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Oil's Collapse Is a Geopolitical Reset in Disguise

bloomberg.com

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Re: Oil's Collapse Is a Geopolitical Reset in Disguise

#61

Post by xiphias2 »

csours wrote: post #32
xiphias2 wrote: post #12

Earlier quoted context omitted.

Isn't another solution to just let the oil go into the ground, and stop worrying about destroying earth? I can imagine Trump getting rid of all environmental regulations. How likely is that? (I'm on the environmental regulations side of course, but I'm quite worried that this will be the logical next step).

Sure but how will that make money for the well operator? I understand what you're saying, but what actual legal/political/economic framework are we talking about?

Right now the operators have to pay for the storage as far as I know. The game is not about making money, but at least not losing. That's why I'm afraid that some people would rather make an environmental disaster than to pay for a company to store the oil. But of course I don't know anything about the oil industry.

Re: Oil's Collapse Is a Geopolitical Reset in Disguise

#62

Post by lostlogin »

mbreese wrote: post #10
irjustin wrote: post #3

I really appreciate this piece as there's a lot of the world of oil I don't understand. One thing I don't understand is, why is it favorable for OPEC not to cut supply? Is it they want to crush all non OPEC based producers? Or are their buyers forced to buy at a particular price so they don't care if they keep producing?

ArsTechnica / Wired has a good article out about just that question. One reason that isn’t economic (and there are many economic factors a play here too) is that if you stop pumping oil, you can potentially damage the well. This would make it more difficult to reopen the well in the future when the prices improve. This also tends to affect smaller producers with fewer wells and thus more risk of one of them is damage…

The was posted yesterday and the comments there are good. The top comment is from deblacquiere, someone who seems to understand the industry and disagrees with the article and it’s conclusions. Most the comment section is quite informative.

https://news.ycombinator.com/item?id=23041286

Re: Oil's Collapse Is a Geopolitical Reset in Disguise

#63

Post by rckoepke »

alextheparrot wrote: post #57

What happened to Iran between 2018 and 2019? The author links to data [1], which states that Iran needs $319 / barrel oil to balance its budget. Between 2018 and 2019, this number jumped from $67 (In line with the rest of the region) to $244. I feel like this statistic was trotted out and means something different from what I'd casually read it as. Iranian exports fell significantly between 2018 and 2019 [2], it seem…

There are definitely some ideas worth talking about here. But at the end of the day, Iran will be facing a foreign-reserve crisis in three years if it can't find ways to balance the national budget. It probably has 3 years at current rates to improve the situation before it faces difficulty importing goods essential to its economy and welfare.

Re: Oil's Collapse Is a Geopolitical Reset in Disguise

#64

Post by alextheparrot »

xiaolingxiao wrote: post #13

I found this part really interesting: "For dozens of oil producers, the plunge in oil prices is devastating. No major oil producer can balance its budget at prices below $40; according to the International Monetary Fund, with the exception of Qatar, every country in the Middle East requires at least $60, with Algeria at $157 and Iran at a whopping $390. The average Brent price of oil over the past month has been a ha…

I had a similar question about this quote, so I did a bit of research and wrote a separate comment [1].

Most of the change in Iran seems to be as a result of US sanctions significantly cutting the amount of product exported. They were in the $60-70 a barrel range prior to these sanctions, like most of the Middle East. I actually think this piece is awful, as it leads us to believe things like "Iran doesn't have the expertise" or "Iran has harder to access supplies". In reality, Iran just needs to export oil in a world without restrictive sanctions to reach parity with the rest of the region.

[1] https://news.ycombinator.com/item?id=23056651

Re: Oil's Collapse Is a Geopolitical Reset in Disguise

#65

Post by alextheparrot »

bsanr2 wrote: post #44
rckoepke wrote: post #25

Earlier quoted context omitted.

Iran's oil is not expensive to extract. These aren't marginal break-even prices on each barrel of oil...rather they're how much their current oil production would have to be sold for in order to balance their national budget, which includes defense and healthcare and whatnot. 79% of Iran's exports are unrefined crude oil: https://commons.wikimedia.org/wiki/File:Islamic_Republic_of_... (edited to 2017) Countries typic…

But is their ability to produce or sell refined vs unrefined oil effected by the sanctions? Maybe not directly; maybe in how they're able to access funding for infrastructure, for example?

Iran had a 69% decrease in oil exports (In terms of barrels exported) between 2018 and 2019, as a result of US sanctions [1]. I don't think refined vs unrefined is the biggest issue, given that a reduction in quantity would be hard to recover in terms of quality.

[1] https://fred.stlouisfed.org/series/IRNNXGOCMBD

Re: Oil's Collapse Is a Geopolitical Reset in Disguise

#66

Post by ethbro »

djsumdog wrote: post #47
pmoriarty wrote: post #41

It's times like these that I really wonder where all the oil peak guys are who you used to see crawl out of the woodwork whenever anyone talked about oil. Now they're suddenly quiet. They used to predict doom and gloom due to an oil shortage, but what we got instead was doom and gloom and an oil glut. Where are they now?

Hubbert peak oil theory seems to not really hold water in retrospect. People try to say the peak is just delayed as we're finding more oil reserves or because there's been a big switch to renewables. I think his models assumed a very different metrics for oil supply and distribution that don't seem to apply today. This podcast from a few years back goes into a lot of it: https://youtu.be/0wlNey9t7hQ

Not an expert, but the doomsday peak scenario seemed predicated on no fundamentally different oil sources becoming available (e.g. shale).

As it played out, fracking technology matured, and a lot of additional supply was "added" once the price crossed a threshold.

Re: Oil's Collapse Is a Geopolitical Reset in Disguise

#67

Post by nradov »

arthurcolle wrote: post #42
duxup wrote: post #16

Earlier quoted context omitted.

I think that is possible but.... what is the end game? The oil is still there, they ability to extract it exists... so company A goes out of business, but once the countries tire of shooting themselves in the foot and prices rise, Company B will just extract it. At best they spite company A, but didn't change much.... maybe they make a few bucks while company B ramps up. And that all assumes other nations play along.…

Economic warfare - end game is causing economic harm to the US and its interests. If everyone loses their jobs in the energy industry in the US, that forces the US to buy oil from foreign entities. The US energy industry cannot exist beyond 3-6 months with sub 20 dollar oil prices.

The US oil industry has always been boom and bust. Occasionally everyone loses their job, but then everything comes back a few years later.

Re: Oil's Collapse Is a Geopolitical Reset in Disguise

#68

Post by nradov »

s1artibartfast wrote: post #54
chasd00 wrote: post #15

Earlier quoted context omitted.

that's true but the oil is still there and the extraction tech perfected. Maybe the existing players go bankrupt today but when prices come back up someone else will get a loan and turn the wells right back on. Fracking and the other technological breakthroughs have put a price ceiling on oil below which OPEC can afford.

I think it is more challenging than you expect. This tactic has likely skuttled or delayed any development projects in the works. Future investors will be more cautious if they think the market can drop out at any time

But that's nothing new. Oil prices totally collapsed in 1998 and then rebounded several years later. Investors are aware of that possibility and plan around it.

Re: Oil's Collapse Is a Geopolitical Reset in Disguise

#69

Post by 1MachineElf »

0xddd wrote: post #35
swimfar wrote: post #26

Earlier quoted context omitted.

I agree, but at the same time, it could also introduce a bias and prejudice into your perception of the article. This would be especially true if you already had strong feelings and opinions about the author. Maybe the ideal way would be to read it without any knowledge of the author. And then go back and reread it after knowing who wrote it.

And what better way to find out who wrote it than to scan the comments after reading the article? In all seriousness, I don't see how wilful ignorance on the first-read through is some ideal analytic strategy.

Not knowing who the author is is actually a component of an ideal analytic strategy.

Same principle behind why double-blind tests have high efficacy.

Re: Oil's Collapse Is a Geopolitical Reset in Disguise

#70

Post by selectodude »

ashtonkem wrote: post #60
redis_mlc wrote: post #34

Earlier quoted context omitted.

All oil and gas exporters become dependant on that revenue. It's human nature to spend it all.

Norway stands as an obvious counter example; they’ve invested a huge amount of their oil money into a sovereign fund, and have a fairly robust economy too.

Sure, but Norway is really the exception to the rule. Dutch disease is pretty much universal.
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