Oil plunges below zero for first time with May contract ending • Hacker News Board

Re: Oil plunges below zero for first time with May contract ending

#111

Post by unexpected » Mon, Apr 20, 2020, 3:30 PM UTC

toomuchtodo wrote: post #37

drcode wrote: post #27

Earlier quoted context omitted.

This seems unlikely to me, given the low extraction costs they have for oil. I guess the biggest danger they would face is if they have to stop "paying off" their population, and this leads to an "arab spring" type of situation. But it seems even in that case they would unfortunately have the will and resources to use Syria-style brutal tactics to contain any uprising.

Saudi Arabia’s extraction costs are about $3/barrel, their nation state budget require $80/barrel to break even. They are burning through reserves at these market prices. Edit: To your point, it’s going to get ugly locally if market conditions persist.

Saudi makes up shit when they say their extraction costs are $3/barrel. A lot of clever accounting in that one. Actual extraction costs are roughly $10-$15/barrel.

Re: Oil plunges below zero for first time with May contract ending

#112

Post by Mikeb85 » Mon, Apr 20, 2020, 3:30 PM UTC

chrisfinazzo wrote: post #100

Mikeb85 wrote: post #42

Earlier quoted context omitted.

WTI is what matters most to North American producers.

Is that correlated to the price of gas - if it ever was? I realize the above question is naive, but it's clear that the Russians and the Saudis having a pissing match over supply just as demand dries up (because COVID) has caused prices to collapse. In some places, gas is under $1/gallon.[1] [1]: https://www.cnet.com/roadshow/news/gas-prices-average-drop-k...

Yeah gas prices mostly correlate to oil prices but also to demand for gasoline (hence the price always going up in the summer).

Re: Oil plunges below zero for first time with May contract ending

#113

Post by NortySpock » Mon, Apr 20, 2020, 3:30 PM UTC

RobRivera wrote: post #34

bob33212 wrote: post #20

What happens when Saudi Arabia collapses? Does the royalty get the fuck out of town on their private jets with as many gold bars as they can carry?

This is a rather naived perspective on the strategic thinking and planning of the Saudi Royal family. They are heavy investors in renewable energy tech.

In the last 5 years, sure, especially with MBS holding the reins. But you can't just move your entire country onto solar power in 5 years unless you have huge hydro or battery resources already.

Re: Oil plunges below zero for first time with May contract ending

#114

Post by FartyMcFarter » Mon, Apr 20, 2020, 3:32 PM UTC

tantalor wrote: post #15

turbinerneiter wrote: post #5

Earlier quoted context omitted.

I think gas goes bad after some months, not sure if crude degrades as well.

It's been buried for 100 million years, I don't think a few months is going to do anything.

Probably buried in a very different environment?

Re: Oil plunges below zero for first time with May contract ending

#115

Post by kcolford » Mon, Apr 20, 2020, 3:35 PM UTC

dd36 wrote: post #78

dsfyu404ed wrote: post #74

Earlier quoted context omitted.

The producers aren't gonna dump it (at least not in the US) because that is a surefire way to not only have the EPA bend them over but to have the EPA bend them over with the blessing of public opinion. Nobody wants to have their company be associated with pictures of oil soaked wildlife.

EPA isn’t enforcing right now.

Doesn't matter when they enforce, no one's taking the risk of a change in administration.

Re: Oil plunges below zero for first time with May contract ending

#116

Post by boringg » Mon, Apr 20, 2020, 3:36 PM UTC

unexpected wrote: post #111

toomuchtodo wrote: post #37

Earlier quoted context omitted.

Saudi Arabia’s extraction costs are about $3/barrel, their nation state budget require $80/barrel to break even. They are burning through reserves at these market prices. Edit: To your point, it’s going to get ugly locally if market conditions persist.

Saudi makes up shit when they say their extraction costs are $3/barrel. A lot of clever accounting in that one. Actual extraction costs are roughly $10-$15/barrel.

Still far cheaper then almost everywhere else. $3 or $15

Re: Oil plunges below zero for first time with May contract ending

#117

Post by bluGill » Mon, Apr 20, 2020, 3:37 PM UTC

lonelappde wrote: post #62

frankchn wrote: post #50

Note that this is for the May contract, which closes tomorrow, and anyone left with a contract then will have to actually take delivery of the physical product. Since we are in supercontango (oil storage is full, causing spot prices to be significantly lower than forward prices), I am guessing that traders who are still holding on to contracts and don’t have available storage have to unload contracts pretty quickly.…

Would they take delivery or would they pay the producers to dump it in the dirt or ocean? Oops into the ocean is cheap storage of useless oil.

It is hard to take delivery if you don't want to. These contracts have lots of safeguards to separate delivery from ownership.

There are lots of ways to have a contract, but one example of why this is done is if you have oil and on a slow boat. When the oil is loaded onto the boat the well owner wants to be paid, while the ship owner doesn't want to buy it, and the destination does not doesn't want to pay for it. This the ship will pay for the oil by selling a contract, the ship already knows where it is going, but they don't want to have ownership of the oil. By selling the contract on the same day they get their money back and don't lose money if oil goes down. Then they sell the oil on the other end and pay off the contract. Of course in the real world it is more complex but in general the destination is already known what isn't known is how much the oil will be worth when it gets there.

Note that I said hard to take delivery when you don't want it. Such things do happen despite safeguards. They are expensive mistakes for everyone (the ship delivering oil can't unload and so will miss the next dock while running for someplace that can take it), so there is a lot of checks in place but they can fail.

Re: Oil plunges below zero for first time with May contract ending

#118

Post by causality0 » Mon, Apr 20, 2020, 3:37 PM UTC

yaitsyaboi wrote: post #105

wonderwonder wrote: post #102

Earlier quoted context omitted.

I doubt they collapse, this is a war of attrition started by the Saudis and Russia. They are attempting to force all of their competition (primarily each other) out of business by continuing to flood the market with oil. They are betting that they can outlast the other. These are both nations that care very little for their citizenry outside of the elites so both are willing to go to lengths other democratic nations…

Interesting. Russia is less oil dependent than SA, but the Saudi's have more oil per capita.

The Saudis also have a massive population of what are effectively indentured servants and the ability to get more or expel them at will, so that dependency comes with a degree of flexibility to modify their own economy.

Re: Oil plunges below zero for first time with May contract ending

#119

Post by chki » Mon, Apr 20, 2020, 3:38 PM UTC

unexpected wrote: post #111

toomuchtodo wrote: post #37

Earlier quoted context omitted.

Saudi Arabia’s extraction costs are about $3/barrel, their nation state budget require $80/barrel to break even. They are burning through reserves at these market prices. Edit: To your point, it’s going to get ugly locally if market conditions persist.

Saudi makes up shit when they say their extraction costs are $3/barrel. A lot of clever accounting in that one. Actual extraction costs are roughly $10-$15/barrel.

Why do they or why would they make up extraction costs? (Genuinely interested)

Re: Oil plunges below zero for first time with May contract ending

#120

Post by protomyth » Mon, Apr 20, 2020, 3:39 PM UTC

pixl97 wrote: post #87

protomyth wrote: post #75

Earlier quoted context omitted.

I have my doubts. TX and ND can reopen wells pretty quickly, so there is a max limit on the price going up. Plus, fracking efficiency is going to go up with better techniques.

Eh, not really. I live in Texas and had worked for a company that developed a software product for management of things like oil leases. The big issue is not the inability to re-open oil wells, it's not that hard. It's the people. When you shut in production you lay people off. Eventually they go elsewhere. This is a big problem in oil boom/bust cycles. Getting trained operators that don't mess up the equipment or ca…

Talking to friends in the west, they are keeping a lot of operators on pay still. I guess it is a how long thing. I'm hoping all the folks with one of the tribes that made a lot of cash on oil put some away for a rainy day.