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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

#211

Post by hutzlibu »

beefield wrote: post #205
hutzlibu wrote: post #156

Earlier quoted context omitted.

" In a perfect free market the oil producers make zero profits" Where does this conclusion come from?

Don't quote me, it is ages since I had my economics book open last time, but if I recall correctly, there is a confusing terminology here. Zero profit means in the context of economice profits that exceed risk adjusted return . That is, even in a perfect market, in the models you are allowed to pay a decent return to your capital, but not more. These extra profits are called almost as confusingly "rents" in economics…

Your answer and the others reinforce why I allways avoided everything with economics in university. The definitions and models are (mostly) just weird.

I would intuitively define a free market, as a (virtual) place, where people can trade freely (goods or labour) without restrictions. And they profit, if they are better off with the trade, than without. The more free the market, the less restrictions.

Why so complicated?

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

#212

Post by kortilla »

eyegor wrote: post #147
JBReefer wrote: post #135

Earlier quoted context omitted.

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.

I think you missed a decade or so of development in the US energy industry.

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

#213

Post by AnthonyMouse »

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…

> Now would be a good opportunity make internaltional agreements to cap oil consumption and extraction to its current level in shutdown

Really what they should do right now is take the opportunity to put in place a carbon tax. That would raise current prices back to previous prices, but it would also suppress demand even after the pandemic passes, so that the wholesale price stays low. You'd essentially have the tax getting paid by Russia and Saudi Arabia because demand would never return to a level that would absorb the supply glut.

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

#214

Post by kyboren »

Causality1 wrote: post #150
zozbot234 wrote: post #120

Earlier quoted context omitted.

> 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.

I think the strategic advantage is to drill, baby, drill, and profit from those natural resources as much as possible while we're still in the Oil Age. If the Middle East runs dry it will be a strategic victory for all those countries and a loss for the other countries where high production costs kept the remaining oil in the ground, just sitting there never having generated a penny in profits, with renewables and electrification of transportation an even more imminent threat to the oil market.

Beaver fur doesn't have much economic relevance today--indeed, even the Hudson's Bay Company ceased fur trading decades ago--but the United States and what is now Canada are much better off having exploited that resource for profit while they could.

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

#215

Post by vikramkr »

hutzlibu wrote: post #211
beefield wrote: post #205

Earlier quoted context omitted.

Don't quote me, it is ages since I had my economics book open last time, but if I recall correctly, there is a confusing terminology here. Zero profit means in the context of economice profits that exceed risk adjusted return . That is, even in a perfect market, in the models you are allowed to pay a decent return to your capital, but not more. These extra profits are called almost as confusingly "rents" in economics…

Your answer and the others reinforce why I allways avoided everything with economics in university. The definitions and models are (mostly) just weird. I would intuitively define a free market, as a (virtual) place, where people can trade freely (goods or labour) without restrictions. And they profit, if they are better off with the trade, than without. The more free the market, the less restrictions. Why so complica…

It's actually too oversimplified to be a great model for most things. Extend your intuition to imagine that you have perfect competition where there are infinitely many identical goods all competing to the lowest price either no differentiation, and people will price at zero profit. To extend that to the real world requires more and more complications like the time value of money etc

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

#216

Post by AnthonyMouse »

0xff00ffee wrote: post #174
ptero wrote: post #77

Earlier quoted context omitted.

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…

> 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.

Did the rideshare companies actually jack up their prices at any point? How would they do that when they're still in competition with each other and the barrier to entry to the market remains low? Any attempt to raise prices would immediately result in more competitors.

That was the whole thing with the taxi medallions. It was a cartel, because that market has very low barriers to entry and the taxi companies didn't want the competition.

Uber didn't make prices artificially low, they just provided competition which stopped them from being artificially high. They're not losing money on rides, they're "losing money" on self-driving car R&D and things like that.

And "fair trade" is a marketing device. People want to feel good about not exploiting people, so companies not exploiting people get to charge a premium for that. That doesn't mean companies who are paying suppliers less don't still exist or offer similar products for lower prices purchased by customers who don't care as much about that.

Neither of these are examples of what you're describing.

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

#217

Post by ogre_codes »

AnthonyMouse wrote: post #213
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…

> Now would be a good opportunity make internaltional agreements to cap oil consumption and extraction to its current level in shutdown Really what they should do right now is take the opportunity to put in place a carbon tax. That would raise current prices back to previous prices, but it would also suppress demand even after the pandemic passes, so that the wholesale price stays low. You'd essentially have the tax…

Right now national politics is so broken and the Republicans are so against any kind of carbon tax it's impossible. Individual states could probably slip in an increase in gas taxes while gas prices are low, but it's unlikely...

Who would want to be the governor seen as increasing taxes at the beginning of economic troubles? In general any kind of tax increase at the moment is going to fall flat.

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

#218

Post by kumarski »

christophilus wrote: post #176
kumarski wrote: post #164

There 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.

$DHT $FRO

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

#219

Post by AnthonyMouse »

ogre_codes wrote: post #217
AnthonyMouse wrote: post #213

Earlier quoted context omitted.

> Now would be a good opportunity make internaltional agreements to cap oil consumption and extraction to its current level in shutdown Really what they should do right now is take the opportunity to put in place a carbon tax. That would raise current prices back to previous prices, but it would also suppress demand even after the pandemic passes, so that the wholesale price stays low. You'd essentially have the tax…

Right now national politics is so broken and the Republicans are so against any kind of carbon tax it's impossible. Individual states could probably slip in an increase in gas taxes while gas prices are low, but it's unlikely... Who would want to be the governor seen as increasing taxes at the beginning of economic troubles? In general any kind of tax increase at the moment is going to fall flat.

One of the best ways to do a carbon tax is to pay the revenues back as a dividend. States aren't allowed to print money, so you could reasonably have a bunch of blue states right now say that they're going to start paying dividends to people to help them out because they have to stay home, and hey let's fund it with a gas tax -- which people don't mind nearly as much right now because they're staying home anyway.

And then if it happens to still exist two years from now, it's already the status quo.

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