The idea of supertankers storing 100 million barrels of oil at sea is an environmental catastrophe waiting to happen, especially if the boat is old, as is sometimes the case.
https://www.reuters.com/article/us-asia-oil-storage/in-lates...
The global oil market is broken, drowning in crude nobody needs
171–180 of 303 posts
Re: The global oil market is broken, drowning in crude nobody needs
#172Earlier quoted context omitted.
That depends on what you define as a market that isn't broken. In a perfect free market the oil producers make zero profits and this is a move towards fixing the market
In a perfect free market for a commodity price is the marginal cost: in other words if there is demand for N barrels of oil per day at the market price, that market price is the cost of production for the Nth most cheapest production cost. Anybody whose cost of production is cheaper makes money. For a long time that marginal cost was Canadian oil sands oil, which cost about $40 a bbl to extract and $10 to ship. The S…
Most definitions of perfect free markets include some element of perfect competition. The math essentially assumes there are an infinite number of saudis producing at $10 a barrel that compete with eachother down to marginal cost. Obviously these aren't realistic assumptions and pretty much everyone has some form of monopoly power, such as the saudis in your case which have monopoly power coming from lower cost of goods.
Re: The global oil market is broken, drowning in crude nobody needs
#173Earlier quoted context omitted.
" In a perfect free market the oil producers make zero profits" Where does this conclusion come from?
From...economics? Profit is market inefficiency, whether due to missing information or inadequate competition. Perfect efficiency drives prices down to the marginal cost of a good or service. Micro 101 stuff.
Wouldn't you expect the rate of return to approach the risk free interest rate, rather than profit being zero?
Re: The global oil market is broken, drowning in crude nobody needs
#174The 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.
This does indicate market inefficiencies, but such tactics -- flooding the market with cheap products to kill competition, then raising prices back -- is pretty common. I have seen it everywhere from cell phone marketing to grocery stores. I have personally seen, twice, Stop and Shop moving in, dropping prices, driving a less-well-funded competitor out, then going back to business as usual. I do not see that the curr…
This is exactly why "fair trade" products like coffee and chocolate exist. There is an agreement to have an absolute minimum purchase price to prevent a big corporation from clobbering the competition by taking a loss, then jacking up the price.
See also: rideshare. VC pumps in billions so that Lyft & Uber can be cheaper than taxis at a HUGE loss -> taxis go out of business -> Lyft & Uber jack up their prices because they own the market.
Re: The global oil market is broken, drowning in crude nobody needs
#175Earlier quoted context omitted.
That depends on what you define as a market that isn't broken. In a perfect free market the oil producers make zero profits and this is a move towards fixing the market
" In a perfect free market the oil producers make zero profits" Where does this conclusion come from?
Basic economics. The problem with basic economics is that all models are wrong and there are not in fact infinitely many perfectly fungible producers of identical commodities in perfect competition with eachother, but under perfect competition, nobody makes economic profits.
Re: The global oil market is broken, drowning in crude nobody needs
#176There are approximately 7500 crude tankers on planet earth. I bought and sold tanker stocks based on the following: IMO 2020 regulatory retrofits. Coronavirus Saudi Russian Oil Price War Shipyard Shutdowns My next bet is going to be based on the drawdown in US Oil operations. I'm gambling on $FCG based on the notion that the price of natural gas will go up a bit because the associated gas from oil wells is no longer…
Same. What tankers do you own? I’m looking at STNG.
Re: The global oil market is broken, drowning in crude nobody needs
#177Earlier quoted context omitted.
From...economics? Profit is market inefficiency, whether due to missing information or inadequate competition. Perfect efficiency drives prices down to the marginal cost of a good or service. Micro 101 stuff.
Wouldn't you expect the rate of return to approach the risk free interest rate, rather than profit being zero?
Zero profits in economic models are usually in the context of economic profits, not accounting profits. So yeah, kind of (though there's risk adjustment needed, but when you start bringing in real world stuff like that your econ 101 supply curve/demand curve abstraction really starts breaking down, there are far more sophisticated economic tools for that). Perfect competition doesn't also really exist so we're just being guided by the math.
Re: The global oil market is broken, drowning in crude nobody needs
#178Serious 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.
If you have to ask how to do this on HN, you're too late. Pricing has already been set by Black-Scholes, and unless you have a seat on the CBOE you're better off going to Vegas.
Re: The global oil market is broken, drowning in crude nobody needs
#179Earlier quoted context omitted.
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…
"However shale oil requires constant drilling because production rises then falls very quickly" You seem to interpret this as a problem. However, I've read many times that it's basically a solution , because what it means is that production is responsive to demand in a far shorter timeframe than conventional oil. On top of that, supposedly you can drill a well and not complete it until a price war is over. So I'm not…
Also, the environmental impact is largely missing from this thread. In states that have lax environmental laws and oilmen at the helm, towns are being destroyed by extraction side-effects. To the extent that these states are OK being polluted will indicate how far this drilling will proceed.
Re: The global oil market is broken, drowning in crude nobody needs
#180Earlier quoted context omitted.
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.
> Before that you are going to need every drop of that oil.
No, you’re not. You want to fundamentally damage oil production economics to make oil as expensive as possible, to speed the uptake of EVs.
Cheap oil slows down the electrification of transportation. We don’t want cheap oil. We want this price war to cause a spike in oil prices causing pain to oil consumers.