View Full Version : Oil is getting crushed again with one futures contract down 75% to record low under $
This could probably go in the Covid Economic thread but I think it needs a stand alone thread.
"Oil is getting crushed again with one futures contract down 75% to record low under $5"
https://www.cnbc.com/2020/04/20/oil-markets-us-crude-futures-in-focus-as-coronavirus-dents-demand.html
"U.S. crude prices plunged to their lowest level in history as traders continue to fret over a slump in demand due to the coronavirus pandemic. The price of the nearest oil futures contract, which expires Tuesday, was the hardest hit, detaching from later month futures contracts with a drop of more than 50%. This suggests that some believe there could be a recovery later in the year.
West Texas Intermediate crude for May delivery tanked 76%, or $13.96, to $4.31 per barrel, its lowest level on record. Meanwhile international benchmark, Brent crude, which has already rolled to the June contract, traded 5.6% lower at $26.49 per barrel. The June WTI contract, which expires on May 19, fell about 10% to $22.54 per barrel. The July contract was roughly 5% lower at $28 per barrel....."
Ret10Echo
04-20-2020, 13:21
Heard a quick news mention that prices went negative as suppliers were paying to have product hauled off.
Anyone else heard this?
GratefulCitizen
04-20-2020, 13:36
Heard a quick news mention that prices went negative as suppliers were paying to have product hauled off.
Anyone else heard this?
https://www.bloomberg.com/news/articles/2020-04-19/oil-drops-to-18-year-low-on-global-demand-crunch-storage-woes
So much for the green revolution.
It's hard to compete with free, even harder to compete when a supplier pays you to take their product.
"....The reason: with the pandemic bringing the economy to a standstill, there is so much unused oil sloshing around that American energy companies have run out of room to store it. And if there’s no place to put the oil, no one wants a crude contract that is about to come due...."
Oil is on ships and being transported to refineries - that have no room.
Those big ships cost a lot of money per day to be just tooling around. Even anchored costs money.
I seem to recall back in 08/09 some were anchored.
Good time to fill the strategic reserve.
https://madsciblog.tradoc.army.mil/223-contagion-covid-19s-impact-on-operational-environment-part-1/
This hurts Iran & Russia a LOT.
This also hurts Venezuela(and Cuba indirectly).
China’s recovery benefits from cheap energy prices.
Surprisingly, the US risks loses a lot of fracking jobs as a net energy exporter, but with higher “lift” prices than Saudi.
If I had to guess, a Russian/Iranian nexus will be not only willing, but trying to destabilise and kneecap competing energy exporters not in their particular cool kids club,
Ret10Echo
04-20-2020, 15:27
My understanding is that we have limited, domestic refinery capacity anyhow so it would seem that stacking up crude further strains an already overloaded capability...
I'll have to look at the "green" energy industry and see if there is a cascading effect.
GratefulCitizen
04-20-2020, 15:42
My understanding is that we have limited, domestic refinery capacity anyhow so it would seem that stacking up crude further strains an already overloaded capability...
No demand for refined products.
In turn, there's no demand for crude to refine.
https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WRPUPUS2&f=W
Ret10Echo
04-20-2020, 16:06
No demand for refined products.
In turn, there's no demand for crude to refine.
https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WRPUPUS2&f=W
Looking back at some (then) crystal ball gazing
McKinsey & Company June 2015 (https://www.mckinsey.com/industries/oil-and-gas/our-insights/lower-oil-prices-but-more-renewables-whats-going-on)
Columbia / SIPA October 2015 (https://energypolicy.columbia.edu/sites/default/files/How%20Lower%20Oil%20Prices%20Impact%20the%20Compet itiveness%20of%20Oil%20with%20Renewable%20Fuels_Oc tober%202015.pdf)
Ultimately I would say that this is an anomaly not a trend anyhow.
Yet the prices are still between 1.40-1.60 something here in Hope Mills...
Hell, we should be in the .55-.60 cent days again...
However we know what would happen when things get back to "normal", if even there is a normal again...
My understanding is that we have limited, domestic refinery capacity anyhow so it would seem that stacking up crude further strains an already overloaded capability...
I'll have to look at the "green" energy industry and see if there is a cascading effect.
I’m pretty sure refineries are somewhat locked-in to certain inbound product(light/sweet, heavy/sour) and outbound production type.
I think refineries can be reconfigured but it can be a pretty massive job.
So I think the refinery slice can add a lot of additional complexity, and reduce flexibility/adaptability, to the energy supply chain.
Texas_Shooter
04-20-2020, 22:28
Good time to fill the strategic reserve.
They were going to refill the strategic reserve but the money appropriated to buy oil was written out of Coronavirus Aid, Relief, and Economic Security Act. But it may be good because the SPR is gonna lease excess space to producers and charge them. Revenue from the government.
But honestly they will be giving the oil away for free because they can write the loss off and the government will give them oil producing company a greater tax break or something.
And this is not a time to bail out any oil company. They have profited plenty and didn't fill the coffers to weather the storm of low oil prices. I think it's funny watching the Middle Eastern Countries offering government bonds to fund their budget deficits. I think this is good payback for what they did in the '70s and when oil sky rocketed in the late 2000s.
Ret10Echo
04-22-2020, 08:17
Interesting...
Aussies taking advantage of the down market. Will the U.S. prove to be so wise?
Australia to spend A$94 million on oil to store in U.S. reserve
Reuters (https://www.reuters.com/article/us-australia-oil-reserve/australia-to-spend-a94-million-on-oil-to-store-in-u-s-reserve-idUSKCN2240CJ)
Interesting...
Aussies taking advantage of the down market. Will the U.S. prove to be so wise?
Reuters (https://www.reuters.com/article/us-australia-oil-reserve/australia-to-spend-a94-million-on-oil-to-store-in-u-s-reserve-idUSKCN2240CJ)
I would hope that we are seeing to our the U.S. needs first. Then if we can handle holding oil in reserve for another country perhaps a chance to bring some much needed outside funds into our treasury. Of course the AOC crowd is gleeful and giddy about the current demise of the oil industry. We are a country that was built on oil and runs on oil and I see nothing in our immediate future that will change that.
.....
And this is not a time to bail out any oil company.
I have to disagree with this “to an extent”. We have finally gained oil independence from OPEC and it has been killing them. Just before this virus hit Saudi and Russia were doing everything they could to lower oil prices and kill off some of our oil companies so they could exert control over our prices again.
While I agree that our companies have made good money of late, they need to be protected from bankruptcy. If that means a loan that must be repaid, that’s fine. But we can’t afford to let them die.
However, for anyone of the investing persuasion...
You have companies like Royal Dutch Shell (RDS.B) and BP with stupid yields right now.
I picked up shares of BP yesterday with 12+% yield. I bought some shares of RDS last week yielding 11%.
Those are crazy numbers for these companies. RDS especially is a well run company that has not cut a dividend Ev Er... it will weather this temporary storm in great shape and will be able to move into renewable energy technology as it becomes necessary.
Oil is not going away any time soon as the primary source of energy. The Majors' share prices may remain depressed and very volitile.. but in the mean time, I'll collect the dividends.
Texas_Shooter
04-22-2020, 20:49
I have to disagree with this “to an extent”. We have finally gained oil independence from OPEC and it has been killing them. Just before this virus hit Saudi and Russia were doing everything they could to lower oil prices and kill off some of our oil companies so they could exert control over our prices again.
While I agree that our companies have made good money of late, they need to be protected from bankruptcy. If that means a loan that must be repaid, that’s fine. But we can’t afford to let them die.
Then we go back into the issue of the government picking winners and losers. If some sort of loan has to be made then stipulations have to be made about suspension of dividend until further notice, reduction in executive salaries, no golden parachutes so on and so forth.
Government just loaned money to the airlines after they spent the last decade screwing us over on seat size and luggage fees. Stipulations should have been made there as well to protect the consumer from overreaching fees.
On another tangent...as the airlines consolidated over the last two decades and with less and less competition in the airline game the government should have been protecting the consumer more anyways. The airlines excuse of adding one more row of seating to make it as efficient as possible yet posting quarter after quarter record profits. More needs to be done when the DOJ and Judicial Branch approve these mergers and how they are truly affecting the American People.
Stepping down off soap box.
Then we go back into the issue of the government picking winners and losers. If some sort of loan has to be made then stipulations have to be made about suspension of dividend until further notice, reduction in executive salaries, no golden parachutes so on and so forth.
Government just loaned money to the airlines after they spent the last decade screwing us over on seat size and luggage fees. Stipulations should have been made there as well to protect the consumer from overreaching fees.
On another tangent...as the airlines consolidated over the last two decades and with less and less competition in the airline game the government should have been protecting the consumer more anyways. The airlines excuse of adding one more row of seating to make it as efficient as possible yet posting quarter after quarter record profits. More needs to be done when the DOJ and Judicial Branch approve these mergers and how they are truly affecting the American People.
Stepping down off soap box.
That’s all fine. There are smart enough people in the room to figure out how to craft the loan. We just can’t make the mistake of relinquishing our independence to OPEC.