Rude, crude oil and toilet paper wars

[Jon Grider]

While I wish I could enjoy the low price of gasoline right now while I sit at home alternating between the workshop, kitchen, and computer, my tanks are full with the likelihood of staying full for the next few weeks with the stay at home order.

Meanwhile, our "ally" in the middle east is pledging to further increase crude production in a glutted market in their war with another unnamed foreign oil producing country in an attempt to totally crush any competition so they have near unfettered control of the crude market. This of course can have serious impact on our own oil industry. Kill the competition, control the market, control pricing, rule the world. I think if it weren't for the virus, this situation would be dominating world news headlines and be the focus and concern of most world governments. Perhaps the timing is calculated, while the news is all about ways to not contract the virus, latest graphs and models,and lack of TP and hand sanitizer, one entity is positioning itself for total dominance in the liquid gold market. Stock up now if you are able, could be trouble ahead imo.

Conspiracy theory? Maybe, and I hope that's the case but there is a lot on the line here.
Pray for wisdom for our leaders.

[Mike Henderson]

The Saudis face a problem. They have a lot of oil but the world is moving away from fossil fuels (independent of the Corona virus) and that's going to create a glut of oil in the world. There are many producers of crude and each will sell at any price that's over their cost of production.

Saudi has low cost of production so I think they're going to produce while they can and get the money out of their reserves. It doesn't do them any good to hold on to the reserves.

Yes, they'll drive the high cost producers out of business - including US shale oil producers. But low energy costs will benefit the US.

As soon as the price of oil goes up above another country's production cost, they will come on line, add to the supply and the price will stabilize at that level. In other words, I don't see any way the Saudis, or anybody else, is going to be able to increase the price of oil any significant amount.

This all started because Russia wouldn't go along with a production cut in order to keep the price of oil higher.

While this won't have much impact on the US, some countries are going to be hurt very badly - such as Venezuela which really depends on oil revenue.

Mike

[Kev Williams]

A week or so ago some news story explained a significant benefit of the pandemic; due to self-isolation all over the world, air pollution levels are free-falling because transportation in general is at a near standstill. I'm still wondering why gas is still averaging $2.30 a gallon around here... After the '08 bust gas went well below a buck. I still remember during the mid 70's energy crisis, 'they' said we would be out of oil in 20 years. It's been 45 years now, the world population has grown by roughly 3.5 billion in that time, increasing oil demand, and yet given all that the world seems to be just loaded with oil. Sounds like the Saudis may be shooting themselves in the foot?

To be sure however, I have no idea how oil markets are driven...

[Jim Koepke]

I still remember during the mid 70's energy crisis, 'they' said we would be out of oil in 20 years. It's been 45 years now, [edited]

It depends on who the 'they' were. Many people make and repeat 'information' that is made up on the spot. Many of these same people never come back to say how wrong they were.


To be sure however, I have no idea how oil markets are driven...

They are driven by people trying to create and maintain personal wealth by any means they can.

Read up on Standard oil > https://en.wikipedia.org/wiki/John_D._Rockefeller

It is the same old supply and demand story. Control the supply and the price for demand rises.

Currently the major drive against wind and solar energy is from the fossil fuel industry trying to control not only the supply of energy but also the sources of energy.

jtk

[Mike Henderson]

Look at this article (https://www.cnn.com/2020/04/01/business/oil-prices-crash-storage-space/index.html)- it says the price of some oil could go negative.

Mike

[Jon Grider]

Look at this article (https://www.cnn.com/2020/04/01/business/oil-prices-crash-storage-space/index.html)- it says the price of some oil could go negative.

MikeRight. And that's why I think it may not be such a great thing. The richest OPEC nations can outlast the competition, and that is their goal imo and others much smarter than I. Once the competition is gone, that sets the stage for them to set whatever price they care to. We export much of our oil and like you mentioned before, much of it is produced at high cost. President Trump mentioned he is concerned about the direct and ripple effects this will have not only on our producers but globally. Competition keeps prices down in the long term; short term, gluts like we are seeing now artificially lower gas pump prices. And yes, I am aware that the pandemic is also affecting supply, but the Saudi's are determined to increase production and outlast the competition because they have lots of cash and are in a superior position economically than most of the rest of the world's oil producers. The lack of demand because of the virus strengthens their long term goal.

[Doug Garson]

All the more reason to accelerate the transition away from fossil fuels like oil and to renewable energy sources like wind, solar, hydro, geothermal etc.

[John Lanciani]

Keeping our reserves in the ground is never a bad thing. We know where they are and the cost to access them; when the market price is higher than the production cost domestic producers will resume production. In the mean time having access to cheap energy at someone else’s expense is not hurting the US one bit.

[Mike Henderson]

Right. And that's why I think it may not be such a great thing. The richest OPEC nations can outlast the competition, and that is their goal imo and others much smarter than I. Once the competition is gone, that sets the stage for them to set whatever price they care to. We export much of our oil and like you mentioned before, much of it is produced at high cost. President Trump mentioned he is concerned about the direct and ripple effects this will have not only on our producers but globally. Competition keeps prices down in the long term; short term, gluts like we are seeing now artificially lower gas pump prices. And yes, I am aware that the pandemic is also affecting supply, but the Saudi's are determined to increase production and outlast the competition because they have lots of cash and are in a superior position economically than most of the rest of the world's oil producers. The lack of demand because of the virus strengthens their long term goal.

Saudi Arabia is hurting with the price of oil so low. They run a big annual budget and I think I read that their reserves (money in the bank) are somewhere about $500 billion. If they spend that they'll have to start borrowing or reduce the benefits they're paying to their citizens (and the other things they spend money on).

But suppose every other country stopped shipping oil because of the low price. They aren't going to scrap all their extraction and refining equipment - they'll just idle it. And if Saudi tries to raise the price of oil, they'll just come back into the market.

There's only two ways we'll see high oil prices in the future:
1. The oil producers join together and limit supply, or
2. The world starts to use a LOT of oil. And right now, most countries are moving towards renewable energy.

Mike

[Stan Calow]

While this won't have much impact on the US, . . . "
Mike
I don't think that's true. Low oil prices have a negative effect on the stock market that was happening independent of the health crisis. With oil prices that low, then US oil supplies, especially shale oil and fracked oil becomes too expensive to sustain production. There are oil wells shutting down and the resultant unemployment in the oil industry.

[Malcolm McLeod]

Keeping our reserves in the ground is never a bad thing. We know where they are and the cost to access them; when the market price is higher than the production cost domestic producers will resume production. In the mean time having access to cheap energy at someone else’s expense is not hurting the US one bit.

So let’s apply this same scenario to say ….oh, maybe …wood, for instance??

We have plenty of trees, know where they are, and the cost to access them (as lumber). It goes with this of course, that we have lumberjacks, harvesting equipment, transports, and mills to process these trees.

And those evil Amazonian BIG LUMBER barons are flooding the market with cheap wood. We’ll just enjoy that access to cheap wood at someone else’s expense - - not hurting us one bit!

So Weyerhaeser, Georgia Pacific, West Frasier, Sierra Pacific, and all the boutique domestic producers will just bide their time, shut down facilities, and idle equipment. Waiting. Surely you can just hit the re-start button and it will all come back at 100% capacity. And of course the people who actually do the work for these companies will just bide their time as well. Surely they wouldn’t even consider a job change? You know, for one with a paycheck?

Kind of like the US steel industry.

Be careful what you wish for.

[Mike Henderson]

I don't think that's true. Low oil prices have a negative effect on the stock market that was happening independent of the health crisis. With oil prices that low, then US oil supplies, especially shale oil and fracked oil becomes too expensive to sustain production. There are oil wells shutting down and the resultant unemployment in the oil industry.

And on the positive side, drivers pay less for gasoline, airlines pay a less for fuel, etc.

Mike

[Mike Henderson]

Not sure why I'm having trouble posting? And why Mike's quote isn't separated from mine? And my reply is in Mikes box?Mods can you fix this?

You have to start your text after the [/QUOTE]. You obviously started it before that because my name (Mike) is at the bottom of your posting.

Mike

[Just an added comment: Technology in the oilfield has allowed increased production to the point that there's a glut of oil, even before the virus. Oil prices were falling before the Saudi's move. In fact, the Saudis tried to get Russia to limit production in order to hold up the price and the Russians refused. That's when the Saudis turned on the tap and drove prices down.]

[Rick Potter]

Mike,

You forgot one way oil prices could spike.....War.

WWII would have lasted longer if Germany could have gotten more oil, or developed the synthetic stuff they were working on.

Hate to say it, but what better time for some nutcase to start a war, than during a world wide pandemic.

[Edwin Santos]

While this won't have much impact on the US, some countries are going to be hurt very badly - such as Venezuela which really depends on oil revenue.

Mike


I don't think that's true. Low oil prices have a negative effect on the stock market that was happening independent of the health crisis. With oil prices that low, then US oil supplies, especially shale oil and fracked oil becomes too expensive to sustain production. There are oil wells shutting down and the resultant unemployment in the oil industry.

I'm not sure it's true either. For reasons I definitely do not understand, the stock market seems to be at least somewhat hinged to oil prices. For example, today crude prices surged 35%, and the stock market is up (at least as of when I am typing this), and this despite the record unemployment claims and us staring into the black hole of the Coronavirus outbreak.
In my own little world, lower oil prices are better for me at the gas pump, but if it means the stock market tanks, I don't think it's good for any of us.

A couple of weeks ago when we were having massive drops in the stock market, I heard some of the talking heads saying that a lot of the influence was coming from crashing oil prices, but coronavirus was camouflaging it. Again, I wish I understood the relationships better.

I did not think the domestic oil industry was so large that it could drag the entire market down. Maybe it is a derivative impact on the commodities market? If anyone can provide a simpleton's explanation, please do!
Edwin

[Mark Bolton]

I'm still wondering why gas is still averaging $2.30 a gallon around here... After the '08 bust gas went well below a buck.

Its where it is because billions will be made by the elite profiting like parasites from the masses in a time of turmoil while they all grovel for their single digit percentages on their retirement portfolios that are gutted down to 40% of their value a week or two ago. The entire system is a scam that allows the few to be floating around on quarter million dollar a week-charter rentals on 8 million dollar fully staffed sailing yachts while the bulk tries to find peace in a 5% 15 year average on their 401K.

[Patrick Walsh]

Can we be friends..

You are proof other people feel like me.

At times it can be discouraging thinking it’s not the case based on the decisions the masses make and “us humans/Americans ”as a collective whole.

But that’s all I’m saying as I can tell people don’t like my opinions.

Its where it is because billions will be made by the elite profiting like parasites from the masses in a time of turmoil while they all grovel for their single digit percentages on their retirement portfolios that are gutted down to 40% of their value a week or two ago. The entire system is a scam that allows the few to be floating around on quarter of a million dollar week-charters of an 8 million dollar sailboat while the bulk tries to find peace in a 5% 15 year average on their 401K.

[Brian Elfert]

Its where it is because billions will be made by the elite profiting like parasites from the masses in a time of turmoil while they all grovel for their single digit percentages on their retirement portfolios that are gutted down to 40% of their value a week or two ago. The entire system is a scam that allows the few to be floating around on quarter million dollar a week-charter rentals on 8 million dollar fully staffed sailing yachts while the bulk tries to find peace in a 5% 15 year average on their 401K.

What types of risk have people been taking with their 401K if they are down to 40% of their value? I just checked my 401K and I am down 20% year to date. I am at least 90% invested in the stock market. Yes, 20% is bad, but I have 20 years before retirement.

[Osvaldo Cristo]

It is a little bit different history: Oil might be much cheaper as some places in the world have a very low cost for extraction.

Actually it is OPEC an anomaly in the free market - they are a cartel to push oil prices in artificial high levels. When it was dismantled or weaken by internal fight there is a chance to oil return to "fair" price.

Naturally lower prices for oil will put some places and locations with a cost above the market price turning a such operation unfeasible like in my country, Brazil - we are self suficiente for oil but our average extraction cost is considerably higher than OPEC could offer. If prices stays down or even decrease, probably they will decrease the upstream operation.