
One corner of U.S. oil market has already seen negative prices - Reedx
https://www.bloomberg.com/news/articles/2020-03-27/one-corner-of-u-s-oil-market-has-already-seen-negative-prices
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nogabebop23
Just to put this in perspective, we're talking about one bid for basically
land-locked asphalt in a period of essentially zero demand. I don't know what
the size/liquidity of the trading market is, but I'd suspect very small. The
market price is currently around $2.

This is not oil for energy; reading too much into this is like seeing the
price for firewood skyrocket and expecting people to freeze to death this
winter.

~~~
phaemon
People freeze to death every winter because they can't afford fuel. I have no
idea what your analogy is supposed to mean.

~~~
valuearb
Where?

~~~
fyfy18
In the UK around 3,000 people die per year because they can't afford fuel
costs.

[https://www.independent.co.uk/news/business/news/cold-
weathe...](https://www.independent.co.uk/news/business/news/cold-weather-uk-
winter-deaths-europe-polar-vortex-a8224276.html)

~~~
valuearb
How? The cost to heat a home is a tiny fraction of the cost of owning a home.

~~~
phaemon
Because percentages don't matter when you're poor. And, of course, a poor
person will probably be renting, not owning, a home.

If you've only got $30 left to cover food and electricity (and your heating is
all electric), you basically choose between food or heating.

Google seems determined to give me UK stats, instead of US ones. Perhaps in
the US you become homeless before you have to make that choice?

~~~
valuearb
How did you pay your mortgage or rent if you only have $30 left for heat?

~~~
phaemon
Imagine you get paid 250 a week. Your rent is 200 a week. You have 20 you need
to pay for travel. That leaves you 30. If you don't pay rent you become
homeless and then you will lose your job.

Do you understand?

~~~
valuearb
So you are saying you only have to increase your income about 5% to have
enough money for heat?

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vkou
Tar sands oil is now trading at $6.6/barrel.

This is going to be a disaster for the Canadian petro-provinces. While much of
this price collapse has been driven by OPEC, the COVID-depressed gasoline
demand is here to stay for at least a few months.

~~~
eloff
Alberta was already in bad shape before this, with huge sections of Calgary
downtown empty, 20% unemployment in rural areas. Now add an oil price collapse
and coronavirus shutdown of large parts of the service sector. Very hard times
for Alberta ahead.

In the oil bust in the first half of the 1980's people would sell their homes
for a dollar just to get away from the mortgage because it was completely
underwater. I fear we may see those days again in Calgary. I was born there
during those days, which I don't remember, but I do recall the stories people
told of it while I was growing up.

~~~
vkou
With the economics of the tar sands, the entire province has been doing the
equivalent of margin trading, to make ends meet, for the past two decades.
Tiny swings in price either bring a moderate windfall, or utter ruin.

It's not a great way to run your economy.

~~~
dsfyu404ed
>the entire province has been doing the equivalent of margin trading, to make
ends meet, for the past two decades. Tiny swings in price either bring a big
windfall, or utter ruin.

>It's not a great way to run your economy.

Sure, but what other way do they have to run their economy? Without monumental
government effort to keep prices stable grain (and grain derived products)
isn't much better.

~~~
vkou
Alberta used to be a cattle province[1][2], before the petro-firms trampled
all over farmer rights, and imported a million people to work the tar
sands/support the people who worked the tar sands.

Just because you've destroyed the ring, you can't really go back to the Shire,
but Alberta's choices in the 21st century are either a return to agriculture,
and mass emigration, or a transition to exporting professional services.

[1] Ironically, while the price of oil plummets, the spot price for beef is up
20% since the start of this crisis... Although, the price of beef futures is
dropping a bit.

[2] Edit: I'm aware that agriculture employs a small number of people (1.5-2%
of the population, but so does oil extraction - only 0.3% of the population
directly works in the tar sands - everyone else supports them.) Like any other
industry, it has a large supporting industry of suppliers, truckers, etc. It's
not nearly as lucrative as oil, but it's a living.

~~~
eloff
Agriculture employs about 1.5% of the population of Canada according to the
world bank. It's heavily automated and while crucial, it will never be able to
employ a large fraction of the population. You can't wind the clock back to
the 1900s without undoing all the gains made in the last century.

Alberta needs to look to Norway and Dubai for how you diversify away from oil
in earnest.

~~~
LeoTinnitus
While it's not realistic, I guarantee that if you initiated the homestead act
again in the US, people would do it. Free land and basically full autonomy?
I'm 100% certain there is a sizeable chunk of those types in the US and Canada
that would make that trade. The reason the homestead act died was cause
businesses lobbied the government to get rid of it so as not to give lower
income types a choice. They had to work in their factories to survive.

~~~
eloff
Most of the land you could do that with is agriculturally unproductive. Which
is why it's federal land to begin with. Some of it is natural parks, and I
don't want to see that turned to agriculture. I really don't think it's that
simple at all.

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Robotbeat
What we should be doing is any time OPEC does this kind of price war, we
expand the Strategic Petroleum Reserve. "Keep it in the ground" while also
building an increasingly secure rainy day energy stockpile.

~~~
perl4ever
It appears that purchasing oil right now for the SPR was portrayed as a
"bailout for big oil" so it was left out of the recent legislation.

~~~
jjeaff
The defense department has plenty of money. Maybe they should reallocate some
of that budget to purchasing oil for storage. Having plenty of oil is
definitely part of national defense.

~~~
perl4ever
In fairness, now that I check Wikipedia, it appears that the SPR is 80% full,
and furthermore the average price paid was about $28/barrel.

Right now WTI is $25ish and Brent is almost $28, so adding more to it probably
isn't particularly vital at this moment, either in terms of increasing energy
independence or in taking advantage of cheap prices.

------
jonfw
What's the volume being traded at that price? I'll bid -$10 to buy your house,
doesn't mean that's what your house is worth.

~~~
ddebernardy
If someone accepts your -$10 bid the house will totally be worth that by
definition. Remember the $1 houses from Detroit a decade ago. They weren't
even worth $1 due to the tax liability that came with them, and they didn't
sell for that reason.

~~~
jjeaff
My grandfather bought a $1,000 house years ago, not in the Detroit area, but a
similarly blighted area.

Immediately after purchasing it, the city started fining and hounding him to
get it cleaned up and up to code.

He went in to court at one point and asked the judge why he was getting all
these notices when it was already the nicest house on the block.

The judge's answer was something to the effect of "oh, well they can't afford
to fix it up."

------
neonate
[https://archive.md/tfWyx](https://archive.md/tfWyx)

------
twomoretime
It's funny that we're technically cheering on a cartel (OPEC) to artificially
raise prices for a commodity that the world depends on.

Ok maybe not so funny, but it's a conversation worth having, isn't it? Doesn't
it imply something severe about free market innefficiencies?

~~~
elgenie
On of the classic ways that oligopoly and monopoly power can be abused is by
engaging in temporary price wars to drive any smaller competitors so that
prices can later be jacked up and monopoly profits reeled in.

That's what's happening here.

~~~
Robotbeat
If we ignore the regressive effects of (eventual) high energy prices (which
are significant! a LOT of people are helped by low gas prices. Popular protest
understandably occur when governments eliminate deep fuel subsidies)...

...then the long-term monopoly rents being much higher in terms of total
revenue is actually good for the environment and maybe good for humanity _in
absence of something more rational like a carbon tax_.

It can act like a Carbon Tax, but with the revenue going to Saudi Arabia or
Russia (etc). In other words, non-ideal... But does maybe help electric cars
in the very long-term (ignoring the near-term damage to existing electric car
makers, and assuming we wouldn't be instituting a carbon tax anyway).

Much better would be a local carbon tax with revenues redistributed to
counteract any regressive impact while also funding transition to
alternatives.

------
codingslave
Let the peak oil hysteria from the 80s and 90s be a reminder to everyone here
how fallible common beliefs are among the population.

~~~
eloff
Peak oil theory is sound economics. We now have sufficient proven and
suspected reserves that we expect that demand will tail off before supply
does, so we expect that we won't have a supply crunch. But it could have
possibly gone that way if the Earth had fewer extractable reserves or if
humans had been less innovative in finding new methods of extraction. It
really just comes down to whether demand or supply tails off first.

~~~
credit_guy
> Peak oil theory is sound economics.

Why is oil special? Why not peak iron, aluminum, concrete, NaCl, or any or the
myriad other things we consume? All of them are in finite quantities, not only
oil. Earth has a finite mass after all.

~~~
thechao
Iron, aluminum, and salt are _extremely_ common and very much renewable.
Concrete is looking like it might be sand limited, and of limited
renewability; there's already concern over our long-term ability to make
concrete. _Oil_ , on the other hand, we literally burn & convert into C02, and
other fun stuff. Once we use it, it's pretty much gone.

~~~
throwaway373438
> Once we use it, it's pretty much gone.

Oil is as renewable as any other renewable resource. It's made from plants.

We're only at risk of running out of cheap crude mined from the earth with a
positive net energy return at a low price. We aren't ever at risk of not being
able to have oil.

It's an open question whether our access to cheap fossil fuel will outlast our
demand for it.

~~~
woodandsteel
Yes, the problem is the energy that could be used to produce oil would be much
more efficiently used by applying it directly to what the oil was going to be
used for.

~~~
throwaway373438
Not always. Oil has many uses outside of energy production.

It's also important to distinguish between energy production and energy
transfer. Petrol products are very useful for energy transfer even if they
aren't energy producing.

Batteries and fuel cells are other examples of useful net-negative energy
transfer systems.

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jonfw
Article is stuck behind paywall for me

~~~
jfk13
So if you want to read it, perhaps it's time to consider paying?

(Alternatively, private browsing mode might work.)

~~~
randallsquared
Paying providers directly either means micropayments or committing to reading
enough of that specific news source to get a non-micropayment-sized amount of
value from it. No one has really cracked micropayments in a way that has
caught on, yet, and the model of depending on a single source for a majority
of news has gone the way of print newspapers.

Bloomberg, NYT, WashPo, the Economist, and other such places need to figure
out how to provide value commensurate with the money they charge, or else
figure out how to exist in a world where one of "their" readers still visits
dozens or hundreds of other such outlets a month.

> Try 3 months for -$105- $6. Cancel anytime.

The 105 is just a joke, and even $2 a month is very high, considering there'd
be similar payments to 20+ other such outlets.

~~~
jonfw
exactly. The subscription model only makes sense for loyal readers- which I am
not.

------
coliveira
The US has an oil industry that is completely unreasonable. The whole idea of
US oil production is that the price needs to be high enough to support the
costs of shale extraction. But their own existence forces the prices down by
oversupply. It is an economic time bomb.

~~~
dragontamer
Its insurance against OPEC raising prices. Without the shale oil industry,
OPEC will just raise prices. With the shale oil industry, OPEC lowers prices
to try to wring them out of business.

Gotta think big picture and geo-political issues. In isolation, its a negative
(especially with such low prices right now). But in the great scheme of oil-
independence from OPEC / other oil producing companies, there's a benefit.

~~~
coliveira
There is no benefit when prices crash and the US has to bail out these
companies. It would be much smarter to reduce dependence on oil with
investments in clean energy, instead of making the economy dependent on that
same polluting industry.

~~~
dragontamer
> There is no benefit when prices crash

Prices are crashing because OPEC wants to harm the shale oil industry.

Look, we can either make oil or rely upon foreign oil. Those are the two
choices (or some combination of the two).

The more oil the US makes, the more we are harmed by low prices. The less oil
the US makes, the more we are harmed by high prices. Obviously balance is the
key, but notice that opponent (OPEC) is intelligent and has a large degree of
choice in the matter. Whatever the US does, OPEC will adapt and push our weak
point.

And yes, I recognize that moving off of oil entirely is a 3rd, independent
solution. But that can be done independently of our production of oil. For
now, we're a grossly oil-consuming nation, so we have to make due with the
present reality of our country.

~~~
coliveira
> But that can be done independently of our production of oil.

If you are an oil producer, and a large part of your economy depends on oil
production, there is little incentive for cuts on oil usage. This is exactly
the pattern we see in the modern US economy.

