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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

#71

Post by bitreality »

johnchristopher wrote: post #57
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…

From what I read (analysts and decision makers) that's not what's going to happen. Money is injected and more will be to salvage industries and make up the loss (by increasing production after the crisis (or before the end)). This will increase pollution and energy demands in the coming months at a higher level than before the crisis. Well, from what I've read. I am a total idiot in these matters.

Government and industry will want demand to ramp back up, but it's doubtful that will be supported by consumers. I don't think you're going to see an instant rush back to international travel.

Same goes for most other industries. This isn't a situation where you just wake up one day and it's over. It's not a war where you just make up and get back to work. This virus is out there, and most experts say even if you were already infected, you will only become temporarily immune (similar to flu).

So until you see a vaccine develop, coronavirus is not going away by any stretch. It will continue to cause problems in the medium term.

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

#72

Post by amelius »

johnchristopher wrote: post #57
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…

From what I read (analysts and decision makers) that's not what's going to happen. Money is injected and more will be to salvage industries and make up the loss (by increasing production after the crisis (or before the end)). This will increase pollution and energy demands in the coming months at a higher level than before the crisis. Well, from what I've read. I am a total idiot in these matters.

These things are often counter intuitive. We should subsidize pollution and at the same time tax it. This allows us to strategically put an accounting framework in place that will allow us to later turn the knob to increase the taxes.

You first have to give the corporate world a gift before you take it away. Similarly to how the corporate world treats consumers.

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

#73

Post by throwaway_pdp09 »

Arnt wrote: post #44
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.

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'.

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

#74

Post by shawabawa3 »

blablabla123 wrote: post #36
lstodd wrote: post #20

Earlier quoted context omitted.

Find a broker, buy some futures.

That's risky though, it's possible to get ruined by buying futures (or put options for that matter) since it's basically a contract that must be fulfilled at some point in the future. AFAIK normally they function as insurance for buyers and sellers, to create more market stability.

Put options are called options for a reason

You never have to exercise if you don't want to so there's a fixed maximum cost

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

#75

Post by gpm »

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-swee...

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

#76

Post by bitreality »

solarengineer wrote: post #38
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.

Options Trading would be one approach. You don’t need to actually buy the commodity itself, but instead an option contract that permits you to buy the underlying ( stock, commodity ) at a particular rate by a particular date. If the price were to rise in the future, the value of the contract would be much higher than what you bought it at, and someone interested in further trading in the options contract or even buyi…

I think you might be looking at USO if you're seeing a $10 USD call price, or another ETF which doesn't actually match the price of 1 barrel = 1 share. There is no way a $10 call is $0.3 USD when the market price is $20+. It should be a minimum of the price difference between the underlying and the strike price for an in-the-money option.

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

#77

Post by ptero »

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.

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 current tussle of oil producers indicates that the market is broken. Suboptimal, sure, but not broken. My 2c.

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

#78

Post by jsjddbbwj »

praptak wrote: post #60

That's another piece of good news. Two countries with a particularly shitty track records are in a lose-lose situation.

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

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

#80

Post by Arnt »

crazygringo wrote: post #66
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 Wait, really? I'm Googling but can't seem to find anything at all about shutting down oil wells temporarily. What exactly is the difficulty? Why would "turning off the tap" be a risk -- the pressure oil might be under isn't going to go away, is it? (If it doesn't require pumping.) Is it a risk that materials in the…

I got this verbally from my uncle, whose day job was to find ways to extract more oil from rocks.

To begin with, the oil is there, stably, at rest. At some point people come along, estimate the layout of the rocks (many km³ and far underground) and drill holes to change the way the pressure works and make as much as possible of the oil flow to a particular location. The geology decides how much that is, modified by the paths of the holes involved, and also by how much water is pumped in, where.

If you now close it quickly, the pressure's going to change somehow and you don't know precisely where and how. The end effect may be that when you reopen, something has changed down there such that instead of extracting 40% of the total oil you can only get 39%. Or such that you have to drill more holes in order to gain back your production velocity, the cost of which is far higher than producing at a loss for a month.

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