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Is this because of speculation? Doesn't the US only get 3% of oil from Russia? I'd love to look at the numbers of crude oil produced/consumed globally and compa

Is this because of speculation? Doesn't the US only get 3% of oil from Russia? I'd love to look at the numbers of crude oil produced/consumed globally and compare. Surely, Russia isn't stopping production. So what's the worst that can happen? A country like China gets cheaper Russian oil while the west pays a premium for non-Russian oil. Does that really cause such a massive run up in price?

soperj 5y ago
Russia is the biggest oil exporter in the world. They produce about 10 million barrels a day, slightly more than Saudi Arabia. When it's no longer being bought, it's not just the US who isn't buying it, and the rest of the oil out there has a greater demand for it.
moolcool 5y ago
> Is this because of speculation? Isn't that why almost everything is priced how it is?
hn_throwaway_99 5y ago
> Does that really cause such a massive run up in price? Yes. 1. Russia is the number 2 exporter of oil, behind Saudi Arabia: https://en.wikipedia.org/wiki/List_of_countries_by_oil_exports https://en.wikipedia.org/wiki/List_of_countries_by_oil_expor... 2. The fact that the US only gets 3% of its oil from Russia is kind of irrelevant - it's largely a global market. 3. The idea that Russia can just switch to selling all of its oil to China, so then the West can then get its oil from someplace else (a) is not feasible and (b) would completely defeat the purpose of sanctions in any case. 4. Prices are always set at the margins. A relatively small shortfall can cause a huge price increase primarily because, when there is a shortfall, the price needs to increase enough for some buyers to just drop out of the market altogether.
- Others 5y ago
  I think (3b) isn’t true, since the sanctions are effecting every part of Russia’s economy. And while the petroleum industry is like 40% of their exports by revenue, the other 60% is obviously significant. Also from a Russian point of view, the difficulty importing and lack of access to the international banking system may be more painful. In fact if the west could target everything except oil, they probably would (since that’s the most critical export that Europe needs). Your overall point still stands though. Your argument is strong. It’s not practical for Russia to simply redirect their flow to maintain “business as usual”.
  - jansen555 5y ago
    China is supporting Russia. At the end of day, you want buy "stuff". China makes worldwide "stuff". Yes, they can't but Channel or enjoy netflix, but they are world food producers and near unlimited oil (if you factor in the frozen methane supply will dwarf entire Saudi). For money, China will be the middleman. So you still supporting Putin everytime you purchased an app from iPhone store. It is just a more complicated steps to assist Putin to take down Ukraine. The real question is can you sanction China? Look around you. China ensures decades of low inflation. Take China out of equations, you gonna see BLM rioting on steroid in America.
- landemva 5y ago
  Currently Russian energy exports are not sanctioned. Talk of sanctions causes business planning chaos. https://www.reuters.com/business/energy/us-open-sanctioning-russian-energy-sector-white-house-2022-03-02/ https://www.reuters.com/business/energy/us-open-sanctioning-... For 4) rising energy prices hurt the poor the most as % of household spend. Rich don't care. Middle-class can bear it. Poor suffer disproportionately.
  - dragonwriter 5y ago
    > Currently Russian energy exports are not sanctioned Not by the government, but they are largely being boycotted by buyers, which has a similar effect. https://www.forbes.com/sites/christopherhelman/2022/03/04/will-attempts-to-self-sanction-russia-be-enough-to-tame-putin-without-oil-mageddon/ https://www.forbes.com/sites/christopherhelman/2022/03/04/wi...
    - landemva 5y ago
      The pipelines from Russia through Ukraine are still flowing energy into western Europe. Producer and transit countries have diligently avoided pipeline disruption.
- vba616 5y ago
  It's good to hear that China would not do anything that defeats the purpose of sanctions. I want to know why and how you know this. Shell was just buying Russian oil, because, you know, it's on sale. They're making excuses like "it's not illegal yet".
jldugger 5y ago
The US is a net exporter of oil I think, in the post fracking era. As a commodity, for the most part there is one global price, modulo delivery location. What happened last week is that the normal buyers don't want to transact with Russia, so they're in the unique position of having to sell a global commodity at a discount. What we may be seeing is a thinning out of suppliers on the exchange. I dont think Pussia can transact on WTI given current sanctions (did they in the past?) and intermediaries may not want the ambiguous risk of being stuck with sanctioned oil in the future.
- pclmulqdq 5y ago
  Not any more. The biden administration halted oil exploration on federal land, so now we are a net importer. We are running the existing wells dry and not drilling any more. With the price of oil so high, though, I wonder if more dramatic changes to the market are coming, including massive numbers of oil wells on private land and fracking nearer to cities.
  - jjeaff 5y ago
    Actually, they only halted the issuing of new permits. Oil companies have years of existing permits stacked up. Additionally, federal land makes up for about 10% of total US production. So it has about zero effect right now and will have minimal effect in the future.
    - pclmulqdq 5y ago
      From the outside, you can see stats like "wells produce an average of 1000 barrels a day and last 20 years" and it looks like this doesn't have a big effect. However, most oil wells have output that decreases exponentially over the life of the well. After about 2 years of life, an average well's production decreases by 80-90%. As a result, new wells account for an outsized fraction of production, and considering all of the costs involved (including high constant costs per well regardless of pumping output), new wells are the cheapest source of oil. Without new wells, the average price to produce a barrel of oil goes up substantially. The US oil industry is starting the new wells they have in their backlog, but markets are ridiculously forward-looking and you should note that we are talking about the price of futures, not spot price today. Markets are anticipating having a much harder time getting further oil wells, and they are anticipating that the largest supply of currently unexploited oil is on public land. Put another way, current production doesn't involve much federal land, but future production expansion will largely have to happen on federal (and state) land. The number of wells on federal land has been declining over its history: we are at 38,000 leases in 2020 compared to 55,000 in 2008 (per the BLM), and data presented to congress suggests that in the past, 25% of oil production was on federal land. Today, the number is 8%. That supports the theory that new oil wells will largely have to be started on federal land rather than private land. This is a particular policy where extrapolation from current data undervalues the effect of the policy.
beloch 5y ago
This is speculation, but it may be because oil production doesn't outstrip demand by much. The world uses a certain amount of fuel in a day. Oil batteries, refineries, pipelines, etc. are designed to supply that, but not much more. Similar to chip supply chains, there isn't a lot of excess production and storage capacity built into the system because that doesn't generate income. If this is the case, then removing a major producer, such as Russia, will create shortages. Demand exceeds supply and prices go up. Even just the fear of bans could drive prices up.
- throwaway0a5e 5y ago
  >be because oil production doesn't outstrip demand by much. Because marginally profitable sources get turned off when price drops and they are not profitable, and turned back on again when price goes up and they are.
somethoughts 5y ago
Not that every conversation has to be about Elon Musk :) - but it would seem like the perfect time for Elon to tweet about the benefits of Tesla and EV cars (in addition to or instead of trolling about Starlink). A world with strong alternatives to fossil fuels would seem safer as fossil fuels invariably seem to funnel petrodollars to oligarchs/corrupt politicians/puppet states. An EV + grid storage world seems safer from geopolitical conflicts, on top of the more commonly mentioned climate change benefits.
bryanlarsen 5y ago
Russia has a 12% share of the global market, and that's what matters. But even if it was only 3%, that could significantly move markets. There's a saying "supply 100 demand 99, price goes down. Supply 100 demand 101, price goes up.". Price is set at the margin, and small changes can sometimes have a large effect.
- vba616 5y ago
  Everything is inelastic in the short run. Energy is less elastic in general. Is that too obscure, pretentious, or jargony? Is the concept not common sense? Is it not sufficient to explain prices going up? https://en.wikipedia.org/wiki/Elasticity_(economics) https://en.wikipedia.org/wiki/Elasticity_(economics) It takes more than a week for people to make arrangements at any level.

soperj 5y ago

Russia is the biggest oil exporter in the world. They produce about 10 million barrels a day, slightly more than Saudi Arabia. When it's no longer being bought, it's not just the US who isn't buying it, and the rest of the oil out there has a greater demand for it.

moolcool 5y ago

> Is this because of speculation? Isn't that why almost everything is priced how it is?

hn_throwaway_99 5y ago

> Does that really cause such a massive run up in price? Yes. 1. Russia is the number 2 exporter of oil, behind Saudi Arabia: https://en.wikipedia.org/wiki/List_of_countries_by_oil_exports https://en.wikipedia.org/wiki/List_of_countries_by_oil_expor... 2. The fact that the US only gets 3% of its oil from Russia is kind of irrelevant - it's largely a global market. 3. The idea that Russia can just switch to selling all of its oil to China, so then the West can then get its oil from someplace else (a) is not feasible and (b) would completely defeat the purpose of sanctions in any case. 4. Prices are always set at the margins. A relatively small shortfall can cause a huge price increase primarily because, when there is a shortfall, the price needs to increase enough for some buyers to just drop out of the market altogether.

Others 5y ago
I think (3b) isn’t true, since the sanctions are effecting every part of Russia’s economy. And while the petroleum industry is like 40% of their exports by revenue, the other 60% is obviously significant. Also from a Russian point of view, the difficulty importing and lack of access to the international banking system may be more painful. In fact if the west could target everything except oil, they probably would (since that’s the most critical export that Europe needs). Your overall point still stands though. Your argument is strong. It’s not practical for Russia to simply redirect their flow to maintain “business as usual”.
- jansen555 5y ago
  China is supporting Russia. At the end of day, you want buy "stuff". China makes worldwide "stuff". Yes, they can't but Channel or enjoy netflix, but they are world food producers and near unlimited oil (if you factor in the frozen methane supply will dwarf entire Saudi). For money, China will be the middleman. So you still supporting Putin everytime you purchased an app from iPhone store. It is just a more complicated steps to assist Putin to take down Ukraine. The real question is can you sanction China? Look around you. China ensures decades of low inflation. Take China out of equations, you gonna see BLM rioting on steroid in America.
landemva 5y ago
Currently Russian energy exports are not sanctioned. Talk of sanctions causes business planning chaos. https://www.reuters.com/business/energy/us-open-sanctioning-russian-energy-sector-white-house-2022-03-02/ https://www.reuters.com/business/energy/us-open-sanctioning-... For 4) rising energy prices hurt the poor the most as % of household spend. Rich don't care. Middle-class can bear it. Poor suffer disproportionately.
- dragonwriter 5y ago
  > Currently Russian energy exports are not sanctioned Not by the government, but they are largely being boycotted by buyers, which has a similar effect. https://www.forbes.com/sites/christopherhelman/2022/03/04/will-attempts-to-self-sanction-russia-be-enough-to-tame-putin-without-oil-mageddon/ https://www.forbes.com/sites/christopherhelman/2022/03/04/wi...
  - landemva 5y ago
    The pipelines from Russia through Ukraine are still flowing energy into western Europe. Producer and transit countries have diligently avoided pipeline disruption.
vba616 5y ago
It's good to hear that China would not do anything that defeats the purpose of sanctions. I want to know why and how you know this. Shell was just buying Russian oil, because, you know, it's on sale. They're making excuses like "it's not illegal yet".

jldugger 5y ago

The US is a net exporter of oil I think, in the post fracking era. As a commodity, for the most part there is one global price, modulo delivery location. What happened last week is that the normal buyers don't want to transact with Russia, so they're in the unique position of having to sell a global commodity at a discount. What we may be seeing is a thinning out of suppliers on the exchange. I dont think Pussia can transact on WTI given current sanctions (did they in the past?) and intermediaries may not want the ambiguous risk of being stuck with sanctioned oil in the future.

pclmulqdq 5y ago
Not any more. The biden administration halted oil exploration on federal land, so now we are a net importer. We are running the existing wells dry and not drilling any more. With the price of oil so high, though, I wonder if more dramatic changes to the market are coming, including massive numbers of oil wells on private land and fracking nearer to cities.
- jjeaff 5y ago
  Actually, they only halted the issuing of new permits. Oil companies have years of existing permits stacked up. Additionally, federal land makes up for about 10% of total US production. So it has about zero effect right now and will have minimal effect in the future.
  - pclmulqdq 5y ago
    From the outside, you can see stats like "wells produce an average of 1000 barrels a day and last 20 years" and it looks like this doesn't have a big effect. However, most oil wells have output that decreases exponentially over the life of the well. After about 2 years of life, an average well's production decreases by 80-90%. As a result, new wells account for an outsized fraction of production, and considering all of the costs involved (including high constant costs per well regardless of pumping output), new wells are the cheapest source of oil. Without new wells, the average price to produce a barrel of oil goes up substantially. The US oil industry is starting the new wells they have in their backlog, but markets are ridiculously forward-looking and you should note that we are talking about the price of futures, not spot price today. Markets are anticipating having a much harder time getting further oil wells, and they are anticipating that the largest supply of currently unexploited oil is on public land. Put another way, current production doesn't involve much federal land, but future production expansion will largely have to happen on federal (and state) land. The number of wells on federal land has been declining over its history: we are at 38,000 leases in 2020 compared to 55,000 in 2008 (per the BLM), and data presented to congress suggests that in the past, 25% of oil production was on federal land. Today, the number is 8%. That supports the theory that new oil wells will largely have to be started on federal land rather than private land. This is a particular policy where extrapolation from current data undervalues the effect of the policy.

beloch 5y ago

This is speculation, but it may be because oil production doesn't outstrip demand by much. The world uses a certain amount of fuel in a day. Oil batteries, refineries, pipelines, etc. are designed to supply that, but not much more. Similar to chip supply chains, there isn't a lot of excess production and storage capacity built into the system because that doesn't generate income. If this is the case, then removing a major producer, such as Russia, will create shortages. Demand exceeds supply and prices go up. Even just the fear of bans could drive prices up.

throwaway0a5e 5y ago
>be because oil production doesn't outstrip demand by much. Because marginally profitable sources get turned off when price drops and they are not profitable, and turned back on again when price goes up and they are.

somethoughts 5y ago

Not that every conversation has to be about Elon Musk :) - but it would seem like the perfect time for Elon to tweet about the benefits of Tesla and EV cars (in addition to or instead of trolling about Starlink). A world with strong alternatives to fossil fuels would seem safer as fossil fuels invariably seem to funnel petrodollars to oligarchs/corrupt politicians/puppet states. An EV + grid storage world seems safer from geopolitical conflicts, on top of the more commonly mentioned climate change benefits.

bryanlarsen 5y ago

Russia has a 12% share of the global market, and that's what matters. But even if it was only 3%, that could significantly move markets. There's a saying "supply 100 demand 99, price goes down. Supply 100 demand 101, price goes up.". Price is set at the margin, and small changes can sometimes have a large effect.

vba616 5y ago
Everything is inelastic in the short run. Energy is less elastic in general. Is that too obscure, pretentious, or jargony? Is the concept not common sense? Is it not sufficient to explain prices going up? https://en.wikipedia.org/wiki/Elasticity_(economics) https://en.wikipedia.org/wiki/Elasticity_(economics) It takes more than a week for people to make arrangements at any level.