
Oil plummets 30% as OPEC deal failure sparks price war fears - ingve
https://www.cnbc.com/2020/03/08/oil-plummets-30percent-as-opec-deal-failure-sparks-price-war-fears.html
======
walrus01
The Albertans are going to be being in a panic over this. Oil sands product
already sells at a considerable discount to west texas intermediate. Time to
diversify the economy...

Even before recent drops things were looking rather dire there.

[https://calgaryherald.com/news/local-news/alberta-
sheds-1800...](https://calgaryherald.com/news/local-news/alberta-
sheds-18000-jobs-in-november-energy-sector-takes-a-beating)

~~~
bawolff
Too bad ndp got voted out. Too bad Klein didnt maintain the heritage fund...

Realistically time to diversify was at least 10 years ago

~~~
twojacobtwo
When I stated something very similar to a friend from Alberta, he said very
confidently that the province has a very well diversified economy. I can
hardly believe that, but he's a highly intelligent individual and I didn't
have the numbers to argue otherwise, so I let it stand without a further
challenge. Since you seem to agree with my point of view on this, would you
mind elaborating on how you would show that diversification was needed decades
ago?

~~~
onlyrealcuzzo
Can't they just pump up house prices and the FIRE economy even more?

~~~
blaser-waffle
I live in Edmonton and it's a buyers market. This ain't Vancouver

------
cletus
The vast contradictions in the world of countries with a lot of natural
resources is both enlightening and depressing.

At one end of the spectrum is Norway, who decided not to sell resource rights
for peanuts so some shareholders somewhere can get rich, ironically it seems
somewhat thanks to an Iraqi [1]. Essentially most of the profits from oil
revenues are retained by the government.

At the other end is the Middle Eastern countries. Monarchs and despots have
largely enriched themselves and their families at the expense of their country
and their people.

The sad part here is that those people who have essentially been swindled have
succumbed willingly essentially in the name of religion. Their leaders are
keeping the faith.

So it's sad to me that not only are people so easily manipulated through
religion but also what a huge lost opportunity this was. What, really, do any
Middle Eastern countries have to show for this massive windfall?

It gets sadder when you realize that a certain amount has to be diverted to
the populace essentially to keep them placated. The cost of extraction is
going up. This money staving off revolution is going up.

So what you have is where these countries now can't afford to turn off the
supply like they did in the 1970s. Now, Russia, Venezuela, Norway and the USA
are huge producers (and net exporters). Solar in particular will continue to
bite into oil demand so long term the situation doesn't look great for oil yet
those countries that didn't spend their windfalls wisely are facing a harsh
future.

[1]:
[https://www.ft.com/content/99680a04-92a0-11de-b63b-00144feab...](https://www.ft.com/content/99680a04-92a0-11de-b63b-00144feabdc0)

~~~
du2hehehdy
This analysis seems superficial and xenophobic. I doubt it'll get many down
votes on HN because pro Nordic and European statements rarely get much
criticism, neither do infantalizing statements about people who practice a
religion, but it's none the less fairly exemplary of an increasingly common
western attitude that simultaneously promotes a shallow understanding of other
cultures while simultaneously pretending to be enlightened because it's
arguing in favor of 'the people'.

≥At one end of the spectrum is Norway, who decided not to sell resource rights
for peanuts so some shareholders somewhere can get rich, ironically it seems
somewhat thanks to an Iraqi [1]. Essentially most of the profits from oil
revenues are retained by the government.

Conflicts with...

≥At the other end is the Middle Eastern countries. Monarchs and despots have
largely enriched themselves and their families at the expense of their country
and their people.

These are both examples of government ownership of the resources. Humanitarian
differences don't magically make one government owned and not the other.

≥The sad part here is that those people who have essentially been swindled
have succumbed willingly essentially in the name of religion. Their leaders
are keeping the faith.

>So it's sad to me that not only are people so easily manipulated through
religion but also what a huge lost opportunity this was.

This is theological bigotry plain and simple yet I never see it called out in
tech forums when politics comes up. The idea that people in Saudi Arabia,
Iran, or anywhere else in the Middle East, are simply too blinded by their
traditions to ascend towards a way of life resembling what we westerners have
is outright ignorant and devalues the very real social movements that happen
in these regions.

And even if you do believe that the theocratic leanings of the region's social
movements and policy makers are detrimental with regard to distributing
economic gains back to the people, so what? These broad generalizations about
faith add nothing useful to the dialogue as far as coming up with solutions.
It might shock some people to realize that it's possible to tackle economic
development and social wellbeing without demonizing cultural keystones. I'd
even go so far as to argue that this sort of theological shaming is actually
toxic towards generating solutions because it promotes a narrative that there
won't be progress until they give up on their misguided ways.

≥It gets sadder when you realize that a certain amount has to be diverted to
the populace essentially to keep them placated. The cost of extraction is
going up. This money staving off revolution is going up.

Again, this sort of description only promotes a narrative where these people
are misguided infants, prisoners shackled in allegorical caves by their
leaders, who can't see the raw deal they've been dealt. These people aren't
stupid, they are aware that their governments are often self serving in the
same way that Chinese and Russian people know their governments aren't as
perfect as they pretend to be. But again, so what? People have to play the
hands they're dealt and some even take pride in certain aspects of that hand.
These surface level criticisms only sound compelling to western audiences
because most of us have no real awareness of the street level politics in
these regions and therefore no idea what social action or change even looks
like.

>So what you have is where these countries now can't afford to turn off the
supply like they did in the 1970s. Now, Russia, Venezuela, Norway and the USA
are huge producers (and net exporters). Solar in particular will continue to
bite into oil demand so long term the situation doesn't look great for oil yet
those countries that didn't spend their windfalls wisely are facing a harsh
future.

This is a valid economic criticism for which belittling these people's faith
served no point. Sure, cultural factors can accelerate innovation and
financial growth. That doesn't immediately indicate that the problem is
theocratic. Industry isn't a culture, it's a combination of skill sets and
infrastructure. China is the world's second largest economy and has become one
of the few nations considered able to pose a growing risk to America's
military hegemony, Europe can't even make that claim despite having vastly
more in common with the US culturally.

The penultimate point being, it's shallow and easy to make hand gesture
arguments when the only people in the conversation are equally distant from
the realities being discussed. That doesn't mean we have no responsibility to
at least try not to be intolerant, if anything it's when our audience largely
agrees with us that we have a greater responsibility to be interpretive and
self critical.

~~~
throwsprtsdy
> Industry isn't a culture, it's a combination of skill sets and
> infrastructure. China is the world's second largest economy...

It's interesting to see those two statements adjacent to each other. China is
a tremendous world power, but if I understand the history correctly, it
arrived at this point after a series of (sometimes extreme) cultural and
economic upheavals that prioritized modernization over traditional culture.

~~~
du2hehehdy
The presentation wasnt the best I agree. The point I was driving towards is
that culture can accelerate industrial growth and development but this doesn't
mean any /one/ culture or set of beliefs should be presented as
superior/better. America became number one (nuanced but I want to avoid
another essay) through embracing multi-culturalism, liberty, and being one of
the few places that weren't damaged much in WW2 with a nod towards their role
in post ww1 decision making as well. China came to be viewed as number 2 and a
credible threat to the position of number 1 through radically different
cultural processes. So while culture contributed to industrialization in both
instances, that doesn't make it sensible to make normative statements
supporting either direction as a suggestion for improving the world, or a
whole region, at large. These issues are nuanced and if they don't seem
nuanced then it's much more likely that we're arguing from a position of
ignorance rather than correctness.

~~~
anticodon
> America became number one (nuanced but I want to avoid another essay)
> through embracing multi-culturalism, liberty, and being one of the few
> places that weren't damaged much in WW2 with a nod towards their role in
> post ww1 decision making as well.

The first part is really amusing. America become rich because while Europe was
fighting world wars, US was making money on them. US joined WW2 by the very
end when it was evident that Germany lost, and arrived just in time to
colonize its share of Europe that remains colonized to this day.

Also the fact that US dollar is the world's exchange currency also benefits US
immensely. US can print astronomical amounts of money and the whole world
becomes poorer with each printed bill. No other country in the world has the
same position. If Iran would be in the same position, they would be just as
rich without all the "multi-cultural" "liberty" fluff.

~~~
blaser-waffle
> US joined WW2 by the very end when it was evident that Germany lost

Bollocks. The US joined the war because they cut off oil supplies to Japan and
Japan saw future conflict as inevitable -- and struck first. They bombed Pearl
Harbor in 1941 -- and the war didn't end until 1945. In 1941 Germany had
beaten France, the UK, Norway, Denmark, and was on a path to steamroll
Yugoslavia, Greece, and possibly the USSR.

> just in time to colonize its share of Europe that remains colonized to this
> day.

The US military is still in Europe because the NATO is fine with the US
footing the cost of defense spending. "Colonized" my fat ass, the reason the
EU is able to throw around grand farm subsidies is because the US is paying
for missile defense and aircraft carriers.

~~~
anticodon
Yeah, forgot to mention that Japan and South Korea are colonized as well.

Footing the cost of defense spending is a sweet lie for the population of the
occupied countries. And some of them are actually paying for this "help".
South Korea, for example, had to increase the payments for the US
"protection". BTW, this is exactly parlance that criminals use to justify
racket: "You pay us for protection, pal. Win-win!"

And I also forgot that US spies all over the world. Every computer device has
numerous CIA backdoors. This obviously provides huge advantage to US
businesses.

------
aazaa
Probably no accident that MBS removed his two main political rivals two days
ago:

[https://www.aljazeera.com/ajimpact/saudis-detain-mohammed-
bi...](https://www.aljazeera.com/ajimpact/saudis-detain-mohammed-bin-salman-
brother-nephew-200306232853929.html)

The country is in deep trouble. Reigns of terror fed by mineral wealth have a
way of falling in the most bloody ways.

------
shreyshrey
I think both KSA and Russia eventually will come to an agreement. Current oil
prices are not sustainable for KSA. Their budget deficit is already touching
7% of their GDP
([https://mobile.reuters.com/article/amp/idUSKBN1XA2EO](https://mobile.reuters.com/article/amp/idUSKBN1XA2EO)).
If they need to balance their budget they need the oil price to be at 71$.

~~~
InTheArena
Defecits don't matter, until all of a sudden the ability to sell debt is
limited. While the US continues it's current policies, I don't see that in the
immediate future.

However, one day soon that will stop... and then people will notice that
sovereign debt far outpaces any other form of non-secured credit.

~~~
onlyrealcuzzo
I doubt anyone in their right mind views a KSA backed bond anywhere near as
safe as the US.

The only meaningful revenues KSA has is from Aramco, and Aramco only has 40
years of oil reserves left at current production levels. Their 30 year bonds
should have very high yields.

------
sword_smith
Russia did not agree to Saudi Arabia's proposal to reduce output so Saudi
Arabia are now turning up the faucets to pressure Russia into a deal. Saudi
Arabia has no intention starting a price war with US shale producers, this is
pure tactics to make Russia agree to an output deal.

The United States has a net export of around 0 barrels, meaning that it is
neither an importer nor an exporter of oil today. So macroeconomically the US
should be more or less unaffected on an aggregated level.

~~~
InTheArena
Arbitrage means that these barrels will flow into the US and offset some of
the US production.

Of course, Trump could slap some tariffs there, but high energy costs are
never popular (no matter how good they may be).

~~~
tenpies
Keep in mind oil is not oil. The US produces some fairly top quality crude by
global standards. This is both good and bad.

You don't want to be using WTI crude to produce bunker fuel - that's like
using truffles to season canned beans - you _could_ do it, but it doesn't make
rational sense to do so. Better to export your WTI for uses that need such a
quality crude (and pay accordingly), then import some low quality OPEC basket
crude to produce bunker fuel.

------
peter303
US banks lend frackers over $200 billion.
[https://www.nytimes.com/2018/09/01/opinion/the-next-
financia...](https://www.nytimes.com/2018/09/01/opinion/the-next-financial-
crisis-lurks-underground.html) They were squeaking by oil fell from $110 to
$40 in 2014. Many will go belly soon triggering bank failures.

~~~
enraged_camel
Tomorrow morning will be a _bloodbath_ for US securities.

~~~
csomar
Nikkei already down more than %5.

------
jmpman
Let’s say you believe the prices will recover in a year, what’s the best stock
market play to profit?

~~~
quickthrowman
Buy LEAP calls on QQQ 1+ year out

~~~
arsome
QQQ is tech heavy, if you want more general consider SPY or for oil consider
XLE or VDE.

~~~
brobinson
You can also do SPX instead of SPY for the ability to get out at any time
under a year at 60% LTCG (section 1256 contracts). Those are expensive
contracts, though.

------
MichaelMoser123
so this does look like a recession - with the dow jones industrial average
falling 3000 points over the last month and oil pricess falling steeply. does
it?

~~~
jeffdavis
But low oil prices are an _effect_ of a recession, not a _cause_.

------
King-Aaron
Meanwhile in Australia we're still paying for fuel at a consumer level as if
it's $120/barrel.

~~~
vegardx
Oil is sold in USD you have to take into account the exchange rate between AUD
and USD. We're seeing the same in Norway, but when you factor in the exchange
rate and additional taxes it's effectively the same.

------
huac
prima facie this is good for businesses which rely on oil (airlines, etc) but
most of the big companies hedge the price risk (both up and down) via futures
contracts, so the price cuts are not likely to help any major businesses in
the short-term. feels like red for the foreseeable future...

~~~
audiometry
These hedges are going to further ruin airlines. Now they have giant margin
calls on their money-losing hedges + they hedged not assuming 40% drop in
business, so now they're overhedged.

------
UncleOxidant
How much of US oil production is unprofitable at $30/bbl?

~~~
csours
How much of any oil production is unprofitable at $30/bbl? I don't think it is
clear that even Saudi oil makes money at that price.

If the Saudis haven't been trying to flood the market for the past 5 years, I
don't know what they are trying to do.

~~~
qeternity
The big middle east producers have cash costs around $10/bbl. They are
definitely making money. Whether or not they are making enough to cover the
budget necessary to keep their populace complacent is another matter.

~~~
toomuchtodo
Saudi Arabia needs $80/barrel to meet their budget, Russia around $42/barrel.

~~~
jessaustin
That's assuming output is fixed. If OPEC has failed, that's no longer the
case. Since Saudi's unit costs are lower, they can dominate Russia in the long
run. The global finance sector will certainly help them with that. Of course,
it will be risky, but we are talking about the people who invested in Vision
Fund.

------
mc3
My hands got a bit bloody trying to catch this falling knife

------
_bxg1
Could this have an impact (positive or negative) on the renewables industry?

~~~
mechagodzilla
Eh, 'renewables' (presumably you're thinking of solar and wind-generated
electricity) don't really directly compete with oil (at least in the USA). Oil
is a negligible part of our electricity generation mix. This might somewhat
delay the switch over to battery-electric vehicles, as it lowers the cost of
gasoline/diesel, but that has relatively little to do with renewables, per se,
and more to do with the relative costs for electric power (regardless of
source) and gasoline/diesel.

A secondary effect, however, could be that it temporarily wrecks the fracking
industry in the US, eventually leading to much less natural gas production,
raising the price of natural gas (and thus being good for wind/solar, which
will probably have gradually declining costs for the foreseeable future).

~~~
toomuchtodo
Raising the price of natural gas is good for wind and solar, but moreso
utility scale battery storage, which is what is competing against natural gas
for firm capacity ("power on when you call for it").

------
dforrestwilson
On it's face it's actually great for consumers and business, but no market
likes sudden price dislocation as big as this.

The high-yield bond ETFs have been crashing as global supply economic concerns
mounted around the coronavirus. I can only wonder what the debt holders for
oil and gas companies are thinking right now.

~~~
huac
> I can only wonder what the debt holders for oil and gas companies are
> thinking right now.

decent chance they're asking for a federal bailout, and praying that russia
capitulates soon

------
hedora
This is the best opportunity individuals have had to push back against
fracking in years. I’ll be doing more than I have been to conserve gas after
the Corona WFH ends. I’d love to see a concerted national effort along these
lines.

Hopefully the price crash will last long enough to bankrupt the shale
industry.

~~~
tenpies
Keep in mind that low oil prices also mean that EVs become less of a value
proposition. Once petrol prices reflect oil prices, it becomes even harder to
make a rational economic argument towards EVs.

~~~
serpix
There is barely any connection with oil price to pump price in Europe. It is
mostly taxes and oil price is minimal. Same with electricity.

------
23B1
What are the economic knock-on effects of a price war in oil?

~~~
CyanLite4
Could be catastrophic. Banks have lent out half a trillion to fracking
companies who need oil to be at least $50 a barrel to be profitable. If those
frackers go out of business, combined with COVID-19, combined with literally
no ammo left (deficits sky high, rates already super low).... it’ll be 2008
all over again.

~~~
nickik
This is nonsense. Banks don't fail that easily, your overestimating the
relative size of fraking and the idea that the Fed has 'no ammo left' is just
nonsense that no the waste majority of monetary economist would disagree with.

------
40acres
Corona really looking like the black swan event that ends this expansion. What
a time.

------
Havoc
Markets are going to be wild this week

------
gentleman11
Can’t visit link without enabling tracking and fingerprinting

------
thatgerhard
How does this affect the value of the Dollar? (Taking the oil/dollar into
consideration.)

------
lawrenceyan
Yay, cheaper fuel prices now right? Or do the gas stations pocket the
difference here?

~~~
barney54
"Up like a rocket, down like a feather." Oil companies, gas stations, etc. try
to keep prices high for as long as they can, but the prices fall over time.

------
A4ET8a8uTh0
Wishful thinking moment. I would love this moment not to be a moment where
people say something along the lines of 'oh cool, I can drive hummer again'
and something more like 'we have some room to breathe, how can we make sure we
are not as dependent in the future'. Again, wishful thinking.

------
jsilence
What ever happened to Peal Oil?

~~~
nickik
Its was always a idiotic thing snake oil salesman tried to sell to idiots.
Just as Peak Coal was in 1850, but people lever learn and its always a great
way to sell books and get invited to give talks.

~~~
Tepix
It's idiotic to assume that resources are endless. Getting the timing right on
the other hand is hard, especially given that predicting something will change
the outcome.

Just like what is currently going on with climate change. Hopefully acting
upon the negative trends will improve the outcome.

~~~
nickik
I didn't assume endless resources, neither did all the people and economists
over the 250 years who had to help people show all the charlatans pushing
their idiotic opinions.

> Getting the timing right on the other hand is hard, especially given that
> predicting something will change the outcome.

The prediction of the people in the markets, matter, not smarty-pants
intellectuals who write books with titles to sell to suds-intellectual middle
class.

------
tus88
What is there to fear of a price war?

------
eruci
"Catastrophic for failed/failing petro-kleptocracies Iraq, Iran, etc - may
prove existential 1-2 punch when paired with COVID19.”

Good!

