
Oil is selling for less than $10 across key North American hubs - toomuchtodo
https://www.worldoil.com/news/2020/3/31/oil-selling-below-10bbl-at-key-american-hubs
======
symplee
This is the time to fill every strategic petroleum reserve in the world [0] to
the top. And then double capacity and fill again. I'm sure there are some
unintended consequences to doing this, anyone care to weigh in on pros and
cons?

[https://en.wikipedia.org/wiki/Global_strategic_petroleum_res...](https://en.wikipedia.org/wiki/Global_strategic_petroleum_reserves)

~~~
colechristensen
Oil is dying. Fossil fuels are dying. Not in a hopeful environmental sense,
but in an economic sense.

Electric cars are here, not in some far off hopeful environment with a few for
rich people and nerds but _here_. Countries have mandated electric only in the
near future. Coal mines are going broke. Renewable energy is often cheaper
than fossil fuel energy.

This whole price crash is because two countries whose economies rely very
heavily on oil profits can't really survive on $50 once they got used to $100
oil. Oil is $22 today because the monopoly was broken with North American
oilsands kinds of production and enormous in ground capacity puts a price cap
on oil.

We're watching two countries fight over the scraps of the oil market. Now this
is on the scale of decades, but it's not just far off thinking but near-term
risk of oil demand plummeting ... the current world economic shutdown is just
a little extra nudge.

If we filled and doubled all of those strategic petroleum reserves, there
would be serious doubt if they would ever – ever be used.

We are in the early stages of exponential growth of batteries replacing fossil
fuels. After a generation, internal combustion will seem quaint.

~~~
icelancer
Cars are hardly the only driver for fossil fuels.

Why oil price is crashing is simply variance in the greater scheme of things.
Not some death knell to it, not in 2020. Industry will take far far longer to
convert to electrical/alternative methods of energy.

Though I'll concede that oilsands/hydraulic fracking dealt a serious blow to
oil prices worldwide.

~~~
colechristensen
Industry is electric by wide margins.

Batteries are cheaper than electric peak plants. Solar and wind are cheaper
than coal and still benefiting from economies of scale and technology
development.

Getting energy from the sun and wind is already cheaper than some fossil fuel
sources. Conversion will accelerate as that gap widens.

------
cletus
So there are two general approaches people take to booms. Your income suddenly
balloons and you have a choice.

Some people will expand their living standards to match their increased
income. Others won't and will simply reap the extra rewards later. Some will
know that winter is coming. Others just will know what they need and are not
controlled by unconstrained wants.

Whenever the boom inevitable ends the first group is always the group that's
in trouble.

In the 2000s in Australia was a massive construction boom. Tradesmen made huge
money. Some bought expensive cars and houses and holidays. Post-GFC those days
were over. Suddenly living on the big country estate was a problem because the
$300/week you were spending on petrol was suddenly an issue.

Bringing this back to oil, on the one hand we have Norway who used their
resource riches to create a sovereign wealth fund that last I heard was around
$1T. On the other you have Venezuela, Russia and Saudi Arabia, where huge
profits were pocketed by oligarchs, monarchs and kleptocrats.

At the same time, they needed the oil revenue to placate their people.
Breakeven was once $10/barrel, then $20, then $30, then $50. Higher prices of
course encouraged companies to invest in more expensive oil fields where the
cost of extraction might well be $60+/barrel.

Saudi Arabia once tried to manipulate the market to wipe out the frackers (as
the US became a huge net oil exporter). That was never going to work. They'd
simply re-emerge when prices inevitable returned.

But now in a market where demand has fallen off a cliff, Saudi Arabia need to
sell oil, pretty much at any price, to _survive_. A protracted price war does
not bode well for either country but that's the predicament they're in.

This is another example of the delusion some people are in regarding this
pandemic. When it's under control (or, more likely, run its course killing
potentially millions), the world won't suddenly go back to the way it was.
Capacity might be there but demand will take a long time to recover. You'll
see this through the travel industry (particular cruises) and, with things
like this, the oil and gas industry too. There's no containing it either.

~~~
wigl
Norway is an outlier in that the Government Pension Fund Global was founded
explicitly to avoid rent-seeking behavior and corruption. Every other system
to date was initially created to facilitate the opposite, US included. How
many oil companies have a council of ethics dictating conflicts of interest
for investment?

What is also terrible is that many multinational resource giants (not just
oil) actively encourage corruption in countries without stable governance,
further advancing their resource curse.

~~~
zipwitch
Interesting story about Norway's oil industry: _The Iraqi who saved Norway
from oil_
[https://www.ft.com/content/99680a04-92a0-11de-b63b-00144feab...](https://www.ft.com/content/99680a04-92a0-11de-b63b-00144feabdc0)

------
mikhailfranco
Negative prices:

    
    
       Wyoming Asphalt Sour  $ -0.08    (was $ -0.19 earlier today)
    

[http://www.mercuria.com/media-room/daily-price-
information](http://www.mercuria.com/media-room/daily-price-information)

It was $ -0.47 on Monday:

[https://www.zerohedge.com/s3/files/inline-
images/mercuria%20...](https://www.zerohedge.com/s3/files/inline-
images/mercuria%20negative%20oil%20price.png)

------
ghouse
In inflation-adjusted terms, crude prices have fallen to the lowest since the
1930s

------
tekstar
You could sequester a tonne of CO2 for under $30 right now, although the lack
of demand of oil may be better for the environment if it manages to long-term
reduce production.

~~~
tenpies
I have actually contemplated a scenario where they pump oil into a hole in the
ground for safe-keeping. It has several benefits:

* You're still producing oil meaning jobs are being maintained and money is flowing.

* You're potentially even refining some of it - at least certain types.

* You're safely storing it where it probably won't be stolen and is safely available if it ever increases in value.

* Storage is extremely low cost, potentially even free.

They could even pump it and then store it in the same hole it came from.

Okay that last part is obviously facetious, but there is something absurdly
comical about two countries playing a game of chicken with their own petro-
economies in the middle of a pandemic.

~~~
foxhop
raw oil is very toxic, better to leave it where it's already contained.

refined oil has a TTL or expiration date.

~~~
CamperBob2
I've never heard that raw oil is especially toxic. Are you sure you aren't
thinking of _used_ oil, which is?

~~~
wigl
That shit has been down there for literal ages. If you're talking about crude,
it is toxic as is the brine that comes with it, hence the need for processing.

~~~
grepfru_it
as a southern state beach-goer, you always wash the oil slicks off as soon as
you find them. gasoline isn't carcinogenic because of the refining process,
its because the oil itself will kill ya

------
Waterluvian
Apparently Canadian oil sands oil is so unsaleable that in some cases they're
paying to get rid of it.

[https://www.cbc.ca/news/business/oil-price-plummet-
monday-1....](https://www.cbc.ca/news/business/oil-price-plummet-
monday-1.5514653)

~~~
wigl
In a way they've always been subsidized because nobody prefers WCS. Measures
like Keystone XL are just part of the gargantuan efforts that governments and
companies make to make them viable.

~~~
briga
No one prefers any commodity until access to the commodity is viable

~~~
wigl
The irony is that tar sands are abundant and can be seen on the surface but
are comprised of the most pipe-clogging useless shit (bitumen) that nothing
short of an extra large effort would make them viable.

------
doggodad
US gas prices are down to $0.95 - $0.97 / gallon.

Seems like it could go lower, but maybe stations and refineries won't reduce
prices to maintain profits.

~~~
excalibur
> US gas prices are down to $0.95 - $0.97 / gallon.

In a few places maybe. For the vast majority of the US no, at least not yet.

~~~
jerrysievert
indeed. gas buddy shows my local (Portland) stations at $2.29 minimum (Costco)
and $2.95 in the top 10 cheapest (Chevron).

~~~
selectodude
And gas station owners know they can still hose idiots like me who drive cars
that require 93 octane. Still paying $3.10 in suburban Chicago.

------
stevenwoo
Meanwhile Texas government doesn’t see need to allow extraction rate to
change. [https://www.texastribune.org/2020/03/30/texas-oil-
producers-...](https://www.texastribune.org/2020/03/30/texas-oil-producers-
ask-state-regulate-output-amid-coronavirus-crisis/)

~~~
wigl
This happens often when there is a price shock--a kind of oil chicken where
everyone keeps producing at a loss because they need to pay back the
investments on the venture.

------
mxcrossb
The article blames the corona lockdown, but other sources I’ve seen have the
OPEC-Russia price war. Does anyone have some good analysis articles that break
down the factors?

~~~
rmrm
Its both.

Demand shock is leading to a loss of places to put it, so the price must fall
to a low enough price to make it profitable to pay increasing amounts to store
it until its worth something.

The price war has depressed the price enough that to keep revenue up companies
must continue to pump flat out.

Quite a nasty scenario to find oneself in.

------
rustyconover
The percentage of state and federal taxes per gallon is becoming significant.
So there is some floor at the pump.

------
nroets
The producers should tell the financial community "We're destroying value by
continuing to pump. We're essentially bankrupt at these prices." Then convert
all their debt into equity at $0.000001 per share. Then go into care and
maintenance and wait things out.

Or is the financial system inefficient ?

------
imroot
I'd expect oil to be negative in the next few weeks -- refineries are shutting
down (and can't take the oil), most of the commercial storage facilities are
full, and it's gone down far enough that it's uneconomical to pull it out of
the ground (most of the articles that I've read put oil above $40.00 for most
wells to turn a profit, and more than $3.50/mcf).

I was in Texas and it was under $2.00/gallon before everything started getting
all locked-down due to COVID-19 -- my guess is that gas there will be in the
$.80-$1.00 range in the near future. Between the decreased demand due to the
"Stay-At-Home" order and the excess inventory (until all of the refineries
shut down), we haven't seen the bottom yet.

~~~
sjs382
In New Orleans, you can already find it for 0.99/gal. Thread on Reddit from
yesterday:
[https://www.reddit.com/r/NewOrleans/comments/fs4nts/walked_p...](https://www.reddit.com/r/NewOrleans/comments/fs4nts/walked_past_this_on_esplanade_tonight_and_had_to/)

------
StillBored
And yet the Strategic Petroleum Reserve is still not quite full as of a couple
days ago.

[https://www.spr.doe.gov/dir/dir.html](https://www.spr.doe.gov/dir/dir.html)

~~~
nl
Apparently (as of 25/March) they weren't sure if they had money to refill it:

 _Given the current uncertainty related to adequate Congressional
Appropriations for crude oil purchases associated with the March 19, 2020
solicitation, the Department is withdrawing the solicitation. Should funding
become secure for the planned purchases, the Department will reissue the
solicitation._

[https://www.spr.doe.gov/doeec/2020-03_CrudeOilPurchase/Docs/...](https://www.spr.doe.gov/doeec/2020-03_CrudeOilPurchase/Docs/89243520RFE000015_Amendment_0001.pdf)

------
TheGrassyKnoll
The Saudis Have a High-Stakes Plan to Win the Global Oil War

    
    
        https://www.bloomberg.com/news/articles/2020-03-18/the-saudi-crown-prince-s-plan-to-win-the-global-oil-war

------
rmason
At $7 a gallon for West Texas crude on the futures that translates to under 17
cents a gallon. Course that doesn't include refining and transportation costs
plus federal and state taxes.

I don't know about your area but here in Michigan we're still at $2 a gallon.
My friends in Austin, Texas say gas there is $1.35 a gallon. Is it fair to
assume that middlemen are making obscene profits or am I wrong?

~~~
kthejoker2
Refining adds about 30 cents per gallon flat, a bit more with additives,
higher octane cracks, etc.

Here in Texas, it's 20 cents state tax + 18.4 cents federal tax

Distribution ranges from 20 cents/gallon to well over 2 dollars to far-flung
places, this is the explanation behind most regional variance in price, they
run pretty lean, maybe cost + 5-7%. (It's a volume play.)

So 17 cents crude + 30 cents refining + 38 cents taxes + say 25 cents
distribution to Austin gets you to $1.10 and the rest is margin, minus
marketing and operating the retail location and you get net profit, typically
in the 8-12 cent per gallon range.

When oil prices rise, the refiners usually extract most of the profit at the
point of sale to distributors / retail.

Gasoline is profitable but distributed throughout the value chain.

~~~
93po
Gas is still over $3 in Seattle. This is dumb

------
tomerico
Is there any efficient way to invest in oil?

While a prolonged lock down is definitely a possibility, it's also quite
possible that the market will recover which should bring the price per barrel
closer to normal range.

Edit: Really surprised by being downvoted for asking a question

~~~
mikhailfranco
Try the ERX ETF when it drops back to recent lows $6-7, but only if you are
very brave, have money you can afford to lose, but want a chance to 20x your
stake:

[https://finance.yahoo.com/quote/ERX](https://finance.yahoo.com/quote/ERX)

~~~
tomerico
Wow. It’s crazy how much it went down from this! Definitely “money that I can
afford to lose” type of investment!

------
antoineMoPa
It would be so beautiful if we could start back the global economy with more
remote work & less oil.

~~~
dumbfoundded
A wonderful thought indeed. Maybe in addition, if we take some of the
handwashing seriously every flu season, we can reduce death rates from many
diseases.

------
mister_hn
Still, diesel & co. are highly priced at the gas stations.

I'm waiting for the Oil to go again up and then the gas station prices further
up

------
ww520
Since oil underpins the cost of so many things, are we seeing the beginning of
a deflationary cycle?

With central banks around the world pumping money into the economies, can the
extra money counteract the downward pressure?

It's a weird time to see glut of oil and glut of money flowing around.

------
ornornor
And yet price at the pump is still as high as ever.

~~~
tree3
Except it's not. Prices near me (Western US) are the lowest I've ever seen.

------
adelHBN
According to CNBC, in some parts of the U.S. oil is selling for $4 a barrel.
That's 4! This is crazy. Putin is out to monopolize the oil market, and since
Rosneft is a state company, he can weather the long term pain of cheap oil
versus our private fracking businesses that need to make a profit.

