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

#231

Post by vikramkr » Sun, Mar 29, 2020, 6:19 PM UTC

hutzlibu wrote: post #225

vikramkr wrote: post #215

Earlier quoted context omitted.

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

"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. " But this is not reality. I doubt doing abstractions like these are helpful in understanding anything, when the base is so far off.

Yes nobody is denying that these arent reality. They're models, and you get far more sophisticated models after econ 101

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

#232

Post by Mathnerd314 » Sun, Mar 29, 2020, 6:22 PM UTC

kortilla wrote: post #209

0xff00ffee wrote: post #174

Earlier quoted context omitted.

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…

That’s called a cartel. See OPEC. If that’s all “fair trade” is, that’s an impressive marketing tactic.

It's also called product differentiation. Oil is a commodity, but there are grades of oil and the amount of sulfur varies, so there is "sour" oil, "light" oil, etc. similar to "fair trade" chocolate.

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

#233

Post by wallacoloo » Sun, Mar 29, 2020, 6:24 PM UTC

csours wrote: post #134

It's easy to say "we live in a Just-In-Time Economy", but it's things like this that really demonstrate the implications. The supply chain is set up to flow, so when demand drops or spikes up you get a flood or a shortage. If there's a flood, some companies will go out of business, leaving the survivors with a bigger slice of the pie. If there's a shortage, companies will respond, and some will over-react and build o…

If there’s a shortage, new players might enter to fill that gap though. It doesn’t have to lead to concentration in that direction.

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

#234

Post by elamje » Sun, Mar 29, 2020, 6:25 PM UTC

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…

I think most people forget that the American oil industry is one of the largest in the world, i.e. it employs a ton of middle and upper class labor. For that reason, it makes this a political issue. For instance, just one aspect of oil that is huge in the US is Shale production, which is not profitable at the current WTI price per barrel. What does that mean? Well, hundreds of thousands of people, or more likely millions, would permanently lose their jobs in the US, which is why this is politically untenable.

I think it would be incredible for the US do push towards renewables and cut oil consumption, but sometimes you have to accept the world as it is, and not how you want it to be.

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

#235

Post by outside1234 » Sun, Mar 29, 2020, 6:33 PM UTC

elamje wrote: post #234

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…

I think most people forget that the American oil industry is one of the largest in the world, i.e. it employs a ton of middle and upper class labor. For that reason, it makes this a political issue. For instance, just one aspect of oil that is huge in the US is Shale production, which is not profitable at the current WTI price per barrel. What does that mean? Well, hundreds of thousands of people, or more likely mill…

Oil jobs are not the only things these people can do. There is an argument to be made that renewables, like solar, actually would increase employment - especially of middle class labor.

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

#236

Post by _8j50 » Sun, Mar 29, 2020, 6:34 PM UTC

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 disagree, the pre-corona energy usage was desirable since it was a result of healthy economic activiy. What is not desirable is how most of it was fossil fuel. To replace fossil, you need renewables to be cheaper or to compete with oil, this means oil should be used more but produces less so it costs more than renewables(which was the pre-corona trend).

My opinion is, the focus should be on switching consumption to renewables one large milestone at a time. For example, diesel would be produced less and used more enough for a renewable alternative engine and fuel supply chain for cruise ships to make economic sense, then within a few years all cruise ships will be on renewable. Fossil fuel is not the enemy, fossio fuel dependency is.

You can make similar economic arguments for more public electric transport for example (what people pay in tax is miniscule to what they pay for gas every year).

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

#237

Post by natch » Sun, Mar 29, 2020, 6:36 PM UTC

elamje wrote: post #234

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…

I think most people forget that the American oil industry is one of the largest in the world, i.e. it employs a ton of middle and upper class labor. For that reason, it makes this a political issue. For instance, just one aspect of oil that is huge in the US is Shale production, which is not profitable at the current WTI price per barrel. What does that mean? Well, hundreds of thousands of people, or more likely mill…

I suspect battery storage will over time start to undercut shale production after prices rise again. So I'm thinking maybe shale is dead anyway. Good thing, since it is so dirty. Open to opposing points of view, though.. I don't know that much about this so would be glad to be educated.

Also just want to borrow your phrasing to say I think it would be incredible for all those shale oil folks to keep pulling in those paychecks, but sometimes you have to accept the world as it is, and not how you want it to be.

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

#238

Post by chasd00 » Sun, Mar 29, 2020, 6:37 PM UTC

lstodd wrote: post #138

chii wrote: post #110

Earlier quoted context omitted.

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.

Russia has just lost about 20-30% yearly income in these first months just from the oil price war. Saudis cannot care less because they have about three times of Russia reserves nominally. In fact I suspect about five to seven times that, because Russia reserve structure is basically unknown. Saudis can certainly afford a year or three of having no income. This is on top of the virus panic (which just cut any remaini…

I hope this doesn't mean war. I have a feeling Russia will take out capacity by force if it becomes an existential threat.

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

#239

Post by clairity » Sun, Mar 29, 2020, 6:37 PM UTC

vikramkr wrote: post #198

thaumasiotes wrote: post #195

Earlier quoted context omitted.

> 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. That's not what "monopoly" means. Monopoly power isn't just a fancier word for market power. Monopoly power is power derived from the fact that nobody else is selling what you're selling. Note that in this example, the Saudi…

Pricing power is a better word that monopoly power in this case then, should have been more precise in wording. They arent price takers is the point. They have price making power and a downward sloping demand curve until 50 bucks a barrel

no, economists and policymakers agree with your usage of monopoly power. monopolies aren't simply a function of number of market participants. semantic digressions like these are non-sequiturs and should be ignored.

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

#240

Post by redisman » Sun, Mar 29, 2020, 6:37 PM UTC

_8j50 wrote: post #236

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 disagree, the pre-corona energy usage was desirable since it was a result of healthy economic activiy. What is not desirable is how most of it was fossil fuel. To replace fossil, you need renewables to be cheaper or to compete with oil, this means oil should be used more but produces less so it costs more than renewables(which was the pre-corona trend). My opinion is, the focus should be on switching consumption to…

That' not what OP said. "oil consumption" not "energy consumption". But yes pretty much anyone with half a brain and no vested interested in fossil fuels agrees that fossil fuels need to be ran down ASAP and replaced with renewables. I'd imagine with optimized solar and next generation nuclear we could get a lot closer to "unrestricted" energy.