How long would it take to build new storage tanks?
US oil prices turn negative as demand dries up
11–20 of 130 posts
Re: US oil prices turn negative as demand dries up
#12Futures prices are significantly higher than $0. This is less noteworthy than it seems. https://www.marketwatch.com/investing/future/crude%20oil%20-...
Just because the situation is complex doesn't mean it isn't newsworthy. This is certainly an unprecedented and significant event.
Re: US oil prices turn negative as demand dries up
#13So they start off the article with this statement: "That means oil producers are paying buyers to take the commodity off their hands over fears that storage capacity could run out in May." This statement is actually totally false. Producers already got paid for this production a long time ago when they initially sold the futures contract. What has actually happened is that as the expiry of the May futures contracts a…
> cost of storing that oil is getting really high
If anything, this is a wild understatement. Each contract represents 1000 barrels of toxic waste. You can't just have that stored in a shed or something. And all the commercial regulation compliant storage is gone. I'd be willing to bet you will have a hard time even finding a tanker truck to take it to a buyer, since the tanker owners themselves are going to be using those trailers as temporary storage facilities. Anyone stuck taking delivery of barrels right now is in for a world of hurt. The legal fees alone are going to be ruinous.
Re: US oil prices turn negative as demand dries up
#14How long would it take to build new storage tanks?
With regulatory approvals? Probably years.
The smart equivalent is to get a tanker ship and just float it out at sea until someone wants the oil (usually just west of Africa, where you can easily dispatch it to whoever ends up needing it.) Not sure if it works quite as well with WTI instead of Brent crude, though.
Re: US oil prices turn negative as demand dries up
#15So they start off the article with this statement: "That means oil producers are paying buyers to take the commodity off their hands over fears that storage capacity could run out in May." This statement is actually totally false. Producers already got paid for this production a long time ago when they initially sold the futures contract. What has actually happened is that as the expiry of the May futures contracts a…
> cost of storing that oil is getting really high If anything, this is a wild understatement. Each contract represents 1000 barrels of toxic waste. You can't just have that stored in a shed or something. And all the commercial regulation compliant storage is gone. I'd be willing to bet you will have a hard time even finding a tanker truck to take it to a buyer, since the tanker owners themselves are going to be using…
Forgive me if this is a stupid question but they can’t hold a gun to your head to force you to take the oil, right? Can’t you just refuse the delivery if you have nowhere to store it? Is there language in the contract for this kind of situation?
Re: US oil prices turn negative as demand dries up
#16So they start off the article with this statement: "That means oil producers are paying buyers to take the commodity off their hands over fears that storage capacity could run out in May." This statement is actually totally false. Producers already got paid for this production a long time ago when they initially sold the futures contract. What has actually happened is that as the expiry of the May futures contracts a…
But does this mean that the contract holder is paying someone to take their oil in the future? It feels significant that someone in the chain from producer to consumer is now paying to have someone take their product.
Re: US oil prices turn negative as demand dries up
#17Earlier quoted context omitted.
> cost of storing that oil is getting really high If anything, this is a wild understatement. Each contract represents 1000 barrels of toxic waste. You can't just have that stored in a shed or something. And all the commercial regulation compliant storage is gone. I'd be willing to bet you will have a hard time even finding a tanker truck to take it to a buyer, since the tanker owners themselves are going to be using…
Forgive me if this is a stupid question but they can’t hold a gun to your head to force you to take the oil, right? Can’t you just refuse the delivery if you have nowhere to store it? Is there language in the contract for this kind of situation?
That's not a stupid question it's an excellent one. If you don't take delivery you're in breach of contract. The penalties for that are going to depend on how the judicial process works out.
This has never happened before, so I don't know how it will play out other than that it's going to be wildly messy. Probably far messier than anyone, myself included, is imagining.
Re: US oil prices turn negative as demand dries up
#18anybody know how many barrels were actually sold at that price? $0 is one thing, but I'm shocked at the minus $38. It could not have been large.
“oil firms have resorted to renting tankers to store the surplus supply and that has forced the price of US oil into negative territory”
How long until we run out of tankers?
Re: US oil prices turn negative as demand dries up
#19Since oil is making the front page here, if you're interested in the history of American oil industry, "The History of the Standard Oil Company" by Ida Tarbell is a fantastic read. It's also a great example of investigative journalism.
In early chapters of the book she covers the initial rush to pump oil in the Oil Regions and the history of pipelines and storage facilities as it all ties into business practices of Rockefeller.
Oil storage facilities were an interesting startup idea back then, in the beginning producers would pump the oil into open pits where it would seep back into the ground if it wasn't transferred fast enough, then of course new ways of storing and transporting the oil were experimented with. It also goes into how much supply/demand were at odds in the beginning leading to several collapses in the price of oil when there wasn't such a diverse market. Again some of the issues we still see where land locked areas of producers struggled to get their product out of the region and how local economies caused drastic prices differences that we're seeing right now.
https://en.wikipedia.org/wiki/The_History_of_the_Standard_Oi...
Re: US oil prices turn negative as demand dries up
#20Earlier quoted context omitted.
> cost of storing that oil is getting really high If anything, this is a wild understatement. Each contract represents 1000 barrels of toxic waste. You can't just have that stored in a shed or something. And all the commercial regulation compliant storage is gone. I'd be willing to bet you will have a hard time even finding a tanker truck to take it to a buyer, since the tanker owners themselves are going to be using…
Forgive me if this is a stupid question but they can’t hold a gun to your head to force you to take the oil, right? Can’t you just refuse the delivery if you have nowhere to store it? Is there language in the contract for this kind of situation?
This sort of refusal would likely has contractual penalties associated with it. Drillers and pipeline operators can't just shut down infrastructure by flipping a switch like it's nothing; it costs real money to perform shutdown procedures or restart pipeline pumps.