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

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

#141

Post by bilbo0s »

mordymoop wrote: post #103
hackeraccount wrote: post #92

Earlier quoted context omitted.

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…

This guy understands the energy business where oil is concerned.

I'd only add that the above is also the reason that the Saudi gambit to put competitors out of business is highly unlikely to work. These competitors will just sit it out until favorable environments come back around. I'm not sure what the Saudis aim to achieve? But to achieve what people are speculating that they want to achieve, they need to have something else up their sleeves. Because a temporary low price barrage alone is not gonna do it.

Maybe they are thinking about low prices forever? Not really sure. But they must have some kind of additional plans since they should definitely know everything everyone else in the industry knows.

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

#142

Post by mardifoufs »

Synaesthesia wrote: post #24

Keeping oil prices low punishes not only Russia but Iran and Venezuela, so that could be a major reason why the Saudis are flooding the market.

Saudi arabia still need a barrel price of 80$ to keep their budget balanced. They have also mostly eaten through their reserves and are economically 100% oil dependant. Yeah it costs them only 2-3$ to get the oil from the ground but Saudi Arabia is basically just a huge welfare state and a kleptocracy for it's ridiculous number of princes and royal family members.

Russia has more flexibility imo and can cope a lot better with low oil prices, but Iran will probably see an even bigger economic collapse since they were already selling at a steep discount to offset trade sanctions.

Venezuela was also selling at really low prices and couldn't even afford to keep It's oil infrastructure from collapsing at 50$/barrel so I have no idea how they will avoid total economic destruction soon. Maduro won't be able to pay off the army for long now

So they are all going to be badly hurt, I don't see how saudi arabia can afford prices these low for long. They can't do like they did in the past and just drive everyone else from the market by crashing prices at will.

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

#143

Post by Robotbeat »

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 want to agree with you, but I don’t think people have yet realized the depth of the depression we’ll be in even when the peak has passed.

We’re going to need to bounce back as much as we can, which means increased oil consumption.

It might mean coal gets knocked back, however!

Just saw a coal train going to the coal export terminal by my house that looked mostly empty.

Already, coal is down to just 22% of US electricity as of the end of January. It’s possible it could fall below nuclear power by the end of the year.

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

#144

Post by dpflan »

mordymoop wrote: post #103
hackeraccount wrote: post #92

Earlier quoted context omitted.

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…

Thanks for the biological analogy. Do you have other biological metaphors for other industries (or know of source(s))?

Related: Biologically Inspired Design:

> Center for Biologically Inspired Design at Georgia Tech: http://www.cbid.gatech.edu/

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

#145

Post by jacobush »

wyxuan wrote: post #126
gpm wrote: post #75

Earlier quoted context omitted.

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…

It's called super contango. If you can find a way to store the oil, the market is rewarding you with this arbitrage, but it's getting difficult to find this much storage

Hm, Sweden used to have huge strategic reserves, somewhere. Wonder if most if those are all destroyed or just empty.

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

#146

Post by imtringued »

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…

>That the idea of "put them out of business and then double the price" won't really work in a practical manner.

Well, then you haven't paid any attention because that isn't the strategy. The strategy is to force them to become members of the cartel or you risk taking losses every decade. Those losses aren't high enough to drive out competition but they are high enough to make cooperation appealing.

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

#147

Post by eyegor »

JBReefer wrote: post #135
eyegor wrote: post #116

Earlier quoted context omitted.

I believe it's more to bankrupt Alberta's oil sands. US shale is barely a competitor on a global scale.

The US is the worlds largest oil producer

Sure but that statistic is always measured as oil + natural gas + additives + other hydrocarbons. If you can find a source for crude oil extraction, not production, the US would almost certainly not be #1.

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

#148

Post by imtringued »

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?

It's only a win after the switch to EVs. Before that you are going to need every drop of that oil.

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

#149

Post by lstodd »

krapp wrote: post #140
lstodd wrote: post #132

Earlier quoted context omitted.

No, it's a mistake - oil most certainly does not have anything like a fixed supply that is going to run out. The supply grows alongside with the price people are willing to pay for it. As you yourself pointed out. Nowadays the demand falls, the prices fall, this would be followed by a fall in production. But whatever happens oil will be available at an affordable price because world just doesn't work without it. If o…

Obviously oil has a fixed supply... there is by definition only a finite amount of it, given that we live on a spheroid with a finite volume out of which to extract it. Supply doesn't grow with demand, as that would imply new oil is somehow being created with demand and that, given infinite demand, there would also be infinite supply. What does grow with demand is technological innovation and effort, and while we wer…

Tech, innovation - they are just the other words for "infinite supply".

Yes, it is not physically infinite. But it is effectively.

As long as someone is willing to pay for it, it will be provided. And even cheaply - look, what's 1970's $12/barrel in nowadays dollars? $50? $100?

We are so nowhere near running out of oil, that the whole possibility is best ignored.

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

#150

Post by Causality1 »

zozbot234 wrote: post #120
axus wrote: post #46

The market is broken because demand is way down, but production isn't being lowered to match. Saudi Arabia intends to keep their production high. The other producers are losing money but haven't reduced output, because changing output levels is more expensive than taking the loss.

> The market is broken because demand is way down, but production isn't being lowered to match. Given these prices, shale oil and tar sands production is going to shut down at some point. This is good news in a way, because these are among the dirtiest sources of oil in terms of environmental impact. Saudi Arabia extracts "light" oil and it's a frickin' desert, so the environmental impact of that extraction is quite…

Not to mention the strategic advantages of leaving oil in the ground in your own territory. It'll still be there when the middle east runs dry.
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