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Oil Falls Below $40 for First Time Since 2009 as Glut Grows

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Re: Oil Falls Below $40 for First Time Since 2009 as Glut Grows

#21

Post by wvenable »

throwaway12309 wrote: post #4

One one hand, I'm a bit worried as I know various folks that are dependent on the oil industry and this will probably mean more layoffs/companies closing, on the other hand, I'm really happy to see this (helps many economies as well as ordinary folks) and it seems some of the changes from oil to other sources of energy are finally showing some results (I hope)

OPEC is trying to destroy the American shale businesses by making them unprofitable. There was huge investment in shale based on higher oil prices and if they can't recoup that investment OPEC stands to keep their monopoly.

Re: Oil Falls Below $40 for First Time Since 2009 as Glut Grows

#22

Post by rhino369 »

varelse wrote: post #3

And yet gas is still over $3 a gallon. Funny that...

Summer is peak demand for gasoline and puts refiners near peak production. Any unscheduled offline time can keep prices high. A refinery in Indiana sent Midwest prices going up, for example.

If the refinery production is the limiting factor, oil could be free and it might not lower gas prices in the short term.

Re: Oil Falls Below $40 for First Time Since 2009 as Glut Grows

#23

Post by slayed0 »

ori_b wrote: post #11

This is slightly worrying, because if we want to reduce CO2 emissions, we need to leave the oil in the ground. High prices may not be ideal economically, but they do reduce demand for oil, and increase demand for alternative energy.

The other way to look at this is that if the price is able to find equilibrium at a low enough point, it will not be economically feasible to extract certain types of oil from the ground (e.g. tarsands). The real question is how much of an effect low prices will have on demand.

Re: Oil Falls Below $40 for First Time Since 2009 as Glut Grows

#25

Post by dwharrison »

And it will go lower! Canadian crude hit $23/bbl earlier in the week.

North America is close to maxing out storage capacity...possibly within 90 days. We've not been this close to max storage capacity in more than 80 years.

North American crude oil production currently exceeds demand (meaning what we have capacity to refine) by over 1 million barrels a day. All that extra is getting dumped into storage.

And the spread in price between crude oil and gasoline will likely stay large.

The USA can't export crude (by law), but can export refined product (gasoline, diesel, jet fuel, etc).

So there's a finite closed market for crude oil (that's running out of places to store it), but a ready export market for refined product (mostly Central and South America).

Net result: low crude oil prices, high gasoline prices.

Re: Oil Falls Below $40 for First Time Since 2009 as Glut Grows

#26

Post by murbard2 »

droffel wrote: post #9
varelse wrote: post #3

And yet gas is still over $3 a gallon. Funny that...

Well, gasoline production consumes oil, which means that the price should theoretically lag behind oil's price for a period of time at least equal to the time it takes to go from crude to a final product. In addition, most gas stations will buy gasoline futures a few months out to stabilize their costs, and when oil price falls, the cost of the underlying gas purchased is still at the negotiated futures contract pric…

The fact that they are hedged doesn't change much unless they are all hedged. If some of them aren't hedged, they will drive the price down, forcing the other stations to sell their inventory at a loss.

Re: Oil Falls Below $40 for First Time Since 2009 as Glut Grows

#27

Post by haxeny1 »

tsotha wrote: post #14
ori_b wrote: post #11

This is slightly worrying, because if we want to reduce CO2 emissions, we need to leave the oil in the ground. High prices may not be ideal economically, but they do reduce demand for oil, and increase demand for alternative energy.

Whether this is bad from the environmental standpoint depends on why the price is low. The price may be low because demand is off.

I am not sure if we could conclude that the demand is off. I believe that the traders who were controlling the inventories have finally closed their trades and walked away while they are ahead. Oil of course is a geopolitical commodity and a slide in prices usually helps developing countries that need oil to just keep the machinery running. Alternative sources are still not as accessible as one would like. All in all, I seem to think that this trend is not going to bode well for all the tax subsidies for solar panels in the US and will only delay discussions on climate change.

Re: Oil Falls Below $40 for First Time Since 2009 as Glut Grows

#28

Post by cpncrunch »

DanBC wrote: post #5
lexcorvus wrote: post #2

I remember ten years ago when worrying about Peak Oil was all the rage. You don't hear too much about that nowadays…

You do. Oil sands delayed peak oil a bit, but it's still there.

Not only oil sands, but shale oil, deepwater oil, etc.

Re: Oil Falls Below $40 for First Time Since 2009 as Glut Grows

#29

Post by adventured »

tsotha wrote: post #14
ori_b wrote: post #11

This is slightly worrying, because if we want to reduce CO2 emissions, we need to leave the oil in the ground. High prices may not be ideal economically, but they do reduce demand for oil, and increase demand for alternative energy.

Whether this is bad from the environmental standpoint depends on why the price is low. The price may be low because demand is off.

Demand had been increasing since the bottom of the great recession. This started last June with the dollar lifting off (pushing commodities down and crashing emerging markets), and the Saudis deciding to try to retain market share and crush the booming US oil production. So now, despite $40-$60 oil, the Saudis are producing the most oil they ever have. US oil companies have managed to constantly reduce the cost of their oil, with frackers getting it down to $40 to $50 / barrel, the US will produce almost a million barrels per day more than in 2014 despite the price drop. On top of all of that, the market is front running both Iran bringing its oil online again, and the Fed raising interest rates and sending the dollar higher.
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