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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

#91

Post by specialbat »

mrfusion wrote: post #89
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 hate to disagree but the free market is often a great guide to tell us how much we need of something. The USSR tried telling industries how much to produce each year and we can agree that didn’t turn out well. Of course oil is a problem but a tax or cap and trade system would make more sense to address it.

You can't have a free market when there is a monopolistic producer

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

#92

Post by hackeraccount »

gonehome wrote: post #55
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.

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 to spend with it under $30? And say they keep it _just_ over $30 - just how much over $30 can they go and for how long?

It seems like in the long run you'd better be prepared to keep it not much over $30 if you want to keep the shale producers out for good. That the idea of "put them out of business and then double the price" won't really work in a practical manner.

I'm failing to think of an example where this did work. Diamonds? I thought that the producers either bought or colluded to create an effective monopoly. That would be like S.A. just buying producers. That doesn't seem practical but who knows -maybe it is.

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

#93

Post by burlesona »

14 wrote: post #65

I know this is the wrong attitude but with no ties to the oil industry that I am aware of I personally am enjoying watching the market crash and my cost of gas go way down. However my understanding of the economy is poor. Does this negatively effect the average joe or mainly oil producers?

It depends on the region, but the energy sector is one of the major global employers, and one of the best and biggest sources of quality blue collar jobs (with benefits etc) when energy prices are high. That’s one of the reasons oil and gas is so politically favored.

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

#95

Post by perl4ever »

wazoox wrote: post #40
gregorymichael wrote: post #9

What happened to "Peak Oil"? Was there some assumption in those projections that proved to be wrong?

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 sure why you think "non conventional oil industry is [doomed] to go bankrupt" when not only do people in the industry say it is relatively easy and cheap to put resources on hold, but obviously the sources of conventional cheap oil tried their best to kill the newcomers and failed, only a few years ago. According to both theory and recent history, your prediction doesn't make sense to me.

However, I have no experience whatsoever in the industry, so maybe you have some expertise?

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

#97

Post by mardifoufs »

Waterluvian wrote: post #41

Despite Canada's dollar doing terribly, gas stations are selling it for $0.64/Litre where I live. I haven't seen it this low in maybe 20 years.

That's because Canadian oil is way cheaper than the 2 benchmark crude grades right now! Western Canadian Select is at 7.2$ a barrel compared to 21$/barrel for the WTI. In fact, the oil itself is probably worth 0 (or less) since some sand oil producers are literally paying to get rid of their crude.

It's hard to sell even sweet oils right now, so heavy blends that have little access to international markets like the Western Select are especially hurt by this enormous supply glut.

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

#98

Post by coldpie »

lstodd wrote: post #20
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.

Find a broker, buy some futures.

Actually, if the OP is asking a question like that, they should stay far, far away from the market. It is not a game for newbies.

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

#99

Post by gonehome »

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…

I think it’s more a side-effect of the Russia pricing fight than the goal itself.

If the price drops and shale producers don’t have the capital to whether the storm then they don’t have much of a choice. Sure later they could come back when prices are high again, but in practice that’s probably hard and takes time.

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

#100

Post by ReptileMan »

JoeAltmaier wrote: post #59
lordgrenville wrote: post #58

Earlier quoted context omitted.

My impression is that there are vast amounts of oil at increasing levels of extraction cost. As cheap oil is used up, the price rises and it becomes financially viable to extract more expensive reserves. Eventually, the remaining oil may be so costly to extract that renewable energy will be cheaper, but it seems unlikely that we will ever extract the last drop of fossil fuels. (Ignoring all the other reasons for cost…

Not to mention if Methane Hydrate comes online - endless natural gas for the price of a drill and pipeline.

In that case also invest in beachfront properties in northern russia and Antarctica. The weather there will be awesome
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