361–370 of 546 posts
Why wasn't the oils producers reducing their production fast enough to prevent the price from crashing. This to me looks like a lag and inelasticity in how the oil producers are responding to demand.
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I've never been to Cushing Oklahoma. I feel like it should be possible to build a big tank in a week or two. Why isn't available storage space skyrocketing?
There is a little bit more to an oil tank than just steel walls. You need proper foundations, fire prevention systems, disaster plans, probably get hooked up to the pipeline network, etc etc etc. Even if it were quick, the amount of oil being pumped up is massive and you need more than a few tanks to store it all. Finally, tanks are long term infrastructure and it might not be profitable to build out storage too much…
One point made when that fire occurred was that the tanks are placed in earthen basins, so that when tank fails, the flaming fuel just fills the basin, minimizing risk of spreading to neighboring tanks.
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By definition all open futures contracts have to either a) be Physically delivered Or b) be closed (remember that for futures contracts there is someone on each side (prepared to deliver 1,000 bbl and prepared to receive 1,000 bbl) Now if you are a financial participant you need to close out your position as you are not in a position to either deliver/receive physical oil - so you need to essentially pay whatever it…
This isn't true for all contracts. For example, gold contracts are/can be settled for cash. I remember during the Great Recession talks about gold conspiracies and that gold futures contracts can be forced settled in cash instead of physical delivery. I'm not sure if that's true or if that's part of the futures contract, though.
https://www.cmegroup.com/trading/energy/crude-oil/light-swee...
If the pandemic lasts longer than 6 months, which is quite likely, many high-cost oil producers might not survive. Some would argue this could lead to shortage and a much higher price later on, but long-term oil demand could also be affected. There might be some semi-permanent change in people's behaviors if the epidemic continues for many months. Many people will form a habit of doing more things at home/online: mor…
This was at least originally about a strange oils price war between Saudi and Russia. It just happened to coincide with the pandemic. Though I'd guess by now the pandemic adds fuel to the non-fire.
Saudi/Russia likely did not anticipate a global lockdown and decided to get into a price war to keep their absolute revenue numbers stable albeit by increasing production under reduced prices ,that has of course backfired spectacularly.
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.…
The May contract was still selling at $22 as of last Tuesday. I don't know much about oil markets but my base assumption would be that we would do this whole thing over again in 30 days unless something significant happens in consumption or production? When do the output cuts begin?
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Sorry to miss it, but how does this answer my question? I asked why they weren't prepared on Friday. Storage has been expensive and getting more expensive for weeks. We've been in a massive contango for weeks. Why weren't they prepared on Friday for physical delivery?
It's only a paper loss until you sell. Everybody was hoping and praying things would change and now that it's abundantly clear that it's not changing, they're desperately trying to unwind their positions.
“ The upcoming May contract’s expiry means traders are shifting their positions to June as they try to avoid taking deliveries of cargoes because of the lack of space to store them. That has opened up an unprecedented discount of more than $10 between the two nearest contracts. This situation—in which the price of the June contract is far above that of the May one—apparently delights in the name “super contango.” Peo…
[edited for typos/grammar] The US was going to top up the strategic reserves, but that was stopped in congress. Seems like an ideal time to make that happen with such low prices. Irregardless of environmental concerns, nobody is at a point where they are not dependent on oil and a supply disruption that this is designed to address currently would have dire consequences without it. IE: food shortages etc..
There is no reason for the US government to pay to take oil out of the ground to put it into the ground elsewhere. Fracking has made the US an oil exporter. As others mentioned, fracking has made the US the world's lowest cost producer.
But if such an agreement had been made in Congress and the US was obligated to buy at a certain (positive) price, you can bet the price wouldn't be $-35 right now.
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I think it briefly went negative! Let's add that to the list "Things I never thought I'd see but 2020 happened"
Not briefly, it’s still negative and hit -$40.
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You'll also see the economy in the fourth largest city in the US - Houston - collapse. It's not just the large energy companies here, but the entire ecosystem of companies that support the energy industry here.
Are there any signs of this starting to happen given how low prices have gone?
Of course the automotive market in general is "non-typical" at the moment, so there are probably multiple interpretations to be made of whatever the market status is.