Oil Plunges Below Zero for First Time With May Contract Ending (bloomberg.com) 308
Oil futures collapsed to below zero for the first time ever as the deepening economic turmoil caused by the coronavirus crisis left traders desperate to avoid taking delivery of physical crude. From a report: In an unprecedented day of trading, the price for the May contracts wiped out all value, breaking every low for oil prices since 1946. The exchange where WTI futures trade said the contract would be allowed to price below zero. The extreme move showed just how oversupplied the U.S. oil market has become with industrial and economic activity grinding to a halt as governments around the globe extend shutdowns due to the swift spread of the coronavirus. An unprecedented output deal by OPEC and allied members a week ago to curb supply is proving too little too late in the face a one-third collapse in global demand. On Monday, a technical oddity exacerbated the price plunge as traders fled the May futures contract ahead of its expiration tomorrow. The following month's contract fell 12% to $22.05 a barrel, making the spread between the two months blow out more than $20. Further reading: There's Nowhere to Put the Oil.
There's no floor (Score:5, Funny)
Due to high transport and storage costs, prices could go negative.
So I'm looking forward to being paid for my Sunday morning drives. I guess this pandemic thing is not all bad!
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Due to high transport and storage costs, prices could go negative.
There's some other issues too. Like backlogs of transport, or poor transport infrastructure. Something that's been hitting Canada since Jr came to power, and now oil prices have collapsed for the country. The price for heavy and medium crude is $-3/bbl. So that puts the two biggest oil producing regions in Canada into a worse straight, in regions where unemployment has been above 10% and in some areas over 80% for years. Those areas are Alberta, Saskatchewan, most maritime provinces(New Brunswick, Nova
Re:There's no floor (Score:4, Insightful)
So what you're saying is that globalization is bad, and socialism is good. Right?
Re:There's no floor (Score:5, Insightful)
You have that backwards. Globalization is good and so is socialism. They are not mutually exclusive.
Re: There's no floor (Score:3)
"Globalization" is just another word for totalitarian nationalism, when the nation is implied to span the entire globe, with no place left to run to.
The sad thing is, that you believe it is good because you believe that empire's rules are gonna be your rules.
*laughs in Chinese*
*laughs louder in US military industry*
*giggles sneakily in Russian*
*cries in you and me*
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Globalization is good and so is socialism.
Which countries would you point to as examples of socialist success stories, assuming they still exist?
Norway, Sweden, Denmark? Nope. Free market economies with large social welfare spending.
China and Viet Nam? Formerly pure communist but now hybrid economies more similar to what fascists did, but ruled by the Communist party and still very repressive.
Cuba? Economic stagnation mixed with poverty and repression, but a great place to go if you are looking for vintage 1950s automobiles.
North Korea? Mass p
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Meanwhile my few shares of TSLA (Tesla) has shot through the roof since when I bought it in 2014.
Re:There's no floor (Score:5, Interesting)
You know what would be nice? If the US did more to reduce our dependence on oil, thereby decoupling our economy from the influences of foreign markets.
Your "small business" oil company can't go out of business if it didn't exist in the first place. No country or corporate cabal can manipulate the supply of sunshine or wind or geothermal energy and cause the price to crash or inflate wildly. Sure these things might not be the absolute cheapest at any given moment (though they've been economically competitive for quite some time now) but they are predictable and, most critically, immune to price fixing.
Apparently we didn't learn our lesson back in the 1970s, and decided to keep digging instead, so now we're gonna take it in the neck!
=Smidge=
We'd need something like the Green New Deal (Score:2)
Trouble is FDR style new deals have been vilified for the last 40 years.
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> The majority of the US budget currently goes to FDR's New Deal
The Social Security administration actually MAKES the federal government money. The single biggest chunk of the federal debt is owed to the SSA, because they are required by Congress to invest in treasury bonds, effectively loaning funds collected through SS taxes to the general budget.
Really, the money flow for the SSA should be separated out of the general budget numbers so people can clearly see that it actually takes in more than it send
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For good reason, the FDR new deal has overextended the US so far, it is about to kill the US during the first major crisis in a century. The majority of the US budget currently goes to FDR's New Deal and associated government expansion. The US is spending more of its budget than any other country on social safety nets and healthcare, more than the next 14 countries combined.
Citation needed. In absolute dollars perhaps. As a share of GDP? I doubt it. Unless you are counting all healthcare spending as "US spending more of its budget", in which case you are crossing the streams of government and private sector spending, which kind of undercuts the point about it being FDR's new deal.
Re:We'd need something like the Green New Deal (Score:5, Informative)
Where's your source? The sources I have found puts the US way down the list.
https://en.wikipedia.org/wiki/... [wikipedia.org]
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What do you propose we cut? Driving? Chemicals? Pharmaceuticals? Flying? Haulage? Gas electricity generation (not decoupled from oil)? Build less roads? Unless the answer is all of the above then you have no hope in hell. Shit man, America is a land when you throw the damn oil on your roof in the form of asphalt shingles. Most people who say we should reduce dependency on oil have no idea precisely what we use it for. /Disclosure: I'm sitting in a chair made from petroleum products.
Re:There's no floor (Score:5, Informative)
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In the case of oil, its exactly the same thing (dumping or selling below cost of production) except its the Saudis doing it, and they are doing it to the US intentionally - see this article in WSJ [wsj.com]
A fleet of tankers full of Saudi oil is slowly making its way to the U.S. Gulf Coast, threatening to worsen an already historic oversupply of crude.
The Saudi crude, about seven times as much as the Gulf Coast took from the country in a typical month last year, will fill rapidly dwindling places to store oil, depress already low prices in key shale regions and increase pressure on drillers from Texas to North Dakota to shut off their wells.
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China isn't or at least wasn't dumping - they were just doing it cheaper than everyone else. But they didn't achieve that by being cleverer than others. They did it because refining the stuff if a very polluting process, and making it non-polluting is expensive. They just didn't bother.
I'm Australian. We do a lot of mining. But we don't like the country side being reduced to a
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The only reason the world gets its rare earths from China is because China is intentionally selling them at below market rates.
If MSRP for a car is $40,000, and I sell an infinite number of them at $30,000, the "market rate" is $30,000, not $40,000.
The real complaint is that China is selling them below US producers' profitable numbers.
Re:There's no floor (Score:4, Funny)
Thankfully you do have a president that already fixed the oil problem a week ago [twitter.com] so nothing to worry about. Everything is under control.
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Rare earths are required in many renewable energy technologies
They aren't required, they are just the cheapest option available. Were they to stop being as cheap, alternative designs for motors/gensets and panels are already available and well researched, just not scaled.
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It's also worth mentioning that "Rare earths" are not rare - about as common as tin - it's just that they don't form concentrated ore deposits like many other materials, making their extraction expensive.
So if, for some reason, we end up utterly reliant on these materials, economic pressures will just make new sources cost competitive.
Also, unlike oil, they don't vanish forever when used...
=Smidge=
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No, the processes that are often used to extract them are environmentally unfriendly.
Anything that has the potential to pollute, that is allowed to pollute, will pollute.
If the future wants to have rare earth metals with less pollution, it just costs a little more. There is nothing about the technology which means that you have to destroy a bunch of land and water to do it. It is just cheaper to do it like an asshole.
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Re:There's no floor (Score:5, Informative)
Rare earths are required in many renewable energy technologies,
"Required" is going away - and mostly gone now.
They're still used in vehicle motors and the like. But they can be replaced or drastically reduced there if they get too pricey.
For wind machines: not so much any more.
Permanent magnets are dandy for home-scale Keep-It-Simple-Sam wind machine designs, because they eliminate the need to pull your genny's excitation power from your outupt, raising your cut-in speed and, even above it, lowering your output most at low winds - exactly when you need it most. This was enabling for a generation of (largely home-brew) home wind power machines, making sites with less, or less constant, wind usable.
Some commercial-scale wind machines used them, too. But far better is to use a "doubly-fed electric machine" for your generator. This pulls power both from the rotor and stator, and has a hig -power frequency converter between (at least) on of them and the line. Pulling power from both lowers your resistive losses even farther, and your excitation comes from the OUTPUT currents, not from energy you have to feed in (except momentarily at startup). (It also acts as a purely electric variable transmission, to optimize the load for the wind speed without having to shift mechanical gears.)
(For home-scale machines the extra electronics currently make it too expensive and give you more points of failure, so rare earth magnets are still enabling. But electronics keeps getting cheaper and more reliable...)
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Rare earths are not required in many renewable energy technologies. For renewable technologies, rare earths are generally limited to magnets. Permanent magnets are useful in motors and generators, but induction motors and generators work just fine.
The fact that wind turbines and cars using induction are price-competitive in the market shows that permanent magnets are a nice-to-have, not a need-to-have.
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Unlikely. Sharp lunges in demand and price have happened before, even as recently as 2013. The price went below the level which was viable for most US shale producers. They stopped producing. Some went bankrupt. Once demand and the price picked up, so did shale producers.
Oil has very elastic demand, but is has quite elastic supply too.
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There is little of precedent here, its not just the Covid economic shutdown at work here, so the idea of creative destruction and bankruptcies of weak companies (assuming we're talking about shale oil drillers) is not a full picture. Petroleum products are also under pressure from climate activists (and their pet legislators, not to be confused with the oil companies pet legislators), and so drilling is only occurring in the states that allow it, not necessarily where the geological conditions are best/easi
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That's not really true, many wells, if sealed, will collapse and take 6-18 months to rebuild. This isn't unique to oil, steel factories and many other chemical fluid systems have the same problems (eg. refineries).
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Re:There's no floor (Score:4, Insightful)
Re:There's no floor (Score:5, Insightful)
The enemy of my enemy is my enemy's enemy, nothing more, nothing less. To pretend otherwise is foolish.
Re:There's no floor (Score:5, Informative)
What they mean is Democrats don't want chain restaurants and similar large businesses sucking up the money like they did in the first round. Ruth's Chris got millions in taxpayer money despite not being a small business. The same with Shake Shack, though they returned the money today.
The issue was the bill was localized. So if Ruth's Chris had one business in an area, it could apply for a loan to small business because they met the criteria even though, as a unit, they wouldn't qualify.
Now Democrats want to make sure true small businesses get the money but Republicans keep saying there is no need for more money because they already provided for their benefactors.
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Just so. But Trump says that there's no need for oversight over any part of it. Just give him the money and forget about it.
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There's a lot of misinformation in your post.
For example: "Republicans keep saying there is no need for more money"
The bill to provide more money is a Republican bill, who've tried to pass it multiple times now, only to be stopped by Pelosi and the House Democrats. They want to add their own wishlist to the bill, rather than just pass a clean funding expansion for the program they already voted for in the past.
Re:There's no floor (Score:4, Informative)
Ruth's Chris is a national chain of high-end steakhouses. If you live somewhere not near a large population area, you possibly have not encountered one, but they are in almost all major metropolitan areas. Please do some Googling before doing your spouting.
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Never even heard of Ruth Chris so that must be your local chain.
What the heck? I've visited America twice and eaten at Ruth Chris's on opposite sides of your continent. I just looked the store up, they have 100s of stores and over 5000 employees.
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Never even heard of Ruth Chris so that must be your local chain.
You'll find a Ruth's Chris (Yes, the actual name. There's an origin story behind it) in any city large enough to have a quorum of its expense-account customers. Not in your podunk town, though.
Re:There's no floor (Score:4, Interesting)
Re:That's a totally separate issue (Score:5, Insightful)
The focus on the Kennedy Arts Center would be comical if it was not so sad. Hundreds of billions in corporate welfare, and people focus on a few tens of millions going to non-profits so they can continue operation too. That is so much worse than hundreds of billions that can be doled out by the administration with little more than 'pinky promise it will not go directly into your pockets' oversight. Oh, but liberals and cooshies seats, how terrible!
If you wanna talk pork, talk pork, but tiny amounts going to institutions that right wingers just happen to hate for identity reasons does not look very good against the much larger amounts going to politically chosen businesses and religious institutions.
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If a Republican leader delayed relief for the whole country by insisting on special payments to their hand-picked donors and friends people would be pissed too. Of course that's not what happened.
Dude, you can actually favor Pelosi AND acknowledge that it's bad to make the whole country suffer while she gets cash for a few friends. That would be bad, really bad, no matter who did it. This time, Pelosi did it.
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It's so damned cheap in large because of the Saudis. There are a lot of shale oil companies going or about to go bankrupt who probably are thinking "Fuck me, those Saudis sure have a huge effect on geopolitics."
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Nope, it is cheap because of the low demand. I work in the petroleum industry, and I know for a fact that the fuel stations and the airports barely need deliveries since their storage tanks are full.
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Huh? Saudi Arabia produces oil for less than $3 a barrel. If oil falls to $50 a barrel the Saudis are still making a 1500% profit, but almost all shale and oil sands are just pumping away money. That makes cheap coventional oil producers *more* politically powerful.
The Russians didn't pick a fight and drop the prices because they were worried they had too much political influence over the US.
Great time to buy (Score:3)
Futures are potential sales. We all know that we won't convert full-nuclear and fusion still being a few decades away, no matter how desperate we need to get rid of carbon emission as well as reduce our use of lead, lithium, plastics and rare earth material used in the production of solar and wind alternatives.
So as soon as this crisis is over, you'll be buying $60-120 oil again. If you can invest even just $10,000, that means next year you can sell for at least $300K-1.2M.
Re:Great time to buy (Score:5, Insightful)
I think $120 is fantasy land. Maybe $60, but I'll wager it will be well into next year before even that is achieved. The early idea that major economies would just spring back into action once shelter-at-home orders were lifted seems to be receding as a likely possibility. Unless OPEC+ does something truly radical as economies start to ramp up, oil prices have a long hill to climb back up, and there are going to be fewer players by the time it does.
They're starting to store oil in tankers so that tells you they're stuffing oil into every single nook and cranny they can find. That's a helluva lot of inventory that is going to put downward pressure on oil for quite some time.
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When WTI fails (this isn't Exxon-Mobil also known as Brent crude), do you really think the Saudi's and Russia won't drive the prices to the points we've seen when the US wasn't energy independent?
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I'm sure the Russians and Saudis will do whatever it takes to damage North American production. But the problem here isn't something that can be fixed with market manipulation. It's a physical storage capacity limit. Unless a lot more storage is built and producers are basically paid by taxpayers to keep pumping oil (which will, of course, have the effect of driving prices even lower), I don't see a solution. Oh, and that additional capacity should have been built like, oh I don't know, a couple of years ag
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If oil is being stored in every nook and cranny at this point, shouldn't refineries start to do very very well right now?
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Except the demand is way down. What refineries are producing isn't worth as much and thus you'd end up with gasoline and distillate inventories rising, and then you have to find somewhere to put all the gas, diesel, aviation fuel and the like. Diesel doubtless still has significant demand, but gasoline, aviation fuel, bunker fuel and the like, probably not so much.
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There is a massive overproduction of oil that cannot be tamed.
The refineries can buy oil for almost nothing.
Now, demand for gasoline is down, but isnt that made up for by the fact that crude is essentially free?
Refinery output CAN be tamed. Simply dont over-produce. Its not like an oil well. Refineries can be turned off and on.
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But if refineries run out of space, or more to the point, don't want to refine a product that is, in adjusted dollars, as low as it has been in decades, why would refineries just go on a production blitz? There are gas stations all over North America that are basically shutting their doors early because between having to close their convenience stores and tens of millions less drivers, they are not making enough to keep their doors open. Distillates like aviation fuel are probably plentiful in storage becau
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Refineries, like wells, can't simply be shut down and turned back on. There is significant time required to shutdown and restore operations. Shale oil wells simply collapse if they're sealed and will need to be re-drilled. Refinery processes likewise require stable storage for its chemicals and some parts will simply corrode if not continuously used.
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The problem isn't that people aren't willing to invest, the problem is that we have oil now and no place left to store it. Go ahead and buy $10,000 worth of oil now. Where will you put it? Everyone that has large oil storage capacity has filled it up on the assumption that they will be able to sell it for a lot more in the future, just like you said.
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Pump oil into the ground. Or just make lakes of it. Cover Oklahoma in a giant lake of oil.
Re:Great time to buy (Score:5, Informative)
The problem is that futures contracts represent your commitment to take possession of crude at some future point. Futures traders rely on their ability to buy and sell those contracts without physical delivery of the product. Now it's unclear how long it will be before any futures trader can sell a contract at spot price, which is why those contracts are selling for so little. Nobody wants to be stuck with barrel upon barrel of crude when they have nowhere to put it!
If futures trading were "honest" - that is, if we FORCED people to demonstrate their ability to take possession of crude before permitting them to buy contracts at all - then we would not have this problem.
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If futures trading were "honest" - that is, if we FORCED people to demonstrate their ability to take possession of crude before permitting them to buy contracts at all - then we would not have this problem.
Makes me wonder why the Feds don't buy it. We have strategic oil reserves and I doubt they are all full right now. Why not take it off their hands while it's being literally given away and top those tanks off?
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It used to be (Score:3, Interesting)
We let investors skim off the most essential things needed for human beings to live while adding zero value (besides a very small amount of liquidity). And here we are when it's time for them to step up and take it on the chin for the sake of that liquidity and, what do you k
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For oil, it pays for the rig and workers to pump it. The person who buys the futures contract does so thinking he can sell the contract to a refiner just before delivery at a higher price than he paid for the contract.
Commodities futures is really betting on what the market will be like in the future, which is where the risk to investors and traders come in. If you buy, say, 100,000 pounds frozen concentrated orange juice at $100.00 on margin because
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Remember the section in The Big Short, just before the market collapsed, where Jared Vennett is telling the brokers "yes, there's some shady s*** going on, but it's fueled by stupidity" and the garage-band traders are saying "two plus two equals... fish"?
When no one knows the true value of the underlying asset, then it's impossible to correctly price a derivative. Let alone speculate on the value of that derivative.
Re:Great time to buy (Score:4, Insightful)
Is it a problem? Looks like some speculators are taking a bath, some producers are getting a stay of execution, and those people who actually intend to take delivery are getting the bargain of the century.
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if we FORCED people to demonstrate their ability to take possession
That would eliminate futures for sale literally ripping half of the system out of the economy, or *massively* over provisioning some very expensive storage.
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Time to start hoarding gasoline. When the garage is full of jerry cans I think I can stack some in the back bedroom.
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So as soon as this crisis is over, you'll be buying $60-120 oil again. If you can invest even just $10,000, that means next year you can sell for at least $300K-1.2M.
Best of luck to you on that. Be sure to post on /. next year to tell us how it worked out.
Personally, I wouldn't do it. In the near term (the next year), it's going to take a while to recover from the glut caused by the OPEC/Russia price war and then the COVID-19 pandemic. The pandemic is going to continue suppressing travel for at least a year, and it's likely that business travel will continue to be depressed from what it was, because people are getting used to communicating remotely. Oil-producing
Now $0 per barrel (Score:2)
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Now down to -$4.00 (Score:3)
Re:Now down to -$4.00 (Score:5, Informative)
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I'm not an expert in futures, but in order to settle a long, you have to liquidate the contract by selling it to someone else. If nobody else wants to buy your long contract, you're taking delivery. Unless they'll just let you stall ad infinitum?
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"Futures are not physical deliveries unless you execute them. "
I think you are referring to options (which are the right, but not the obligation, to buy or sell something)
Re:Now down to -$4.00 (Score:5, Informative)
https://thedailywtf.com/articl... [thedailywtf.com]
No place to store it all (Score:2)
Um, maybe in the ground? Or would they rather spill it on the beach?
Re:No place to store it all (Score:5, Informative)
My understanding is that depending upon the kind of well, shutting it down can be an enormous undertaking, and in some cases will mean capping it off and redrilling. It's not a tap that you just turn the spigot off, at least in many cases. Some sources like the oil sands in Alberta and North Dakota can probably just shut down operations, but if you're in Texas, or on a rig in the Gulf of Mexico, it's going to be a complex and expensive affair to shut the wells down, and to start them back up again.
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Partly that, but there's also a cost to letting the machinery idle and laying off all the workers. The Alberta oil sands have been basically operating at a loss for a quite a while. They still produce oil and haven't shut down because once you've bought all the machinery it costs pretty much the same whether it's operating or not.
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The US stockpile reserve does that. The government is buying massive amounts of oil ($500M/day) to supply itself and keep the market alive. It's actually a good time to buy if you believe Russia and Saudi will stop pushing oil on the market to destroy small business Texan shale oil companies.
This isn't Exxon-Mobil oil we're talking about, this is mom-and-pop small business in Texas, portions of PA, NY and Canada that invested their life savings to develop shale oil and natural gas.
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And let's remember, it's not like oil sands and shale oil were fantastic market performers even before the Saudi-Russian oil war and the pandemic. These aren't companies dipping from a high, these are companies that were already in pretty rough shape six months ago; like an airplane who were in a stall, and now couldn't pull up even if they wanted to. It's almost certain that Alberta and North Dakota oil sands are worth less than $0, as well as a lot of shale oil assets. And Exxon isn't doing that great eit
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Shale and oil sands were never a good business. Any business with production costs twenty or thirty times it's competitors is absolutely insane. The only reason it worked at all was because an international cartel is even more insanely greedy. Or was.
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Unless you've built proper storage tanks (which takes money), you'll contaminate the groundwater. You can go to prison for that.
This has the Federal Reserve pretrified (Score:4, Insightful)
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trillions of dollars of loans would be worthless.
What? Wouldn't that be the opposite? The loans would be worth MORE after deflation.
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What? Wouldn't that be the opposite? The loans would be worth MORE after deflation.
Yes, yes they would.
Inflation destroys both savings and debts. Deflation makes both worth more.
But we are probably dealing with someone that confuses currency with wealth (Wealth is goods and service, not currency.)
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The loans would be worth MORE after deflation.
Yes, but that is temporary. Everybody's over-leveraged. At a time of reduced revenue, the rising cost of debt will trigger a chain of defaults and bankruptcies. Once that happens, the loans will quickly become worthless.
Re:This has the Federal Reserve pretrified (Score:5, Insightful)
No, the loans would be less (or worthless) because many borrowers would default on them. For example, if an oil producer borrows $1B to do E&P oil production with an expected margin of 10% then things are peachy when times are good - the producer is using leverage to get an effective ROI many multiples of that 10% since they used other people's money to finance their production. Now imagine what happens the margin drops to -40%, ie it becomes more expensive to produce oil then to let it sit in the ground. Those producers will walk away from their business and the loans which backed them. Now imagine that happening across nearly every industry in the economy. As more people walk away from their loans, the assets which back them become worth less because there's no liquidity available to buy them, which triggers panic selling of those assets, driving their price down even further, which then drives down the price of otherwise "good" loans even further and into default.
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The loans are worthless now. It would just be more obvious without inflation.
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Fucking paywalls (Score:5, Insightful)
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I agree. Search the headline in your favorite search tool and then call M'Smash a shill.
Oil plunges to below US$11 a barrel [businesstimes.com.sg]
Oil prices go negative as traders flee expiring contract [bnnbloomberg.ca]
I hope the price goes back up! (Score:3, Interesting)
Futures have a place (Score:2)
Oil Speculators (Score:3, Informative)
They purchased these contracts on the assumption that they would never be required to take physical delivery of the oil.
Now they are faced with a situation where they may have to pay for oil upon which they cannot possibly take physical delivery.
I am unsympathetic.
These individuals and groups are part of the "it's who you know" culture that does nothing but profit insiders.
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Peak oil was based on a premise derived from proven reserves and mounting demand. While demand, for the most part is still positive (pandemic dip not withstanding), it isn't increasing at the rate that peak oil advocates expected. With growing competition from renewables, and a sense that sometime by the middle of this century, EVs and battery capacity (and other storage mechanisms) will make renewable production more reliable and economical, it's quite possible that some oil markets, particularly for heavi
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Who remembers the "Peak Oil" panic from over a decade ago?
I do. It was that bizarre theory peddled by people outside of the industry who didn't realise that we didn't have a limited supply of oil, but rather only a fixed reserve at a given price point. Peak oil was supposed to drive up the price of oil, that was the panic. However these know-nothings who peddled it didn't seem to understand that the industry is sitting on squillions of proven uneconomic reserves that suddenly become economical at a higher product price. Peak oil doesn't exist, or if it does, it wi
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Yep, because some guy making $15m / year while running a company that literally sits on several hundred billion dollars of product at any give time is definitely the source of all these financial problems.
Re:Pretty soon prices will be so low.... (Score:4, Informative)
Why wouldn't they lay off both Democratic and Republican Congressmen? Surely you aren't such a complete moron you have somehow failed to understand they own lots of both. Senators, too. And every president back to Carter.