny.fandom.com/wiki/The_Gang_Solves_the_G...
    - jedberg 6y ago
      Similar concept, even older :) https://seinfeld.fandom.com/wiki/The_Bottle_Deposit https://seinfeld.fandom.com/wiki/The_Bottle_Deposit

danieltillett 6y ago

I am surprised there hasn’t been an “accidental” pipeline leak around Cushing. Who could have known that leaving a valve open could dump so much oil onto the ground.

juped 6y ago

Paid to take on the futures contract obligation. If you happened to need or want physical oil delivered in Oklahoma a month from today, you got a good deal as futures traders unloaded their contracts.

takinola 6y ago

The reason wells are hard to shut in has nothing to do with the actual turning off the tap. All wells are designed to turned off with BOPs (blow out preventers, etc). The problem is that if you shut in a well for an extended period of time, you damage the reservoir and will have to do remedial work to get it back to its production rate (if ever). This is why producers are not keen to shut down production. They have to weigh the short term cost of the current prices against the cost of future losses over the lifetime of the reservoir