Clearly lots of people commenting here that are losing money every day.
The global oil market is broken, drowning in crude nobody needs
161–170 of 303 posts
Re: The global oil market is broken, drowning in crude nobody needs
#162Earlier quoted context omitted.
> once you turn off the tap you don't really know whether the oil is going to start flowing again later You mean it can actually physically stop if the flow from the ground is blocked for a while? Can you expand if possible. Edit: I understand it comes out of the ground quite hot (I've heard of 200 C) and if it flows into cool pipes and stays still maybe it would 'congeal'.
While there can be a great deal of pressure pushing the oil up the well, there is also resistance to that flow up a narrow pipe (perhaps 4 inch pipe). The balance of forces can be very close but the momentum can keep the flow going. In some fluids, there can be methyl hydrates (or wax) that can cause problems with maintaining flow. There can also be particles that are moving in the fluid (sand), slowing or stopping t…
Oh, so it's a matter of the well itself too, not just of its surroundings? TIL.
Re: The global oil market is broken, drowning in crude nobody needs
#163I'm a truck driver, been in the LA area a few days. It's surprising how large the area looks without oppressive smog and haze, and how sharp and detailed the hills and mountains have become.
For what that's worth.
Re: The global oil market is broken, drowning in crude nobody needs
#164There are approximately 7500 crude tankers on planet earth.
I bought and sold tanker stocks based on the following:
IMO 2020 regulatory retrofits.
Coronavirus
Saudi Russian Oil Price War
Shipyard Shutdowns
My next bet is going to be based on the drawdown in US Oil operations. I'm gambling on $FCG based on the notion that the price of natural gas will go up a bit because the associated gas from oil wells is no longer in play.
Right now, the volatility is a gambler's paradise.
Re: The global oil market is broken, drowning in crude nobody needs
#165The market is broken because demand is way down, but production isn't being lowered to match. Saudi Arabia intends to keep their production high. The other producers are losing money but haven't reduced output, because changing output levels is more expensive than taking the loss.
> The market is broken because demand is way down, but production isn't being lowered to match. Given these prices, shale oil and tar sands production is going to shut down at some point. This is good news in a way, because these are among the dirtiest sources of oil in terms of environmental impact. Saudi Arabia extracts "light" oil and it's a frickin' desert, so the environmental impact of that extraction is quite…
> Saudi Arabia extracts "light" oil and it's a frickin' desert, so the environmental impact of that extraction is quite a bit lower all things considered.
Wait, what? A desert is just as much an ecosystem as a rainforest or a city.
Re: The global oil market is broken, drowning in crude nobody needs
#166Earlier quoted context omitted.
“ How much time will it be over $30 before the shale producers start up again?” I work in this field, and the answer to your question is “instantaneously.” The largest operators will not go out of business because they have sufficient exposure to non-shale assets; they will simply immediately drill the wells they had planned to drill when the crisis hit. Capital will rapidly find its way into the hands of the people…
This guy understands the energy business where oil is concerned. I'd only add that the above is also the reason that the Saudi gambit to put competitors out of business is highly unlikely to work. These competitors will just sit it out until favorable environments come back around. I'm not sure what the Saudis aim to achieve? But to achieve what people are speculating that they want to achieve, they need to have some…
They want Russia to come back in line with OPEC. Russian economy depends on oil exports, and the low oil prices might force it back to table. See what happened to Russian currency when price went down.
Re: The global oil market is broken, drowning in crude nobody needs
#167Earlier quoted context omitted.
Peak Oil (conventional) happened in 2008 (see World Energy Outlook 2018 from the IEA). Tight oil came to the rescue. Tight oil and shale oil industries are all built on a huge amount of debt and never were cash-positive in the past 12 years. That's the part that wasn't anticipated. However shale oil requires constant drilling because production rises then falls very quickly (18 months to 2 years). With low oil prices…
"However shale oil requires constant drilling because production rises then falls very quickly" You seem to interpret this as a problem. However, I've read many times that it's basically a solution , because what it means is that production is responsive to demand in a far shorter timeframe than conventional oil. On top of that, supposedly you can drill a well and not complete it until a price war is over. So I'm not…
Yes, currently the tight oil industry could be in a good shape, because drilling a well is very cheap (about US$ 5 millions), without the trillions of debts it amassed. The problem may unroll like this:
- demand is destroyed by coronavirus - prices go down (maybe as low as $10 a barrel according to some analysts) - existing wells maybe kept pumping, or not - new drilling stops, ditto exploration, etc. - cash flow in tight oil industry falls to about zero - huge debt (trillions) can't be paid back, companies go belly up, banks must be rescued by the Fed...
several scenarii open up from there: would the Fed rescue the oil companies? may the government nationalise the oil industry? What can be the impact on US$? On US debt? financial markets? Who knows, all bets are off at this point.
The crucial moment will be there: in the few months between this moment when the shale oil industry defaults on its debt, and when it's bought back (debt free, therefore in a sane situation), there may be a large gap in production, that could kill world oil demand by sending prices through the ceiling ($100 barrel? $120? $150?) because normal demand can't be fulfilled by conventional production anymore.
Lots of graphs here: https://jancovici.com/en/energy-transition/oil/when-does-the...
I myself have no particular expertise, but I've been following quite closely oil and energy since 2005.
Re: The global oil market is broken, drowning in crude nobody needs
#168Earlier quoted context omitted.
That depends on what you define as a market that isn't broken. In a perfect free market the oil producers make zero profits and this is a move towards fixing the market
" In a perfect free market the oil producers make zero profits" Where does this conclusion come from?
From...economics?
Profit is market inefficiency, whether due to missing information or inadequate competition. Perfect efficiency drives prices down to the marginal cost of a good or service. Micro 101 stuff.
Re: The global oil market is broken, drowning in crude nobody needs
#169I'm a truck driver, been in the LA area a few days. It's surprising how large the area looks without oppressive smog and haze, and how sharp and detailed the hills and mountains have become. For what that's worth.
The city is a bit taller now. Twenty to thirty years ago you could see even further (although only just after rain cleared up the pollution).
Re: The global oil market is broken, drowning in crude nobody needs
#170Earlier quoted context omitted.
I'm unclear how that's supposed to work. Oil goes below $30 for an extended period of time. So long that all the shale producers go bust. So long that no one buys up all those assets but instead just lets them go fallow. After all that time Saudia Arabia now lets the price rise. How much time will it be over $30 before the shale producers start up again? Will it really pay off compared to the amount of time they had…
I think it’s more a side-effect of the Russia pricing fight than the goal itself. If the price drops and shale producers don’t have the capital to whether the storm then they don’t have much of a choice. Sure later they could come back when prices are high again, but in practice that’s probably hard and takes time.
As I understand it, most shale producers have tremendous amounts of debt that they can't service when oil is below $40...investors and shareholders will be holding a useless bag if this continues for much longer.