Note that this is for the May contract, which closes tomorrow, and anyone left with a contract then will have to actually take delivery of the physical product. Since we are in supercontango (oil storage is full, causing spot prices to be significantly lower than forward prices), I am guessing that traders who are still holding on to contracts and don’t have available storage have to unload contracts pretty quickly.
The June contract, where most of the trading is happening, is at around $22, and the July contract is $28.
What I don't understand is why the sudden move today? Did the longs think they had a place to put the oil on Friday but found out over the weekend they had no place to put it? Just seems like you would know what to do with the oil on Friday.
Note this is not a rhetorical question, I would sincerely like an answer.
> What I don't understand is why the sudden move today? Did the longs think they had a place to put the oil on Friday but found out over the weekend they had no place to put it? Just seems like you would know what to do with the oil on Friday. Note this is not a rhetorical question, I would sincerely like an answer.
Guys like myself, an ex fund manager, could be tourists in the oil market. I know I was, speculating occasionally on oil without knowing a whole lot about the details. Plenty of macro guys are similar, they bet on the large movements as the opportunites present themselves and don't worry about the details.
So what has probably happened is some of these tourists have had a few contracts left over that they forgot about or didn't discover in their position keeping until their prime brokers phoned them, and they had to dump into a market under very special conditions. Hopefully not very many contracts.
In normal times if you screwed up and had to do delivery, it stil wouldn't be a big problem, because the storage is available and you essentially just buy it (by trading with a guy who actually knows how to organize it), costing relatively little.
This reminds me of Brian Hunter [0] of Amaranth fame. He was on the wrong side of a huge (multi billion USD) long trade on Natural Gas. When faced with losing it all, he doubled down. Blew up Amaranth. $9B USD hedge fund blew up basically overnight. Margin calls, etc, etc.
Disclaimer: I worked for the hedge fund at the time that bought Amaranth's holdings for pennies on the dollar. Was supposed to be a joint buyout with JP Morgan Chase, but Chase couldn't calculate the risk in time before closing and left us with all of the eggs in the basket. We ended up making a killing on the deal as we had the assets to weather the margin calls. I still can't believe anyone gave B.H. any money to trade with after that, but someone did...
One thing is clear to me - somebody is getting fired this week. Not sure if it's a hedge fund or producer, or a trader or a team, but someone is getting fired.
A really risky (but I think worth the risk) bet is to buy the front and sell the back. You will receive a huge credit, and as long as you close out the back leg below what you sold for, you’re in the clear.
This isn't possible, except for people who can deal with the physical logistics. If you buy the front, you need to put the stuff somewhere for a month.
Chances are the people who got stuck selling at negative prices were actually doing just what you describe, they just weren't planning on the spread blowing out from physical issues.
And storage has not run out yet. Cushing is not full. The problem is traders are anticipating storage will become very expensive as remaining capacity decreases, so if you’re holding on to May contracts and you’re not using the oil because there’s a glut right now then you’re going to be paying a lot more to keep storing the oil for future months as storage costs go up. The huge discount reflects that cost.
Sorry to miss it, but how does this answer my question?
I asked why they weren't prepared on Friday. Storage has been expensive and getting more expensive for weeks. We've been in a massive contango for weeks. Why weren't they prepared on Friday for physical delivery?
Most oil traders don’t actually want physical delivery. They are just trying to profit off price movements. Traders have moved on to June contracts already. There’s no volume on May contracts at this point. No one wants to actually pay for physical delivery so the price is tanking since there are no bids as we get closer to expiration tomorrow.
So does this mean that without bids there are potentially many traders, not refiners or tank farms, holding those contracts still? That those traders will get stuck with taking delivery because they couldn't unload their contracts?
People with just a paper office, used to deal in numbers rather than anything physical, and with no place to store physical goods, will now have to figure out where and how to store lots of oil?
Having worked in the finance industry my entire career, most (responsible) firms have means for dealing with taking physical delivery. Less responsible firms, not so much and may be royally screwed if they have to take delivery. I've heard anecdotally of a firm that had to take physical delivery of a shipment of coal. They didn't have plans in place, but because they had an address on a river, the coal arrived via barge. No, I don't recall the name of the firm, and yes, it's just an anecdote/hearsay.
I'm going to try and translate the simplest concept that tempsy is saying.
The sellers were looking to sell for most of last week, however there fewer buyers as the contract approached its end, and those who were willing to buy wanted a lower price:
Volume of transactions on Friday was 344k, Thursday was 111m, Wednesday was 147m. In the past 30 days, the low was 686k (ex Friday), and the high was 459m. Traders slowed their buying so the market became one sided.
That still doesn't answer: why wasn't it anticipated and reflected in earlier pricing (even if volume-weighted it would be a much smaller drop, it still seems to have been missed even from futures options)?
If you have the answer to the question you are asking, you should change careers into oil contract trading; you'll probably make a bundle.
In short, the reason nobody anticipated it is because the future is unknown. The reason any market is unpredictable is because there are too many variables to account for.
I think he's asking why the market didn't have a better estimate of storage capacity and utilization and what changed in the estimate from yesterday to today.
I think that has to do with how people sometimes do analysis for trading. There's fundamental analysis, which looks at exactly that when attempting to determine the price to bid for a security, but then there's the bubblier "technical analysis" which really just looks at historical and current trends and attempts to divine whether buying now means you might be able to sell in the future.
I'd imagine people just assumed perfect liquidity here, and that they'd be able to sell even "at a small loss which is better than nothing," not realizing that nothing or negative (i.e. you're gonna pay somebody to take this oil off your hands or build your own tanks) is a valid outcome.
I'm going to take a stab at a possible reason the "market" didn't see this coming: Everyone expected the US to top off its strategic reserves, which so far hasn't really been happening. Now that You could be paid like $37 (west Texas crude closed at -$37.63) dollars/barrel, maybe the US will reconsider. I certainly wish I could store a few thousand barrels...
US companies don't want to stop producing oil. Couple that with the Russia/Saudi Arabia skuffle going on over oil prices, I'm not surprised. What surprises me is the absolutely rapid/rabid decline in the price. It just seems like pure insanity to me...
> Now that You could be paid like $37 (west Texas crude closed at -$37.63) dollars/barrel, maybe the US will reconsider.
Indeed, it looks like the US is reconsidering:
President Donald Trump said Monday the U.S. is "looking to" add as many as 75 million barrels of oil to the Strategic Petroleum Reserve. Trump spoke after an historic day in the oil CL.1, +103.61% markets, in which the May WTI crude contract closed at -$37.63 a barrel, a one-day drop of 306%. Trump said he was considering the move "based on the record low price of oil," and that the action would "top it out." Speaking at a White House press briefing, Trump said, "we'd get it for the right price."
Based on a vague memory from years ago - so I could be totally wrong here - you're assuming knowledge he doesn't have.
Correct me if I'm wrong, but: The people doing the trading are middlemen, and have no capacity period. They expected to be able to sell it all off to the energy companies, even at a loss, so they normally don't accept any physical product. But the energy companies ran out of capacity - something the middlemen (traders) don't have direct knowledge of - so got caught unexpected with contracts they can't sell, and now have to accept the physical product.
> That still doesn't answer: why wasn't it anticipated and reflected in earlier pricing
Because despite the people that like saying all future events are reflected in current prices, the fact is humans, both individually and aggregated into markets, are imperfectly prescient, thus future events are basically never perfectly priced in to to current market prices.
People say things to the effect of “if it is going to happen, it is already priced in” all the time, on HN even.
> All KNOWN future events are priced in.
There are no such thing as known future events. Market participants estimation of the likelihood of future events, weighted by inclination and capacity to invest, are priced in.
The answer is, literally anyone with cash could sign up today and have an oil contract tomorrow. It is extremely easy to take part in oil contracts trading and those people who basically just have an office can't actually keep the contracts now and must unload. Contrary to what people think, you don't have to be an expert or have any special knowledge to trade physical contracts.
It might go negative - no, just has, as I write - if you were bag holding on Friday you might carry on in the hope of some recovery, but you don't want physical delivery so you were always going to sell today no matter what; closer it gets to expiry, or to $0, the more push has come to shove and you're finally closing your position.
Most traders don't have any oil to sell. What is left are those who have storage space making a deal on the traders too stupid to get out already. This isn't many, but since there is no demand those with storage space can offer very low prices and get the rest of them.
-$37.00 is a distress price, just for the unwitting investors who agreed to play “Hot Potato: Bloodsport.”
By definition, you’re looking at the price for people who wouldn’t want to play, if they could avoid playing. They are literally over a barrel. If they don’t get out, the broker gets to screw them even worse at the deadline.
Volume was up, because some people were going through heroics to close their position at all costs.
But the end of day price is for those who got screwed: the truly unaware who didn’t realize they were out of time, or didn’t think about it going past $0. It’s probably relatively few people, despite today’s volume. When you lose control, someone agrees for you that you’ll pay $37/bb to get out.
It's only a paper loss until you sell. Everybody was hoping and praying things would change and now that it's abundantly clear that it's not changing, they're desperately trying to unwind their positions.
Not really. If you hold contracts at expiration (May expires tomorrow) then you are forced to take physical delivery of oil. No one wants oil right now, and if you take physical delivery you’re going to have to pay big premiums to store oil at Cushing. The discount reflects the premium storage costs.
Most oil traders just want to profit off price movements and not actually own physical oil. There’s no volume on May contracts now they’ve all moved on to June.
Chapter 200 doesn't go into much detail but chapter 7 (for metals) explains how the exchange will facilitate an independent middleman to store until arrangements are made and they will bill you for that service.
I have not been involved in chapter 200 operations but I've heard socially this occasionally happens relating to substandard product. "We agreed on light sweet crude in the contract but you tried to deliver sour tar". The exchange knows its all going to get dragged into court eventually, so they try to be fair and transparent and well documented. There are plenty of people renting tank space as a normal business operation.
I don't think you're going to get Force Majeure protection. That's for something neutral to all parties like a hurricane, not one side of the contract didn't feel like closing out and doesn't have tank space lined up.
My understanding is you still take delivery. It might be in the form of a fleet of tankers or barges arriving at your office. But, you will take delivery, whether you like it or not. Any responsible trading firm that deals in futures should have mechanisms in place to deal with physical delivery.
They have been trying to sell, but none was buying. The closer you get to the expiration date, the lower you are willing to go to sell. Since contracts expire tomorrow, traders are willing to go all the way to avoid getting physical delivery.
Yes, it was predicted successfully (by everyone who is no longer holding a contract). It was also not predicted successfully (by everyone paying through the nose so they won't have to find a place to stash some barrels of a volatile compound).
How far do you want to take that argument? If successfully predicting it would mean that prices dropped to zero on Friday then shouldn't that have also been successfully predicted and impacted the price on Thursday? What about Wednesday, Tuesday, Monday?
If cushing is not full, why aren't people buying at $2 a barrel now and storing for one month, selling the June contract at the same time and collecting a $20k profit per contract?
This is a good question. The fact that people are not buying the May future at -$37/bbl and selling the June contract at $20/bbl tells you that Cushing storage must effectively be full and that the theoretical storage figures quoted in research are not practically usable (at least at short notice). It's very hard to imagine any practical means of storage that isn't wildly profitable to utilize for $57/bbl/month.
Mostly the storage cost. Let's go extreme, say you managed to grab the contract at $0, which may actually happen today. Now you need to 1) Find transportation and storage 2) Sell it on the market as quickly as possible, at a reasonable cost.
Pretty tough TBH, unless someone is planning a war in Middle East and is grabbing up the contracts and you know about it...
Because of storage costs and uncertainties, it wasn't only the saudi-russia fallout that caused this - demand has literally flatlined comparatively due to lockdowns everywhere.
>why aren't people buying at $2 a barrel now and storing for one month, selling the June contract at the same time and collecting a $20k profit per contract?
Good question. The answer is because they don't think it will be profitable. Why aren't you?
Me, personally, because I don't even have a futures account at a broker that will let me take physical delivery, nor do I have any experience whatsoever renting tank space at the Cushing facility (which I didn't even know existed before today). But I guess the answer to my question seems to be that the cost of storing one contract worth of oil will, unbelievably, be more than $20,000 for the month.
I've never been to Cushing Oklahoma. I feel like it should be possible to build a big tank in a week or two. Why isn't available storage space skyrocketing?
I honestly don't even know if I can fathom how you could get permitted to build such a tank in a couple of weeks, but the answer to why that isn't happening _right now_ is probably because nobody wants to lay out a bunch of capital for a business that might do well contemporaneously but that has no future.
Either things settle back down to normal at some point, in which case you've made some revenue, but probably not recouped your investment. The Cushing facility managed to build 7 million bbl capacity in the early 90s for $60 million. I expect it would cost $80-100 million to build today. Current (inflated) storage costs are 50 cents per barrel. Let's say that rises a LOT and skyrockets to $2 - that's a gross of $14 million per month. Assuming $0 in overhead, you'd need for this contango to last for another 7 months to break even. If we assume something like a 30% margin, then you'd need it to last around two years.
Alternately, things don't return to normal. The market becomes depressed enough that airliners barely fly, and the global world consumption falls. The oil you're storing becomes cheaper to the point that storing it costs more than buying it, and there's nobody to sell it to. Your customers default, and your investment quickly becomes the thing that bankrupts you.
7 million barrels * $30 a barrel = 210 million just to take the oil. Plus $20 a barrel when you sell it brings you to $350,000,000 in revenue on a 7 million barrel tank. What am I missing, other than not being able to build the tank fast enough?
I mean, if you have a spare $300 million lying around, that sounds like a fantastic arbitrage opportunity, and (napkin math time) if you're holding the barrels for more than 10 months, that'd be the way to do it.
Assuming you can transport a 100+ pound liquid filled drum to a disposal facility that meets federal guidelines for less than that cost, and don't care about the environment, absolutely... but the real trick here is in knowing that the people who are already using oil and have the capacity to store it ... are... so other than just burning it, for a couple hundred million, you could probably supplant your stationary oil consumption with a non-petroleum alternative.
It is ironically the portability of oil-refined products (gasoline, diesel) that makes it so appealing for things that aren't stationary -- planes, cars, etc.
There are regulations covering storing enormous quantities of oil, including certification of the holding tanks etc.
For example, any container over 55 gallons is subject to EPA regulation and counts towards the total permitted site quantity. Storing more than 1,320 gallons above ground requires the site to have an approved SPCC (Spill Prevention, Control, and Countermeasures) plan.
You can store 42,000 gallons below ground but that requires excavation, permits etc.
There is a little bit more to an oil tank than just steel walls. You need proper foundations, fire prevention systems, disaster plans, probably get hooked up to the pipeline network, etc etc etc. Even if it were quick, the amount of oil being pumped up is massive and you need more than a few tanks to store it all. Finally, tanks are long term infrastructure and it might not be profitable to build out storage too much just in the hope of catching once-in-a-lifetime negative pricing events.
Yeah, it's worth building these tanks safely.
There was tank fire last year in Bay Area after a quake: https://www.youtube.com/watch?reload=9&v=KMZjfWRXgTs
Even if there is different level of risk and safety concern, and air quality regulation in rural Oklahoma vs urban CA bordering a highway, these can catch fire dramatically.
One point made when that fire occurred was that the tanks are placed in earthen basins, so that when tank fails, the flaming fuel just fills the basin, minimizing risk of spreading to neighboring tanks.
Speaking of oil tank fire prevention, videos of foam fire suppression systems are pretty impressive. A gasoline tank fire goes from massive flames billowing into the sky to totally extinguished in 40 seconds.
For example: https://youtu.be/OxLPvNdv2t4?t=210
It's not possible to build a tank in two weeks, even if you had all the material and equipment at the ready. Plus, capital intensive for what may only be a spike in storage.
These physical goods are much harder to store than bits.
> I feel like it should be possible to build a big tank in a week or two.
When is the physical settlement of the contract? My understanding is that physical settlement of the May futures contract is 21 April (that is, tomorrow).
So you don't have a week or two to build your big tank. It needs to be finished tonight.
Our intuitions are so different I'm not sure if you are joking or not.
My guess is that the build time is 1-2 years with 5 years of permitting up front. I also imagine building capacity is capped with a limited number of trained engineers/welders.
Many have answered about storage costs. Easy way to think about it might be a grocery store.
You hear about a sale on cereal for $0.01 a box. Great deal but then you find out that you can't walk there, you can only take Lyft/Uber and it costs $100 each way to get to the store. So in reality its not as good a deal as it sounds.
The part about depending on only semi-reliable third parties for your logistics, or the part about the supply chain costs being 1000x your material cost?
Also full. The proportion of the global tanker fleet that is just full of oil sitting off coast near refineries is at an all time high.
A lot of speculators were betting that oil prices were going to go up and had rented ships and filled them with oil they though was cheap, before COVID-19 even hit. Since then, oil prices have absolutely cratered.
In a discussion about negative future prices no less. If buyers could refuse physical delivery, that's what they would be doing now, not selling at negative prices.
You still have to store the oil for a month. Which is expensive right now. Which is precisely why the May future is so cheap in the first place. I'm just rebutting that you will be stuck with the oil after June. Since they specifically said, they would sell a June contract immediately.
It just implies that any profit made by arbitraging June contract with May by taking physical delivery doesn't cover the storage costs (which is hard to believe at $22 difference but that's what market seems to indicate).
Just a guess, but maybe the consensus is that June is going to be the same (or worse) as May and they are going to have trouble unloading those contracts?
It may come to the point that you're paying some to take the contract.
You're selling the June contract right now. There will be nothing to unload. Whoever is holding your June contract when it expires will be the one left holding the bag (well, the barrels). That's the whole point of futures.
The problem is that you have to store the oil for a month which is pretty expensive right now.
Because storage is not free, and if that were such obvious profit, why would the guy writing you a May contract not do that themself, and write June instead?
By definition all open futures contracts have to either a) be Physically delivered Or b) be closed (remember that for futures contracts there is someone on each side (prepared to deliver 1,000 bbl and prepared to receive 1,000 bbl)
Now if you are a financial participant you need to close out your position as you are not in a position to either deliver/receive physical oil - so you need to essentially pay whatever it takes to close out the contract. In normal times there is plenty of storage and physical participants that are willing to provide liquidity as the contracts come to maturity. Now imagine you are a physical participant, and now space is limited/storage is expensive/ natural buyers aren’t buying (refiners) - you are not going to pay much to buy the oil of a financial participant who needs to sell the May contract to roll into June/July...
This isn't true for all contracts. For example, gold contracts are/can be settled for cash. I remember during the Great Recession talks about gold conspiracies and that gold futures contracts can be forced settled in cash instead of physical delivery. I'm not sure if that's true or if that's part of the futures contract, though.
> Did the longs think they had a place to put the oil on Friday but found out over the weekend they had no place to put it?
No, the Friday longs had a place to put it. But given it's late in the month, the people buying on Friday were probably finishing up their orders for the prompt month. Today, by comparison, there were no buyers, only sellers. Hence the drastic change in price. If there had been more buyers, the price would have been significantly higher (this is why next month's contract price is so much higher (in the $20's).
> Just seems like you would know what to do with the oil on Friday.
To be clear, they did. The people who had oil for sale and were holding out for a higher selling price who did not sell what they needed to sell last Friday are eating their shirts today. Their "greed" (relative, not necessarily Gordon Gecko style greed) caused them to lose a lot of money. Somebody will be firing oil traders this week. Not sure if that will make headlines. But somebody's book definitely blew up because they tried to get a higher price last week and ran into today's sale. Could be a hedge fund, could be an oil producer. But definitely look for this news soon.
> "What I don't understand is why the sudden move today?"
time is information, so closing out an option (like a short or a futures contract) prematurely tends to eat value on average.
however, in this case, the new information was so material and overwhelmingly bad, that you're probably correct that most should have closed out early and taken a smaller loss.
The May contract was still selling at $22 as of last Tuesday. I don't know much about oil markets but my base assumption would be that we would do this whole thing over again in 30 days unless something significant happens in consumption or production? When do the output cuts begin?
I wouldn't touch this market with a 10 foot pole. It is absolutely ripe for government intervention and abuse. And if the fed does get involved they aren't going to be in there to bail out the short sellers.
I heard it wasn't funded, but can't the US strategic reserve take these contracts at a negative price and fill up on cheap oil?
It would seem like a prudent thing to do because it can then be used to restart the economy later and make a decent profit to pay off things like all these Covid checks.
It’s not that there’s no storage capacity left, it’s that if you have May contracts you are going to pay a big premium to store oil in Cushing as capacity decreases in future months. The discount reflects the storage cost premium.
If you have an old oil field that is at end of life, couldn't you pick this stuff up at $-40.00/barrel and pump it back into the empty reservoirs? I'm sure there is regulation against it, but if it was once a production reservoir, why couldn't you store it there? You would have to drill. You wouldn't have to do much at all.
You would need a suitable formation in terms of geological properties and then you'd need to drill and complete an injector and a producer well. Best case, you would probably lose half the stuff you're trying to store due to multiphase flow in reservoirs being a total drag. Worst case, the oil you're storing isn't compatible solubility-wise with the residual oil left in the reservoir, and you cause massive asphaltene precipitation and lose your entire storage well.
It is hard to take delivery if you don't want to. These contracts have lots of safeguards to separate delivery from ownership.
There are lots of ways to have a contract, but one example of why this is done is if you have oil and on a slow boat. When the oil is loaded onto the boat the well owner wants to be paid, while the ship owner doesn't want to buy it, and the destination does not doesn't want to pay for it. This the ship will pay for the oil by selling a contract, the ship already knows where it is going, but they don't want to have ownership of the oil. By selling the contract on the same day they get their money back and don't lose money if oil goes down. Then they sell the oil on the other end and pay off the contract. Of course in the real world it is more complex but in general the destination is already known what isn't known is how much the oil will be worth when it gets there.
Note that I said hard to take delivery when you don't want it. Such things do happen despite safeguards. They are expensive mistakes for everyone (the ship delivering oil can't unload and so will miss the next dock while running for someplace that can take it), so there is a lot of checks in place but they can fail.
The producers aren't gonna dump it (at least not in the US) because that is a surefire way to not only have the EPA bend them over but to have the EPA bend them over with the blessing of public opinion. Nobody wants to have their company be associated with pictures of oil soaked wildlife.
If you're an oil producer, you don't need to "dump" oil in the surrounding environment. You can just pump it back into the oilfield you've been extracting it from.
> The enforcement discretion described in this temporary policy do not apply to any criminal violations or conditions of probation in criminal sentences.
...
> This policy does not apply to imports.
They are relaxing REPORTING requirements - not giving a free pass to anyone dumping whatever they want. Obviously.
From the memo that generated the news story you linked:
> IV. Accidental Releases
Nothing in this temporary policy relieves any entity from the responsibility to prevent, respond to, or report accidental releases of oil, hazardous substances, hazardous chemicals, hazardous waste, and other pollutants, as required by federal law, or should be read as a willingness to exercise enforcement discretion in the wake of such a release.
If one wished to be nit-picky, one might note that the part you quote is explicitly about "accidental" releases, so arguably does not apply to the deliberate release that the originator of this thread branch was talking about. :-)
There is a separate note about criminal violations not facing “enforcement discretion”, which unless I'm mistaken covers pretty much any intentional release.
> The enforcement discretion described in this temporary policy do not apply to any criminal violations or conditions of probation in criminal sentences.
...
> This policy does not apply to imports.
They are relaxing REPORTING requirements - not giving a free pass to anyone dumping whatever they want. Obviously.
>Note that this is for the May contract, which closes tomorrow, and anyone left with a contract then will have to actually take delivery of the physical product.
Not really. Almost all contracts are cash settled.
> Not really. Almost all contracts are cash settled.
The parent comment is 100% correct. You're missing the nuance of how commodity futures trading works. Yes most are cash-settled but there is a date after which if you hold the contract you're promising to make or accept physical delivery. The commenter is saying we reach that point for the May oil contract tomorrow so anyone who wants to settle in cash has to do so by tomorrow.
Yes, this almost happened to me once when I was trading futures. My broker called me several times throughout the day and I couldn't take the call. When I finally did, he told me to roll my contract forward that day otherwise I would have to take delivery of 1000 bushels of corn.
My grandfather in Colorado did the opposite once in the 1970s. He needed some cattle, so he bought a small quantity of cattle futures of some form (I was too young when I heard the story to remember the details) from a broker/commodity trader in Chicago.
When the contract approached the settlement date, the broker called to ask him to sell. Trouble was, my grandfather just wanted cows, not cash. The broker was frustrated to no end.
Long story short, my grandfather got the cattle, as the contract required, but was asked by the broker never to do business with them again.
N.B. Don't do this unless you're interested in financial silliness, or if the futures are really badly mispriced. It is a lot easier, and you get to see the cattle first, if you buy through a local cattle auction.
yeah, this just makes the whole business of futures trading seem like a scam where the people actually interested in the things being traded are pawns.
There's a story online thats floated around for a while about a guy that ended up with like 10 tonnes of coal this way. Was delivered via barge somewhere if I recall correctly.
Worse it isn't 1000 bushes at your home it is at some transfer point several states away. If you are lucky it is an elevator that sends you a bill for storage and can unload them. If you are unlucky you need to get a truck (with a driver) there on short notice to get it out of there.
If I remember correctly, in contrast to WTI, you will get assigned a shipping/warehouse certificate for wheat/corn in a designated elevator somewhere. You'll have to pay the warehouse a daily carry cost but don't actually have to take it out of that warehouse (you can if you want to).
True, but there will be checking to ensure that you want oil if you are not normally a destination for oil. Trying to deliver oil to someone without a loading dock will be a problem that hurts many people trying to correct.
The specs for delivery are always very clear because price depends on where it needs to be delivered!
"Delivery shall be made free-on-board ("F.O.B.") at any pipeline or storage facility in Cushing, Oklahoma with pipeline access to Enterprise, Cushing storage or Enbridge, Cushing storage."
What does it mean to be "normally not a destination for oil" and who is doing this checking (do you realize the volume of oil that is traded monthly? The futures market being discussed here uses standardized contracts.
Not everyone is allowed to trade, there are rules if you don't have ability to accept oil they make it hard to get a contract that doesn't sell automatically. (not impossible, but a mistake guns up their processes so they have procedures to avoid it)
And you get the entire month of may to take delivery. If you become an accidental owner of crude oil tomorrow, you still have time to arrange a solution with someone that can take it. Financially, it doesn't sound like a good situation to be in though.
Yes, but a very very low percentage of the contracts that expire result in delivery. Delivery is expensive. It's cheaper to get oil through a supplier.
That’s true but not really relevant here. if traders are holding on to any open contracts for May past tomorrow, then I believe they will have to take physical delivery.
Thus, traders who still have contracts open but cannot take physical delivery will have to close their positions out today or tomorrow, thus causing the dip we are seeing.
The percentage of contracts that result in delivery is only a marginal factor in this case. The fact that physical delivery exists makes it so that positions must be closed out; even if the May contract is down 44% on the day and you thought you would be clever buying the dip on Friday when oil couldn't possibly go lower.
If the pandemic lasts longer than 6 months, which is quite likely, many high-cost oil producers might not survive. Some would argue this could lead to shortage and a much higher price later on, but long-term oil demand could also be affected.
There might be some semi-permanent change in people's behaviors if the epidemic continues for many months. Many people will form a habit of doing more things at home/online: more takeouts, more online shopping, live/recorded video classes, virtual meetings, telehealth, etc. Better online services will also spring up to support the habits/practices.
Since online activities often save time, the new habits could become a new equilibrium: people/companies who adopt them will often have an economic advantage, influencing others to do the same. Thus, oil demand could be significantly diminished long-term as well.
If this comes to pass, I'm all for it. If we could take the demand we saw for oil, and put it into demand for high-speed Internet, we could see completely new, blue ocean markets.
Imagine a surgeon being able to control a robotic surgery tool from the comforts of his/her home, where you have to have extremely low-latency or guaranteed low-latency networks. Or imagine mecheng offices running simulation jobs in the cloud or an on-premises instead of each having a workstation, and being able to cluster that compute together. All these have been possible to some degree with existing technology, but now we have a paradigm shift and market acceptance that unlocks new business possibilities.
Nice to imagine, but the speed of light is too slow for a lot of low latency applications. After you allow the infrastructure some latency. A dedicated line might work, but without the network that is expensive.
>Nice to imagine, but the speed of light is too slow for a lot of low latency applications.
Is it? Looking around, it seems average visual reaction times (VRTs) are on the order of 250 ms, and even the fastest VRTs are well over 100 ms. A study looking specifically at medical students for auditory and visual reaction times ("A comparative study of visual and auditory reaction times on the basis of gender and physical activity levels of medical first year students" [1]) also seems to support those numbers in the medical context, and while experienced surgeons could be expected to be somewhat faster that paper also links to research indicating hard biological minimums:
>"Researches by Kemp show that an auditory stimulus takes only 8–10 ms to reach the brain, but on the other hand, a visual stimulus takes 20-40 ms."
If we want to be quite conservative and aim to keep latency to single digit ms, so sub-10ms, then the speed of light in standard fiber gives us an RTT limit of around 1300 miles. Going more conservative and assuming actual route having to essentially follow the legs of a right triangle, that still gives a radius of around 460 miles, with a set of reasonably conservative assumptions. That seems plenty good enough to cover an enormous amount of work-from-home (or at least work-from-different-location) when it comes to actual existing medical practices, where I doubt most doctors at hospitals live >460 miles away.
I would agree that there are real issues with the idea, but more in terms of the risks events like network disruptions than the speed of light.
I think you've mixed up your logic a bit. A slow visual reaction time means that surgeons are already reacting slower in the real world. Any latency added (!!) by a network further adds to the delay between surgeon reaction and real world stimulus.
You argued that when we compare the average VRT additional latency is not large. But you should have argued that there was enough buffer between average VRTs and the time needed for a surgeon to react to allow adding to average VRT.
i.e. If we imagine driving a car with a video camera, we don't really care about latency vs reaction time. We care whether latency + reaction < accident threshold.
>You argued that when we compare the average VRT additional latency is not large. But you should have argued that there was enough buffer between average VRTs and the time needed for a surgeon to react to allow adding to average VRT.
If you look at the paper I linked, it includes not just the mean but the standard deviation, which is on the order of 10-20ms. That means we are already by definition accepting that kind of variability regardless does it not? If +/- 10ms was critical, it'd imply we should be filtering for that already but it doesn't appear that's the case at all. Furthermore, hunting around for other research on the subject indicates far higher variability than that is also introduced by standard stress factors (lack of sleep, overload, distractions, etc). All of which are strongly present in existing medical practice as well. To the extent working remotely might reduce some of those it could in principle even effectively cancel out a 10ms penalty.
I stand by saying it's not at all clear that sub-10ms (or potentially even higher) would at all be the critical factor preventing remote work. Speed of light seems to be far less important then factors like total network disruption, robotics reliability, etc.
If last-mile network is too much, you could have a colocated office park / operations center next to a hospital with a dedicated high-speed network. Then each surgeon can schedule / manage a patient without having to walk to a different OR, change scrubs, or be exposed to contagious viruses.
Mecheng tasks could be async / queue-based and latency wouldn't matter too much.
Regardless, I think it's really important to keep your bias for action high during this period of time.
It’s common enough not to be a gimmick, but the real advantage is allowing surgery to be done by a limited pool of specialists that can cover wide areas.
So potentially the next step is specialists covering whole regions where the latency of fiber is still acceptable. Then as the equipment and training for telesurgery becomes more available/costs come down, you might see it used for smaller benefits of sterilization and travel/cleaning time within a hospital, even for more common/less specialized surgeries, and even if it's just a surgeon located at the same building or facility.
> mecheng offices running simulation jobs in the cloud or an on-premises instead of each having a workstation, and being able to cluster that compute together
that's totally a thing. worked on low-latency, high resolution remoting software for this purpose exactly. Buy a bunch of beefy servers and have scientists remote in from a laptop to run graphic intensive simulations, rather than buy a workstation for everyone.
I never understood why as a company you wouldn't prefer an on-premises computer cluster with some overhead and give employees thin clients, rather than give everybody MacBook Pros. Thin clients + servers make much more sense to me from a business perspective. They seem much easier to secure (just revoke some keys if you need to fire somebody), much easier to give everybody a reproducible dev env and avoid a lot of shenanigans, and saves money.
I worked for a financial company that ran a private cloud. They provided everyone with beefy workstations (16 physical cores, 32 GB of RAM). 3/4 of those resources were allocated to a VM that ran a custom compute platform that took jobs off of a queue. The explanation was simple. it was easier/cheaper to leverage the workstations than it was to build out the same compute in the datacenter. Granted, there was about a 5 degree temperature differential between under and over my desk, but I didn't complain. Kept me nice and toasty while I worked. This was +10 years ago. Each workstation had 2 Intel Xeons plus an nVidia Quadro for GPU work. Not sure if they've kept up with the tech, but I imagine they have. $10k/workstation wasn't a problem then, and from what I hear, it's probably not a problem now.
One recurring issue was the customer's network latency. A corporate vpn that bounces traffic around adds enough latency to make a really good solution feel comparable to using vnc. Reorganizing the network adds to the cost of the solutions.
I'm currently experiencing this. I live near my office and have sufficiently fast home internet. But connecting to the company network and attempting to work on a machine remotely is very painful. Working locally and commiting or accessing mail is still painful, but managable.
But a key part of this is simply how much Russia and Saudi Arabia want to pump. The whole purpose of the price war was to drive high cost producers out of business, but that combined with the severe drop in demand sent the price to oblivion.
Also, this could catalyze a shift to people doing more things remotely. But will that reduce oil consumption significantly? Don't forget about induced demand.
Right now, I can head down the freeway in what used to be rush hour without any traffic. If that persists for any length of time, people will start buy McMansions on former farmland until the freeways get packed back up again. They will perhaps order their products that will be produced with petroleum in China, and shipped on container ships, and trucked to Amazon facilities, and then delivered in gas-burning vans.
I think as long as the economy keeps growing oil consumption will keep growing, until something cheaper than oil comes along (either through technological breakthrough or subsidy).
Low traffic won't persist long-term, so most people with a job in a city will not move, unless they and their partner both get stable remote jobs.
Increased use for transporting goods is plausible, but generally it is more efficient than transporting people.
For most products, lower oil price might not contribute much to lowering its manufacturing cost, only for logistics, so it's unclear how much induced demand will apply to finished goods.
Not to mention people that can't relocate. I, for one, cannot relocate on account of proximity to my step children (whom I've not seen for months due to quarantine). I'd be perfectly happy to work remotely from a site in Montana, given I had decent internet. But, because of my step children, I can't for at least another 7 years. Until all of my step kids are in college, at least, I'm stuck being in the Chicago area (otherwise, my wife would divorce me if she couldn't see her kids).
You'll also see the economy in the fourth largest city in the US - Houston - collapse. It's not just the large energy companies here, but the entire ecosystem of companies that support the energy industry here.
I used to work in the industry. In the near term after a price drop, companies will still have projects they need to work on, and they have cash buffers on hand so they don't have to axe their whole staff after a bump in the road.
However, those cash reserves will quickly burn though. And the worst part is a lot of Houston's economy is buttressed by oilfield services companies, which make all their money off drilling new fracking wells.
Right now, it makes 0 sense to drill new fracking wells (-40 sense, to be more accurate), and they have big loans on billions of dollars worth of equipment.
It's gonna hurt soon, and it's going to hurt very bad.
Yes, most of the major oilfield service companies have started layoffs, and they're starting to ramp up. During the last oil downturn, 2015-16, it wasn't just the O&G upstream/downstream companies, it heavily impacted manufacturing (Houston is a big manufacturing center) companies, real-estate, etc.
We're already starting to see some of this, but it's also getting swept up with the pandemic lockdown, so it's hard to tell one apart from the other ATM, except that oilfield services are shedding employees quicker than other large firms, anecdotally.
Edit: it's worth noting that while the last downturn was heavily impactful on the energy, manufacturing, and real estate sectors, the recovery was pretty quick as the overall impact to the economy was about 1.6% down, and the rest of the overall economy was booming.
One of the popular indicators is number of listings and prices for F-250 class and bigger trucks, especially in places like West Texas and North Dakota.
Of course the automotive market in general is "non-typical" at the moment, so there are probably multiple interpretations to be made of whatever the market status is.
Though I'm from the US I currently live in Alberta, Canada, and can confirm.
I recall seeing CBC news articles about all of the cars and trucks left abandoned in the parking lots of the Edmonton and Calgary airports. All of the out-of-province workers just split once the pickings became poor. Cheap Tacoma trucks for a year or two, I regret not picking one up off of Kijiji (aka Canadian Craigslist) while I had the chance...
The best time to pick up a used truck/boat was to pay attention to the local plants where workers were going on strike (not even counting layoffs in times like these). I saw this extensively in the Pacific Northwest (Eastern Washington, Northern Idaho, Western Montana). Any time any of the big plants or mines striked was a good time to be buying used.
Currently over 20% of Houston office space sits empty (compare to Denver/Chicago ~13%). That’s because we haven’t even absorbed the empty office space left from the 2015 oil downturn. Office owners are now doing very favorable deals for new tenants as they brace for the coming bankruptcies, rent relief letters, and space reductions.
This is likely to be painful for many more months in Houston, even if there is a quick recovery from COV-19.
> If the pandemic lasts longer than 6 months, which is quite likely, many high-cost oil producers might not survive. Some would argue this could lead to shortage and a much higher price later on, but long-term oil demand could also be affected.
Even if they all declared bankruptcy, their infrastructure would still be there. I'd imagine someone would buy it and bring it back online if/when prices recover.
Depreciation exists, and for mining investments, it's quite fast. Without extra investments, in 3 years most of that infrastructure won't be there anymore.
Fascinating. Is crude oil extra corrosive or is it something in the environment? Ocean salt water is highly corrosive but then what about equipment on land? Is there something that could be done to make an idled investment last longer?
Factoring in as well impact to air travel (business & leisure), cruising and the likelihood that it will take some time for certain sectors of the world (Travel and Tourism comes to mind) years to reach back to 100% of 2019 levels even in a post vaccine world.
This not factoring in the structural changes to demand like electrification, and who knows what kind of energy transition stimulus money could be deployed in the coming quarters to kick start things back.
I am thinking it is of ever increasing likelihood that the “most oil consumed in a day ever” in human history could actually behind us.
Not really , Chinese demand had dropped sharply in late January due civoid shutdowns . The original production cut discussions were influenced by that significantly.
Saudi/Russia likely did not anticipate a global lockdown and decided to get into a price war to keep their absolute revenue numbers stable albeit by increasing production under reduced prices ,that has of course backfired spectacularly.
Interesting math question: When we now start at a negative price tomorrow, what does a percentage change mean? Today, we have got losses >100%, unusual but obviously possible. But if price changes tomorrow from say $-10 to $10, is that again -200%? Does a change from $-10 to -$20 mean +100%?
(I obviously know percentage changes are not made for this)
If I take 10$ to take some asset, and then later sell it for 20$ my return is 30$ and my investment was -10$, so my ROI comes out as -300% which betrays what's going on. So even with ROI, negative numbers throws a wrench in the machinerys typical assumptions.
Certainly broke the native stocks app on iOS. The graph only goes to zero, and the blue dot indicating the current price was rendered below the graph, in the news story section.
I work in finance. I literally ask this question of my boss today as I deal with market data. Didn't want a negative price to fuck with our systems (I've only been at the firm for 1 year, so not entirely comfortable with all our systems). Thankfully, we don't do much with futures, so we weren't too badly affected by this.
Also, we don't use int's. We use proper decimal types for currency values.
Is the deal here that someone said to someone with an oil well "brah, I'll pay you X to pick up N barrels of oil on the day that is Y", but the buyer doesn't actually have any place to store it, instead planned to sell the oil to others later? And Y-day is approaching fast and nobody wants the oil, so the middleman has to take a loss by trying to pay someone to pick up the oil, to avoid penalty fees from the oil well company I presume (as they'd have to shut down if they run out of storage I imagine).
“ The upcoming May contract’s expiry means traders are shifting their positions to June as they try to avoid taking deliveries of cargoes because of the lack of space to store them. That has opened up an unprecedented discount of more than $10 between the two nearest contracts.
This situation—in which the price of the June contract is far above that of the May one—apparently delights in the name “super contango.” People put a price on oil—they think it has value and want to own it at that value—but they also put a price on not having it now, and the latter price is quite high relative to the former. Conceivably, in theory, the latter price (what you’d pay to not have oil now) could exceed the former (what you’d pay to have oil eventually), leading to negative spot prices. We’re getting there:
There are signs of weakness everywhere. Buyers in Texas are offering as little as $2 a barrel for some oil streams, raising the possibility that producers may soon have to pay to have crude taken off their hands.
In ordinary economics, things do not have negative prices: If nobody wants a thing, if you’d have to pay them to take the thing, you just don’t make it. Oil is a little weird—it is hard to shut in and then restart an oil well, and there are all sorts of weird cartels and game theory involved in oil pricing and production—but the other thing going on here is that a global pandemic is pretty weird for commodity prices. The price of oil is not approaching zero because nobody needs oil; you can look into the future—or at futures prices—and see that, in fact, there is demand for oil. But right now, with the world economy closed, people need much less oil than they’ve got. If you have a thing that lots of people want, but that no one wants right now, it is hard to put a normal price on it.” today’s money stuff newsletter by Matt Levine
> In ordinary economics, things do not have negative prices: If nobody wants a thing, if you’d have to pay them to take the thing, you just don’t make it.
I think it's more that when something consistently has a negative price we reframe it as a positive one. Garbage has a "negative price", but we normally call it a landfill fee. Some kinds of grad school have "negative tuition" but we call it a stipend.
It's things switching signs that breaks this way of talking.
> In ordinary economics, things do not have negative prices: If nobody wants a thing, if you’d have to pay them to take the thing, you just don’t make it. Oil is a little weird—it is hard to shut in and then restart an oil well
Same as negative electricity spot prices, really. Hard to stop and restart a nuclear power plant.
> In ordinary economics, things do not have negative prices: If nobody wants a thing, if you’d have to pay them to take the thing, you just don’t make it. Oil is a little weird—it is hard to shut in and then restart an oil well
How would they do that? Power plants and generators need a load, cars and other transport needs somewhere to go and something to carry, and other infrastructure to burn fuel at any sort of scale just doesn't really exist except at the wells themselves. Flaring infrastructure was designed to burn large amounts of unprofitable gasses coming up with the oil and to prevent dangerous pressure build up, not waste tons of unrefined petroleum. Beyond the added pollution it's a huge safety risk that could destroy a bunch of wells.
> People put a price on oil—they think it has value and want to own it at that value—but they also put a price on not having it now, and the latter price is quite high relative to the former.
The price knows where it is because where it isn't.
"My grandfather rode a camel, my father rode a camel, I drive a Mercedes, my son drives a Lamborghini, his son will drive a Lamborghini, but his son will ride a camel"
"My grandfather rode a camel, my father rode a camel, I drive a Mercedes, my son drives a Land Rover, his son will drive a Land Rover, but his son will ride a camel"
For interesting context, the man who said that was born in 1912, his eldest son was born in 1943, and his eldest grandchild that I can find in 30 seconds of research was born in 1976. That is were the Wikipedia articles stop but the child predicted to ride a camel is certainly alive today and they might even already know how to drive.
People (justifiably) criticize the middle-eastern countries for a lot of things, but they are all aware that all the oil revenue is eventually going to dry up. Most of them have been hard at work transforming their economies for decades, not an easy thing to do when you're in the middle of a desert.
This seems unlikely to me, given the low extraction costs they have for oil.
I guess the biggest danger they would face is if they have to stop "paying off" their population, and this leads to an "arab spring" type of situation. But it seems even in that case they would unfortunately have the will and resources to use Syria-style brutal tactics to contain any uprising.
Saudi makes up shit when they say their extraction costs are $3/barrel. A lot of clever accounting in that one. Actual extraction costs are roughly $10-$15/barrel.
Posturing. They want to intimidate producers (and their investors) that have much higher extraction costs, like U.S. frackers and Canadian oil sands firms. "We can bring oil to $10/barrel and still be profitable," you can imagine them saying threateningly.
exactly what exhilaration says below! I work in the oil and gas business. U.S. independent oil companies are survivors. If I have to pick between the U.S. shale producer or Saudi kingdrom, I'll pick the U.S. shale producer every time.
Isn't there some real issues with the military being larger given the ruling family? Fear of a coup? I though they spent the money on fancy toys and not a big military.
But KSA has no ambitions towards becoming a global military superpower. For a long time it had a choke point on the economy through its resource monopoly. Until recently that was a much more potent weapon than any number of aircraft carriers.
Russia does have superpower ambitions, which is a rather more expensive business.
My cynical suspicion is that much of the KSA military budget is really just a form of kickback - or possibly protection money, depending how you look at it - to the US mil-ind establishment.
While the Saudis are some of the worst people in the world, their ambitions are limited to keeping the ruling dynasty outrageously rich and maintaining power on their own patch of turf.
The Russian establishment is far more dangerous. It not only has links to organised crime, it also has a complement of nukes, bio, and chem weapons. And it has a very developed infowar, hacking, and social destabilisation arm, based on techniques pioneered by the US, with some home-grown twists to increase effectiveness.
This oil war and related COVID crash are going to do huge damage to the economies of both countries - and a lot of others besides - with increased prospects for instability everywhere.
It's my understanding that KSA largely buys its military equipment from the US (certainly in regard to Army equipment and its air force). I'm pretty sure they're one of the countries approved for F-35 export, and they're known to be F-16 and F-15 customers. The F-35 is not cheap, the other two are relatively cheap (still in the millions).
I don't think anyone is expecting KSA to declare war against Russia, but they're currently at war w/ (part of) Yemen, and they're not exactly happy with Iran, either. The middle east is set to explode, even without US involvement.
After the WW2 House of Saud made an agreement [1] with USA that in exchange for the US Army support of Saud, they will pump any amount of oil that is needed.
Now not sure how long this will last, since the current price war is directly affecting the US producers. Time will tell.
The US is currently a net exporter of oil, or at least was until the recent price drop. Saudi Arabia's capacity of pumping oil is completely based on what they view as their best interest in making money while maintaining market share. That's why they tried to take US Shale oil out, and why they tried over producing recently to get Russia to come to the table for a production cut. They've also embargoed the US in the past.
The gold bars are already in the US, as part of the Nixon-Faisal agreements. That should not be a comfort to the Saud kleptocracy, as the Shah of Iran discovered.
Yes. He thought he’d be able to live his exile in luxury, but what he thought of as his assets (really belonging to the Iranian people he looted, of course) were frozen by Carter.
Not just Carter, the Supreme Court too. After Congress made a law to specifically make the seizure legal, the bank challenged the constitutionality of changing laws to be interpreted against the bank only when applied to that bank’s seized Iranian linked account. The Court sided with the government 7-2.
The Saud were still in power. If they lost power, all bets are off. It’s certainly not their sterling moral character that gets them so many free passes today.
Without a stable government in SA the Middle East would be even more chaotic than it is now. I think that's why after 9/11 a priority was made to keep the SA monarchy stable and in power.
If that were true, wouldn't it be counterproductive to destabilize the rest of the region (Afghanistan, Iraq, Iran, Libya to name a few) at the same time? I think the stability or instability of the Middle East is a function of how the US leaches resources off of it; in that if destabilizing the region gives U.S. interests more $$$, then so be it, chaos be damned.
They probably aren't making enough right now to pay for all of their commitments, but they definitely aren't losing money and they can likely borrow in the short term.
They wound up doing a limited sale to local investors. It has been suggested that there was some "influence" applied to the investors to put the price where it needed to be instead of at the purely market price.
This is a rather naived perspective on the strategic thinking and planning of the Saudi Royal family. They are heavy investors in renewable energy tech.
In the last 5 years, sure, especially with MBS holding the reins. But you can't just move your entire country onto solar power in 5 years unless you have huge hydro or battery resources already.
I doubt they collapse, this is a war of attrition started by the Saudis and Russia. They are attempting to force all of their competition (primarily each other) out of business by continuing to flood the market with oil. They are betting that they can outlast the other. These are both nations that care very little for their citizenry outside of the elites so both are willing to go to lengths other democratic nations would not.
Either side could likely stop this with the consequence only being loss of face.
I cannot imagine they meant for it to get this bad, though. I'm guessing they underestimated how bad the COVID-19 shutdown would be. They wanted it to hurt, but not this bad.
Are you sure? Everything I've read has said some variation of _Russia is heavily dependent on oil exports_ [1]. Russia has a massive cash reserve to weather this crisis but they're still being hurt just as badly as KSA.
From their Wikipedia pages, 40% of SA's GDP is oil[1] versus 16% of Russia's[2], also 90% of SA's exports versus 70% of Russia's. Certainly both countries are disastrously hurt by a collapse in oil prices, but SA seems to be worse off.
The Saudis also have a massive population of what are effectively indentured servants and the ability to get more or expel them at will, so that dependency comes with a degree of flexibility to modify their own economy.
Well, Saudi started this mess when they decided to declare economic war on Russia and take out oil production in North America as a nice bonus. As long as Saudi can pay the people in Saudi they should be able to weather the storm they started. The huge demand drop for oil just makes it quite a bit nastier.
Whatever hippy commune, theocracy, or warlord will arise to replace it, they will still keep pumping every drop of oil that they can out of the ground.
In that sense, it doesn't matter one bit what the House of Saud does, the machine they built will keep going long after its gone.
They've been talking about the House of Saud falling for decades now and it hasn't happened yet. Although I thought A few years ago the young prince was going to make a bunch of drastic moves away from oil in order to secure the economic future of the country?
Beyond a few articles in 2017, I haven't seen much of an update on that, anybody know if it was all just bluster, or are real things happening that would soften this blow coming?
Every Arab ruler has tried to do this for decades, but this is a HARD problem:
1) Their climate sucks
2) They have very little arable land and lack water
3) Production of electricity is expensive
4) A lot of interior cities - not a lot of port access
So, from a geographical perspective, what is SA supposed to produce that gives them a comparative advantage against the rest of the world? Then you move into the political/religious aspects:
1) Uneducated workforce, despite offering scholarships to study abroad for every one of their citizens
2) They import most of their labor from other countries, ergo, their labor costs are higher with respect to the rest of the world. A factory in India will be cheaper than a factory in SA, all else being equal.
These disadvantages make the only real route to a viable economy a service-based one. This is what Dubai has done - Dubai has done their damndest to establish free trade zones, a legal framework, and a tax regime to get companies to establish their MENA HQ's there (and they've done so accordingly). SA is WAY behind on this (I would argue irrecoverably behind).
Saudi Arabia is in a good location for logistics and transshipment hubs (although this is something else they've probably lost to Dubai). There's also obvious tourism appeal, due to the historic sites in the Hejaz (probably already maxed out though, unless they want to open it up to non-Muslims). The other obvious choice for a commodities producer is to move up the value chain: go from selling crude oil to selling petroleum-based products instead.
The biggest issue is the effect that the resource curse on the workforce, as you note. There is a small contingent of well-educated Saudis (largely found in Saudi Aramco), and the country has instead relied largely on giving their population sinecures in the government, which hasn't exactly done wonders for productivity.
Dictators/Kings can survive on a very tight budget btw. It takes a long long time for those structures to crack. The only reason they would leave town would be something related to the virus (like other western rich folks are doing now)
IIRC Saudi Arabia is a massive welfare state with significantly subsidized food, power, water and more - all paid for by oil. People might be more willing to revolt because of that going away than they would have had it never been a thing in the first place.
Survive in a small enclave in a third country with a small group of servants, sure. Survive as dictators, I am not so sure -- it requires keeping troops and those in key positions happy, which is expensive. My 2c
Why do either when you can just open an account in your own name in the USA and poor cash I to it? The minute Saudi starts to collapse, your allies have guaranteed you a visa so you can fly over, finally drop all this pious Muslim crap and spend your I'll gotten gains.
UAE and Saudi Arabia imo will be ok. They are trying to build themselves into big entertainment and tourism hubs with their ventures into sports and investment in tourism etc I think though they will definitely suffer they may be able to weather the storm. Kuwait and Qatar on the other hand I'm not so sure about
Qatar makes 95% of their revenue on LNG. These are long-term contracts at fixed prices. Kuwait and Qatar also have the fewest amount of actual citizens that it would need to "pay off".
Ex: During the Arab Spring, Kuwait handed out $500k checks to all Kuwaiti males above 18 years old. He also told the citizenry that he would forgive all car loans - population went and bought ferraris, range rovers, etc. and got the loans all forgiven by the government.
I worry more about the Arab countries that have high populations and cannot afford to pay everyone off - Saudi is on that list.
I never heard of this before and tried to look it up without success.
I did find this Reuters article which mentions
"In 2011, to mark three major anniversaries, ruler Sheikh Sabah al-Ahmad al-Sabah granted 1,000 dinars to each Kuwaiti and free food rations for 13 months."
I wish I could find a news source for this, but english newspapers suck in their coverage. I was actually in Kuwait as this happened, so I know it's 100% true. I spent that day being driven around at 130 mph in some guys's new porsche 911 turbo s. Energy industry is wild.
I haven't done much research but that's pretty funny if you're correct. The middle east has done their darndest trying to make sure women feel as unwelcome as possible in their domain. Gonna be tough to establish a tourism industry when you've alienated half the world's population (this isn't even a commentary on women's rights - you simply can't alienate half your customer base and think it's not going to affect you).
Alienating half of the world's population isn't even as much of a problem, but they also managed to do so in the only way that it is homogeneously distributed over the entire world.
Probably. I have to say though, their advertisements for tourists were a bit.. out there. 50°C+ outside? Come visit us, you can hang out in the AC mall, or go skiing in our fantastic artificial ski hall (all powered by fossil energy of course). Yeah.. no thanks.
It's hard for me to imagine that they can keep up with this level of income with just tourism.
Didn't they just start to issue tourist visas last year?
I have to say, from flying across in a research airplane that was not allowed to measure (so no work for the scientific crew = lots of time to move from window to window and observe) - it is a colourful country and very beautiful from above. There is black and white, and red and yellow, and the many patterns in the sand and the mountains are interesting. I didn't know they had (extinct) volcanoes either. If I wasn't a woman I might have even considered going.
Don't forget Saudi-Arabia is controlling Mekka, the holiest site of Islam which every Muslim with the means and ability to do so must visit once as a pilgrim in his/her life time. There are something about 1.5 to 1.8 billion Muslim people on this planet, that definitely is a base to build a tourism industry on!
Ever heard of Mada’in Saleh? Saudi Aramco magazine actually used to have a number of articles on those sorts of sites. Plus the Red Sea beaches and diving used to be cool before House of Saud came to power. Just think of Jeddah as Mecca and Riyadh’s slightly stoned cousins.
Dubai is definitely a tourist destination for a small number of hyper-wealthy people. The tourists get to be in the part of the bubble that serves alcohol.
Dubai is definitely a tourist destination, and it's not just for hyper-wealthy people. They get a huge amount of middle class tourism from South Asia and China. There's a wide variety of hotels, from 2* to 7* and you can stay in a superb 5* hotel for $150/night.
It feels like a destination for the hyper-wealthy to Americans because our tourist offerings here are so much better - but not everyone can come here. My best analogy for Dubai is that it's like Vegas without the gambling - and while that may suck for some people, it can definitely be done. Vegas is also done at every price point!
This is good for Saudi Arabia. Their oil is largely very easy to extract so they have the lowest production costs, meaning their losing the least amount of money compared to other producers.
Also the per day price of a supertanker (~2mm barrels capacity) has been skyrocketing to well above 100k$ so speculatively buying and storing is getting riskier. My favorite quote about the storage play comes from the WSJ:
'One of the great trades in modern history involved steep contango and a lot of oil tankers. In 1990, Phibro, the oil-trading arm of Salomon Brothers, loaded tankers with cheap crude just before Iraq invaded neighboring Kuwait and crude prices surged. The trade’s architect, Andy Hall, became known for a $100 million payday and bought a century-old castle in Germany.'
Brent would not be impacted by storage in America, since Brent is a product of the oilfields near the old Brent oilfield in north Europe.
Which brings up the topic of oil prices: there are many. Every blend, every location, has its own price. In fact the same oil can be sold at different prices if the seller so chooses. Of note Saudis have reportadly raised the price they offer americans as part of the deal, while lowering the price to asia.
Which leads to the saying:"In equity the algorithms are a secret and the prices are known, in oil the prices are a secret and the algorithms are public."
News can only talk about WTI or Brent, but exact prices at each market depend upon situations.
>Which brings up the topic of oil prices: there are many. Every blend, every location, has its own price. In fact the same oil can be sold at different prices if the seller so chooses.
True but largely irrelevant. WTI is a widely-cited benchmark because all those oil prices are highly correlated and so it's a good general measure.
And most abnormal ones. Even now they're correlated. And when e.g. one region has abnormalities, it doesn't really affect the purpose most people use this measure for.
Is that correlated to the price of gas - if it ever was?
I realize the above question is naive, but it's clear that the Russians and the Saudis having a pissing match over supply just as demand dries up (because COVID) has caused prices to collapse.
I meant this more in the sense of do they look at a specific benchmark to derive how prices are set.
E.g, If gas is based on WTI, then Brent can be up or down without affecting it much - Prepared to be wrong.
While they aren't in lockstep, it looks like they play off each other most of the time. As you say, seasonality has a role and demand for heating oil v gas depends on the time of the year.
Gasoline is one of many products produced from crude (others include kerosene, diesel, heating oil, butane, propane, plastics, etc...). You can also get a different mix of products depending on the grade of oil and refining technique, so gasoline has its own supply/demand dynamics which partially intersects with demand curves for the other products while crude is merely the input.
So cheap crude does allow more room to lower the price of gasoline and cheap crude is often linked to lower demand, however they're not in lockstep due to the many other factors.
[edited for typos/grammar] The US was going to top up the strategic reserves, but that was stopped in congress. Seems like an ideal time to make that happen with such low prices. Irregardless of environmental concerns, nobody is at a point where they are not dependent on oil and a supply disruption that this is designed to address currently would have dire consequences without it. IE: food shortages etc..
If top US leadership was less demented, they could secretly "buy" up all of these $-35 May contracts and get paid 35 dollars a barrel to put it in the strategic reserve.
But if such an agreement had been made in Congress and the US was obligated to buy at a certain (positive) price, you can bet the price wouldn't be $-35 right now.
Which groups are most likely to lose from this crazy development. A few weeks ago there was a story about plunging oil prices exposing Capital One to scrutiny for its surprising exposure to futures.
As "nice" as this is, it's realllllly gonna suck on the other side when the price snaps back up and keeps going up because some oil producers have gone out of business.
Usually by the time you see commodities activity hitting the front page of HN the bets are in and the market is about to take a wild swing in the other direction.
It is very easy to side with the news on oil right now that there is a historical over supply (so much so we have no place to store it any longer, and even considering paying producers to leave it in the ground) and we have a historical drop in demand...so any guesses on what the "news" will be to push oil prices wildly upwards?
In the near term, Fed buying oil for future delivery and instructing drillers to keep it in the ground.
In the longer term, the bankruptcies and capex cuts going on every day in the space--a lagging supply constrictor. Should be fuel to propel WTI to 80s when people start flying and driving again.
>Usually by the time you see commodities activity hitting the front page of HN the bets are in...
My bet was already in...however, I do think once we start seeing the news like this proliferate we will see an odd swing by Wednesday or Friday. Still my question was sincere, if we see a swing, I don't know what the markets rationale would be...that said where can it go from negative but up
Completely naive question, but I'm curious: all of the negatively priced oil is coming from Saudi Arabia and Russia. What keeps the US from applying large tariffs to oil imports from those countries (or on all imports)?
If it's in our best interest to keep US oil companies alive (I understand that it is), wouldn't this be an effective way to accomplish this goal, with the side benefit of receiving additional tax revenue?
Oil companies may benefit from keeping oil expensive, but other parts of the economy that depend on oil do not. For them, tariffs are an extra tax on them and ultimately consumers.
If the tariffs are only applied to keep oil at some nominal level, don't both parties benefit somewhat? You can still have very cheap oil while keeping the price high enough to keep US oil companies alive (if only barely).
Aren't Russia and Saudi Arabia playing a short term game to try and run US shale companies out of business? In that case, wouldn't it be logical for the government to step in and protect these companies via tariffs rather than bailing them out in a few months when they go bankrupt? It would presumably be cheaper.
I think it's inconclusive if Russia and Saudia Arabia are actually working together to drive US shale out of business or whether that's just a convenient side-effect of their own dispute.
But yes, what you describe is known as dumping and governments have enforced tariffs or quotas to prevent them. I'm not sure if it's ever been done for oil, possibly because in most cases it'd be political suicide in the US to argue for higher gas prices for consumers.
how many products are chemically dependent on hydrocarbons to exists ? I know a huge amount is based on them but some can be done without petrol.. some can not.
Nobody wants to cut production, unless everyone else does so too. Otherwise they're just giving up a chunk of their revenue stream for a negligible rise in prices. It's a classic prisoner's dilemma game.
Anyway, OPEC+ did cut production, a little bit. The market is saying it's not enough, at least in the near term.
For many oil companies when the price of oil goes down they have to produce more in order to pay their heavy debt loads. With many companies producing as much as they can to stay afloat this forces the price down even further.
I talked with a friend the other day that works for a big Canadian producer. SAGD (which is popular in Alberta) can't just be turned off since the heating of steam takes months to ramp up.
I don't understand why this makes the stock indexes drop though. Shouldn't this be a boost to everyone but oil companies in the S&P 500? Or is dropping oil prices considered a good leading indicator for a slowing economy?
It's good for some companies, bad for others. Even some companies where it seems like it'd be a good thing (say, airlines) might be fully hedged against the price of oil.
I'm a software developer, which translates to being somehow smart, but I'm not that into economics: Will this have a rubber band effect? E.g., the price will skyrocket in the next 2 - 5 years, because of this?
> I'm a software developer, which translates to being somehow smart
* citation needed (I'm also a software dev)
On topic: I did actually study economics, but that doesn't help much in answering your question. As often: it's very hard to predict. Probably the current price of the future contracts are artificially low because it's more expensive to take delivery. So they are much more affected than the real prices. the real prices will fluctuate, but probably less than the future prices.
Prices could stay low, but there's a higher probability that they'll return closer to the mean after the calamities and short-term effects subside.
Yes, but the magnitude can vary widely. The world used to use 100m barrels per day (bpd), and the last oil crash in 2016 had 2m bpd of oversupply. Just 2% unbalanced in supply/demand caused wildly fluctuating prices, due to the same reason as today - nowhere to store oil.
Now we've knocked off some 35m bpd of demand, and have millions of bpd of voluntary and involuntary shutdown, some of which will not return. This is a gigantic variation compared to any other crash in history.
So why won't prices necessarily skyrocket if demand returns? First you have a huge amount of stored oil to work through. Second you have potentially fast response shale to quickly increase production again.
But, shale only increased 1m bpd per year even during good times, so it can only make up for so much supply destruction. Secondly, this time shale companies may be mortally wounded. Even if they get taken over in bankruptcy you can have a lot of displaced workers and service companies.
So it really depends on how long the downturn lasts. If there is a quick rebound, like if a cure to covid-19 is found, then it shouldn't be too bad. But if this drags out through 2020, I think even $100 oil will start to look cheap in a few years.
> I'm a software developer, which translates to being somehow smart
Being a software developer doesn't make you intelligent. Way too many devs have kind of a god complex just because they can tell a finite state machine what to do. This is especially ridiculous because a large portion of devs are writing glorified CRUD web apps in some opinionated web framework.
There are many different layers to intelligence. Social intelligence is often dismissed but still very important to society.
I know that I shouldn't contribute to this, since a dozen others also latched onto that introductory statement of the OPs to say, essentially, that software developers aren't intelligent. But I feel obligated to respond in defense of my profession.
> Way too many devs have kind of a god complex just because they can tell a finite state machine what to do. This is especially ridiculous because a large portion of devs are writing glorified CRUD web apps in some opinionated web framework.
The role of a software developer is to refine ideas of business people, codify them, satisfy stakeholders, and otherwise serve and protect business interests. It's not just writing code - you have to make decisions large and small that can have significant impacts on your company and customers. In any CRUD app, this quickly reaches a very high level of complexity which requires a high degree of engineering and social ability to manage.
It's easy to diminish any profession (oh you just use numpy, oh you just go golfing with executives, oh you just type in symptoms and prescribe pills that have been marketed to you for years, oh you just use formulas discovered by other people). Let's not do that, because one might start to look foolish quite quickly.
It would have before fracking became common in the US. Now, production can be turned on or off relatively quickly in the US--just start/stop fracking in existing wells. Since it requires no capital investment (only operational expenses), very little lead time is needed. Production from fracked wells drops off very quickly once fracking ends, so overproduction tends to self-correct very quickly, also.
In the days before fracking, there would be a ~10 year delay between additional investment and additional production output. With fracking, it's more like weeks, not years, before production adjusts. That's why the oil price seems to have a price ceiling these days--any time prices go up, producers increase fracking and production. Overproduction is slightly different--fracked wells continue producing for about 12-18 months after fracking stops, so overproduction still occurs. But underproduction will be compensated for very quickly.
Supply and demand: it sounds reductive and patronizing but that's really it.
Oil is not being used much because demand has been halted, while supply has been ramped up because some countries are filling in their budget holes as fast as possible.
We pretend that these are controversial political problems, but the way the world was before was the market manipulation.
You may be familiar with the story of De Beers, how diamonds had no demand so De Beers created a demand with their story, and also constricted supply so that prices of diamonds would go up. The same happens with oil in the OPEC+ nations. They fundamentally exist to collude on oil prices to keep them high by limiting the supply of oil well under their capacity to extract it.
This "balance", or lack thereof, exists at any oil price. Oil has crashed FROM 23 cents before. Its all about the quantity that exists and the demand for it.
It should, because among the factors that contributed to this pricing is the ongoing price war between major oil producers.
Shale oil has a much higher cost of extraction, achieving sustainability at ~$50/barrel. Those businesses are out of the game for now and unlikely to come back anytime soon.
Meanwhile those who are poised to survive this war of attrition will be the ones dictating the prices - at least until shale producers recover.
Ok folks - I'll never ever use some kind of "joke" here again. Do you really want to discuss that being a software developer requires at least a glimpse of being "smart"? I wanted to use it in a way to express "humbleness", that's why the stress should be on "somehow".
No one really knows, and the answer depends on how the industry manages the downtime.
But in principle sure: storage filling up means that production needs to be halted because there's nowhere to put the oil. Production being halted means that facilities are going to be shut down, workers laid off or furloughed, and equipment mothballed. Some of those processes, as with all industry, are going to be expensive to start back up.
So if the industry doesn't (or can't, if it actually runs out of liquidity) have the agility to get things moving fast enough during the recovery, we might see a price shock in the other direction.
Or we might not. Certainly no one here is going to be expert enough to make a good prediction. But the principle is sound.
I've seen smart software developers abandoning their reason and logic in other areas of life. Being smart in one area doesn't necessarily mean you're smart in another, even when the skills are transferable! It varies on a person by person basis (I also met smart software devs who used that knowledge to be smart in other fields).
If you want to know how things like this can happen from a neuroscience point of view, read up on Damasio and his somatic marker hypothesis. It's a related/similar phenomenon.
I have my doubts. TX and ND can reopen wells pretty quickly, so there is a max limit on the price going up. Plus, fracking efficiency is going to go up with better techniques.
I live in Texas and had worked for a company that developed a software product for management of things like oil leases. The big issue is not the inability to re-open oil wells, it's not that hard. It's the people.
When you shut in production you lay people off. Eventually they go elsewhere. This is a big problem in oil boom/bust cycles. Getting trained operators that don't mess up the equipment or cause environmental disasters is one of the bigger problems.
Also, once shut in, the operators that survive the downturn will want to open later, than earlier. They can profit more by waiting.
Talking to friends in the west, they are keeping a lot of operators on pay still. I guess it is a how long thing. I'm hoping all the folks with one of the tribes that made a lot of cash on oil put some away for a rainy day.
The oil companies have learned and try to keep some staff around. However they can only keep so many and for so long. If this is a fast recovery as some expect then the people will be needed next summer and it was a smart decision. If not...
I was listening to some a podcast when oil first dropped and they were saying the issue is that a lot of the small producers are on leases and then may have to pump at a loss just to keep it and try to make it up later. Or burn everything they already spent. A lot went all in and levered up and are now stuck.
They can, but there is a question of whether they will. Even before coronavirus Wall Street was getting annoyed at how US fracking seemed to be a money pit with no ROI; these producers may not find it easy to get the capital they need to restart production.
Do we know what percentage of futures participants are speculators just at the casino? It seems like the percent of players actually making/taking physical delivery is like 0.0000001%
Currently, speculators make up roughly 2/3rds of the outstanding WTI contracts [1].
In most commodities contracts taking/making physical delivery by physical players is rare. The physical delivery option is there to make sure that the underlying commodity market and the futures market converge; and you don't need someone to actually deliver to make that happen. The threat of delivery/taking delivery is usually enough.
Oil producers and distributors, airlines, power companies etc are major players in the oil futures markets. Much more so than, say, the gold markets where almost everyone's purpose is speculation, but less than agricultural futures like wheat and corn.
It's still probably <10% by volume, but maybe your .0000001% was hyperbole.
I have to imagine you are being facetious. "good oil" peaked a long time ago, and while it is still being produced, the only reason we have oil at all is because of all the dirty fracking, shale and sand oil out there.
The comment was to lightheartedly point out the incorrect doom and gloom predictions over the last 100 years, where people have been predicting that we're going to run out of oil "soon." Now we have so much we can't get rid of it.
Really not sure why both of my comments are getting down-voted into oblivion, but case and point, oil is now trading at -$37.00 (negative thirty seven dollars)
"Running out of oil" and "peak oil" would be two completely different things. Lightheartedly pointing out something as if it didn't happen when in fact it did happen, will get you downvoted.
It is easy to agree that "running out of oil" sometimes was conflated with "peak oil", but alas, that's just ignorance.
Perhaps I was not clear. This graph you are sharing is shale oil, not the pure stuff found in oil shales. Regular oil production reached peak in 1970. We invented new sources that were considered untappable because of the expense of extracting it at one point. I'm not saying this is bad, I'm just saying that peak oil, as it was originally defined, is very much a real thing.
On the plus side for oil enthusiasts, we will probably not run out of the more dirty variety for quite some time.
Isn't each contract 1,000 barrels? If so, that's about $40k per contract. There something wrong here. I can see $0, or -$1-2. But almost -$40 is illogical. Something's wrong with the system.
Price is per barel. Although o e contract consists of 1000 barells. So the price is $1 for the future but you would have to pay $1000 to buy one contract. It is similar with options, alyhogh 100 pcs is standard there.
Why wasn't the oils producers reducing their production fast enough to prevent the price from crashing. This to me looks like a lag and inelasticity in how the oil producers are responding to demand.
I was listening to some a podcast when oil first dropped and they were saying the issue is that a lot of the small producers are on leases and then may have to pump at a loss just to keep it and try to make it up later. Or burn everything they already spent. A lot went all in and levered up and are now stuck.
Additionally, if SA stops pumping, then Russia gets all their revenue (even if it is lower per barrel). It is a great big game of chicken.
It's a good question, but a number of producers are trying to put others out of business. I don't know that this was necessary considering the drop off in consumption, but perhaps the point is to generate a supply shock in order to make a bigger point.
That doesn't matter. If you sell a contract for August now, the buyer of the contract is the person who has to worry about the price of the contract going down. As the seller, you just have to deliver the goods as specified by the contract. You've already been paid.
The relevant missing fact here is that the 300% ROI ignores the cost to operate a supertanker.
So tomorrow the price on say Yahoo Finance page will just show the June price of $22 or whatever it will be at opening? So it's not really a continuous price.
Great time to fill up the US strategic oil reserve. Congress didn't fund Trump's plan to have the Government buy up excess oil to prop up the price. But with prices negative, the Department of Energy can go ahead and fill up the underground storage anyway. Might need it someday.
No more than the great recession made investing in the stock market a bad idea.
This is a temporary and largely self-inflicted shock, demand will return and prices will go back up. As much as I like renewables, with the latest oil prices I've snapped up oil/natural gas producer stock at a hell of a discount for the last few weeks.
For the record, I've also invested in renewable energy companies. Both ought to do well over the next 10 years IMO.
Generally an increase in oil prices is considered an argument for more renewable investment. You're saying that a decrease in price is too. Is there any oil price movement that doesn't argue for more renewables to you? How about no change, is that a case for more renewable investment?
Sun is always shining somewhere , solar is very predictable and cyclical.
Volatility is not caused by change but lack of predictability of changes . Oil production is controlled by few dictators with no transparency into their decision making . Most other markets including solar are far more distributed and rational
Different industries, different people. Saudi needs a higher price to pay for their country than frackers in ND and TX need to make a profit regardless of actual extraction cost. We were going to have a drop in price just because of the global slowdown.
Frankly, we need to get to the next generation of nuclear because renewables will not be enough.
> Does this not make the case for investing in renewables over shale extraction and fracking that has a price floor below which it's not economical?
Basically everything has a price floor below which it's not economical.
The real risk to oil right now is that the combination of low demand and low prices make it unusually attractive for governments to implement a carbon tax, which would also provide funding for the sort of stimulus they're looking for right now, without having constituents upset over high gas prices. The "carbon tax + dividend" thing does exactly that. And would have a meaningful effect even if it was only done by e.g. US blue states and western Europe (which represent a disproportionate amount of world oil consumption).
In which case the demand for oil would never recover.
Maybe we can store it in large underground caverns (or maybe porous basins) and then pump it up to the surface only when we need it. We would probably want to coordinate with other people also doing pumping in their region, as not to end up with too much on the surface that we can’t use and then have nowhere to put it.
And there lies the rub - oil in-place is often in remote, hard-to-get areas; the margin will be made in having it ready to go when price warrants, not ready to extract
The world produces approximately thirteen billion liters of oil (83m "barrels") a day. A billion liters is a cube a hundred meters on a side. Given that it needs to be stored in a tank and not just pooled in a huge lake, that's a bit of a problem.
And the existing fleet is rapidly being saturated. Building new tankers to serve as floating storage is economically unfeasable (negative ROI), though repurposing idle fleet capacity is rational as a means to recover some variable costs. The activity doesn't make profit, rather, it slows losses.
Sure but those are limited as well, and their capacity would probably run out. Those tankers would have to basically be docked and not be able to transport anymore. And then?
Gasoline and other petroleum derivatives are not a stable as their underlying source. However consumer gas will last a few years with proper care and storage, the real issue will be when appropriate storage runs out.
There's a decent chance your car won't start. The gasoline in the tank is probably fine, but the gasoline in the fuel lines and so forth has likely turned in useless gunk.
I'm also just an outsider, but I'd imagine there's risks and costs also involved in stopping/starting production that have to be considered.
Shutting off oil fields probably isn't as simple as turning a tap. It's likely a complicated process that could potentially harm a site's future production. There might be problems or it might take months to get things operating again...
The June contract, where most of the trading is happening, is at around $22, and the July contract is $28.