The global oil market is broken, drowning in crude nobody needs • Hacker News Board

Re: The global oil market is broken, drowning in crude nobody needs

#101

Post by Arnt » Sun, Mar 29, 2020, 2:26 PM UTC

throwaway_pdp09 wrote: post #73

Arnt wrote: post #44

Earlier quoted context omitted.

The $10 barrels are for delivery now, not next year. If you can store the oil you can earn a lot of money now. But most people can't store much oil, compared to the volumes that are being pumped out of the ground. And for many of the producers, slowing down production by more than a few per cent is also difficult — once you turn off the tap you don't really know whether the oil is going to start flowing again later.…

> 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'.

No, it's a matter of the complicated and only partly known geology underground. See other answer.

Another way of looking at it is: You've drilled holes to make the oil flow. There are kilometers of rock on top of the oil layer, pushing down, pushing the oil towards the holes you've drilled. You can close the end of the hole, but you can't make that weight go away. The system is going to find a new equilibrium. The new equilibrium is not one you've tried to optimise for maximum total oil production.

Re: The global oil market is broken, drowning in crude nobody needs

#102

Post by syshum » Sun, Mar 29, 2020, 2:27 PM UTC

specialbat wrote: post #91

mrfusion wrote: post #89

Earlier quoted context omitted.

I hate to disagree but the free market is often a great guide to tell us how much we need of something. The USSR tried telling industries how much to produce each year and we can agree that didn’t turn out well. Of course oil is a problem but a tax or cap and trade system would make more sense to address it.

You can't have a free market when there is a monopolistic producer

Who would that be?

Re: The global oil market is broken, drowning in crude nobody needs

#103

Post by mordymoop » Sun, Mar 29, 2020, 2:27 PM UTC

hackeraccount wrote: post #92

gonehome wrote: post #55

Earlier quoted context omitted.

I think I read they were doing this in part to hurt Russian producers who would not cooperate with OPEC (KSA wanted to reduce production in a coordinated way). As a side effect this hurts American producers too and could drive them out of business. Which would be bad for energy independence and in the end give more price control back to OPEC.

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…

“ 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 with the expertise to drill and complete money-making wells.

The oil industry is like one of those organisms that evolved to thrive in an intertidal zone, or in a region with random lengthy droughts. The industry knows how to shed or calcify all the parts of itself it doesn’t need in lean times and then rapidly redeploy those parts as soon as the environment changes, because this sort of thing happens over and over and over. Sometimes the thing the industry doesn’t need it and therefor sheds is “workers” and that’s a shame, but so it goes.

Re: The global oil market is broken, drowning in crude nobody needs

#104

Post by syshum » Sun, Mar 29, 2020, 2:29 PM UTC

CydeWeys wrote: post #81

bpsh wrote: post #79

Earlier quoted context omitted.

Unfortunately the goal is to drive out US Shale ...

So fracking stops in the US. Win-win-win?

Only if you have a 5th grade understanding of Geo-Politics, and Macro-Economics do you believe that is a Win-Win.

US Production of Oil and Nat Gas provides for the opportunity to the US to be less dependent on Mid East oil, which is WONDERFUL for Global Peace.

Also because the value of the Dollar is tied to Oil being traded in Dollars, reliance on Mid East oil puts the US in a HUGE economic Liability.

So sure from a pure climate standpoint it has some benefits but in EVERY other way shuttering US Production of Nat gas and Oil is TERRIBLE

Re: The global oil market is broken, drowning in crude nobody needs

#105

Post by lioeters » Sun, Mar 29, 2020, 2:29 PM UTC

wazoox wrote: post #40

gregorymichael wrote: post #9

What happened to "Peak Oil"? Was there some assumption in those projections that proved to be wrong?

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…

For reference: World Energy Outlook 2018 https://www.iea.org/reports/world-energy-outlook-2018

Re: The global oil market is broken, drowning in crude nobody needs

#106

Post by sanid » Sun, Mar 29, 2020, 2:31 PM UTC

praptak wrote: post #88

jsjddbbwj wrote: post #78

Earlier quoted context omitted.

Yes, citizens of those countries becoming poorer because you disagree with the politics of their leaders is good news.

That money didn't go to the citizens anyway.

Not as a check. Because of the continuous stream of oil money in KSA, it has been possible to grant subsidies on goods or handouts to people. Even not collecting any VAT on good or if so a rather low VAT. When you are losing a lot of your income as a state, you can't really keep that standard up.

I suggest reading this, it's an older article, but the circumstances are the same: https://www.businessinsider.com/saudi-arabian-social-contrac...

Re: The global oil market is broken, drowning in crude nobody needs

#107

Post by RandomBacon » Sun, Mar 29, 2020, 2:33 PM UTC

gpm wrote: post #75

9nGQluzmnq3M wrote: post #15

Serious question: how do I invest in some of those $10 barrels of oil? It seems like a contract to deliver oil at $10 in 2021 is likely to be worth more than by next year.

A contract to deliver oil in 2021 is known as a future [0], you can trade these on the market. The "problem" facing you is that the market also understands that the price of oil is going to go up, a barrel of WTI Light Sweet Crude Oil is $21.84 for delivery this May, but $35.53 for delivery next may [1]. [0] https://en.wikipedia.org/wiki/Futures_contract [1] https://www.cmegroup.com/trading/energy/crude-oil/light-swe…

Just be sure not to let the future contract expire before selling it, otherwise you might end up with a barge full of coal being delivered to your investment firm:

https://thedailywtf.com/articles/Special-Delivery

Re: The global oil market is broken, drowning in crude nobody needs

#108

Post by standardUser » Sun, Mar 29, 2020, 2:34 PM UTC

mrfusion wrote: post #89

fulafel wrote: post #23

Markets are broken when oil usage develops towards sustainable levels? We have to drastically cut down oil use, let's not pretend that the pre-corona oil consumption was tolerable, much less desireable. Now would be a good opportunity make internaltional agreements to cap oil consumption and extraction to its current level in shutdown, and when the shutdown starts to get rolled back, the shock will be smaller as risi…

I hate to disagree but the free market is often a great guide to tell us how much we need of something. The USSR tried telling industries how much to produce each year and we can agree that didn’t turn out well. Of course oil is a problem but a tax or cap and trade system would make more sense to address it.

Oil doesn't operate in a free market, not even a "mixed economy"-style regulated market. The majority of oil production is managed by a cartel.

Re: The global oil market is broken, drowning in crude nobody needs

#109

Post by wyxuan » Sun, Mar 29, 2020, 2:35 PM UTC

tech-historian wrote: post #96

I love the different names for various types of oil: sweet, sour, light, etc. As if it was edible. Description of the names: https://en.m.wikipedia.org/wiki/Sweet_crude_oil https://www.thebalance.com/the-basics-of-crude-oil-classific...

I mean in the old days, they did try to distinguish then by tasting them

Re: The global oil market is broken, drowning in crude nobody needs

#110

Post by chii » Sun, Mar 29, 2020, 2:35 PM UTC

avvt4avaw wrote: post #3

aantix wrote: post #2

The demand will rise again once this virus is done with.

Remember that the initial fall in oil price was a supply shock (Saudi Arabia upping production) that was only exacerbated by lack of demand. If demand comes back it won’t push oil back into the 50s/60s.

But what's the saudis' end game? Are they really gonna try to starve out russia, and cause them to capitulate? Game of chicken till one country bankrupts?

The saudis are losing money doing this (they have to eat into their reserves to fund the country). Russia at least has other industries, however small it may be.