The World Is Still Producing More Oil Than It Needs(wired.com)
wired.com
The World Is Still Producing More Oil Than It Needs
https://www.wired.com/story/the-world-is-still-producing-more-oil-than-it-needs-why/
83 comments
Thank you for the great comment.
It is astonishing to me how professional people from the oil industry generally were in my previous interactions. Such a nice change of pace compared to many others.
It is astonishing to me how professional people from the oil industry generally were in my previous interactions. Such a nice change of pace compared to many others.
Why would they be unprofessional? Because media demonizes the industry as destroying the Earth and raping the environment?
Petroleum engineering/science is very hard; people don’t make it through that by the seat of their pants.
Petroleum engineering/science is very hard; people don’t make it through that by the seat of their pants.
With all the money to be made you might imagine the industry staffed by colorful get-rich-quick characters.
This is the silliest thing I’ve read all day. Did you read what you wrote?
Perhaps it's possible to destroy the earth and still be nice on the Internet? The two aren't mutually exclusive..
No one is “destroying the earth”. The earth will be here long after we have pumped enough carbon in the air to change the climate and kill ourselves.
We are just killing ourselves slowly. Kind of like running a car in an enclosed garage but at a massive scale.
We can build carbon extraction plants to reverse this. We just need to wake up as a species to the issue at hand and stop saying the world is ending.
We are just killing ourselves slowly. Kind of like running a car in an enclosed garage but at a massive scale.
We can build carbon extraction plants to reverse this. We just need to wake up as a species to the issue at hand and stop saying the world is ending.
If someone is pissing on my floor, I might tell them to stop destroying my house.
If they drunkenly retort that, at most, they're slowly destroying the floorboards, and that the frame and roof will happily go on without them... I'm still kicking them out.
If they drunkenly retort that, at most, they're slowly destroying the floorboards, and that the frame and roof will happily go on without them... I'm still kicking them out.
And then they move on..., and then you move on..., and the earth keeps spinning. Humans will never destroy the earth, just ourselves.
At best this is like a teenager trying to be deep. At worst it's just nihilistic.
We get your point, but for those of us not assuming the destruction of humanity, there are still choices we can make.
We get your point, but for those of us not assuming the destruction of humanity, there are still choices we can make.
Why did you create a throwaway for such an innocuous comment? Are you very afraid of downvotes?
> about $20 a barrel to produce the oil
The ten most profitable companies in the world are nine oil companies and Apple. No wonder!
The ten most profitable companies in the world are nine oil companies and Apple. No wonder!
What year is that? That would make sense for revenue, but while oil and gas bring in a whole lot of money, it's not a stunningly high margin industry.
Aramco is probably #1 overall, but the rest of the top 10 should is like, Apple Samsung, and a mix of American and Chinese banks. Then after that you have energy mixed with the rest of the tech players.
Aramco is probably #1 overall, but the rest of the top 10 should is like, Apple Samsung, and a mix of American and Chinese banks. Then after that you have energy mixed with the rest of the tech players.
IIRC, I read that in a listicle in Economist magazine about three years ago.
Some short poking around a search engine turns up this 2019 article: https://www.visualcapitalist.com/the-worlds-20-most-profitab...
Aramco is the only oil company on the top 10. We have Aramco at 1, Apple at 2, Samsung at 4, Alphabet at 7, and the rest is banks, mostly Chinese banks. Places 11-20 are a bit more varied with 3 oil corps, 3 banks, 3 tech companies and Toyota.
Aramco is the only oil company on the top 10. We have Aramco at 1, Apple at 2, Samsung at 4, Alphabet at 7, and the rest is banks, mostly Chinese banks. Places 11-20 are a bit more varied with 3 oil corps, 3 banks, 3 tech companies and Toyota.
Your input is great but it begs the question: why, then, isn't production being shut down during this time?
Some production is being shut down: https://www.wsj.com/articles/north-americas-oil-industry-is-.... The costs of stopping and restarting are high: https://www.argusmedia.com/en/news/2092308-us-stripper-wells....
If I understand correctly:
> we still make a small profit on low oil prices.
and
> when prices are low everybody expects to rise back to what we're used to again soon, because we're naturally optimistic. But that's not a law written in stone, it might be true that oil prices drop again in future, so we're better off selling it today.
So basically, a bird in the hand is worth two in the bush.
> we still make a small profit on low oil prices.
and
> when prices are low everybody expects to rise back to what we're used to again soon, because we're naturally optimistic. But that's not a law written in stone, it might be true that oil prices drop again in future, so we're better off selling it today.
So basically, a bird in the hand is worth two in the bush.
[deleted]
If I've got this straight, the $20 per barrel cost of production includes the up-front CAPEX costs. However those costs have already been paid. The marginal cost of production per barrel is lower, so right now ignoring sunk costs $20 per barrel oil is still economical to pump for many producers. Is that right?
Yes, that's basically correct, but think less econ and more accounting.
Keep in mind:
1) That the $20/bbl cost is likely with capex amortized on the assumption that the well isn't shut-in. You'd either have to add a one-time write-off for the capex balance (if you can afford to), or at least re-amortize. Either way, looking at the existing/assumed $/bbl cost vs market price isn't correct for most decision making purposes.
2) The act of shutting-in (and re-starting production) have direct costs to be accounted for. It's not as simple as pushing a button that activates a remote controlled valve. There's (almost) always physical work to be done, plus compliance / permitting work associated with any changes. More-so for restarts, if you assume the shut-in will be temporary, and want to account for that cost in decision making.
3) opex costs are largely still discrete to some extent (ie, not literally a cost in $/bbl, except pipeline transport and royalties), and can still be sunk costs.
Shutting-in wells doesn't necessarily reduce opex to $0, whether immediately or longer term.
Yearly maintenance might have been done last week. Tanker service already contracted for the year, or a direct pipeline already built. Lease and permit fees paid for the next X years. The lease might be contracted at some fixed cost plus royalties, for 10+ years, with the fixed cost guaranteed.
New for 2020: If the company took a PPP loan (or otherwise is trying to avoid layoffs) they have to keep surplus personnel, which then becomes a sunk cost.
Now if you look at exploration instead of production, it's much more likely to be a textbook case of if (cost > price), then (stop work immediately).
Keep in mind:
1) That the $20/bbl cost is likely with capex amortized on the assumption that the well isn't shut-in. You'd either have to add a one-time write-off for the capex balance (if you can afford to), or at least re-amortize. Either way, looking at the existing/assumed $/bbl cost vs market price isn't correct for most decision making purposes.
2) The act of shutting-in (and re-starting production) have direct costs to be accounted for. It's not as simple as pushing a button that activates a remote controlled valve. There's (almost) always physical work to be done, plus compliance / permitting work associated with any changes. More-so for restarts, if you assume the shut-in will be temporary, and want to account for that cost in decision making.
3) opex costs are largely still discrete to some extent (ie, not literally a cost in $/bbl, except pipeline transport and royalties), and can still be sunk costs.
Shutting-in wells doesn't necessarily reduce opex to $0, whether immediately or longer term.
Yearly maintenance might have been done last week. Tanker service already contracted for the year, or a direct pipeline already built. Lease and permit fees paid for the next X years. The lease might be contracted at some fixed cost plus royalties, for 10+ years, with the fixed cost guaranteed.
New for 2020: If the company took a PPP loan (or otherwise is trying to avoid layoffs) they have to keep surplus personnel, which then becomes a sunk cost.
Now if you look at exploration instead of production, it's much more likely to be a textbook case of if (cost > price), then (stop work immediately).
I recall years ago when people would argue about tape or spinning rust for safekeeping old backups and the drive people would talk about tapes sticking together, while the tape people would talk about bearings seizing if they don't spin the drives up from time to time.
Things that are meant to keep moving tend not to fare well when they are left to sit for too long. If you have a classic car you have to drive it or everything starts to seize, separate, or gel.
I expect oil well equipment is not so different.
Things that are meant to keep moving tend not to fare well when they are left to sit for too long. If you have a classic car you have to drive it or everything starts to seize, separate, or gel.
I expect oil well equipment is not so different.
My understanding as well, does anyone have a breakdown of estimates on marginal cost of production for various oil extraction regions? Very interesting..
So capital costs range something in the neighbourhood of 55% to 30% depending on region, and (again regional) total costs looks something like ~$52 a barrel (highest cost regions - like north sea) to < $10 (middle east).
But once you've paid all that capital (and something like shale oil in the west has some of the highest relative capital costs) you're better to keep producing at anything north of opex, so maybe as low as $15-20 for a shale producer, or $5 for S.A.
This is all very estimated, but you start to see why they keep pumping.
Next add in things like transport and storage constraints, refinery capacity , etc and volumes range from zero to infinite regardless of prices.
source: we build modeling software for evaluation of these scenarios.
But once you've paid all that capital (and something like shale oil in the west has some of the highest relative capital costs) you're better to keep producing at anything north of opex, so maybe as low as $15-20 for a shale producer, or $5 for S.A.
This is all very estimated, but you start to see why they keep pumping.
Next add in things like transport and storage constraints, refinery capacity , etc and volumes range from zero to infinite regardless of prices.
source: we build modeling software for evaluation of these scenarios.
Is it also true that the flow rate from the well also affects total recovery (probably for similar physics reasons to what you already illustrated)?
I remember when people used to write articles about how they suspected the Saudis were 'damaging' their oilfields by drawing them down at too high a rate. But I've been hearing that for 20 years and I would have expected the facade would begin to slip if they pundits were correct.
I remember when people used to write articles about how they suspected the Saudis were 'damaging' their oilfields by drawing them down at too high a rate. But I've been hearing that for 20 years and I would have expected the facade would begin to slip if they pundits were correct.
What I think the article did a poor job of highlighting was they were talking mostly about losses from shutdowns in shale-oil wells. They don't talk about conventional surface wells, only offshore and even then they mention a minimal loss - which does not preclude gains from well settling time that you bring up.
Shutting in a well increases the possibility of damaging the reservoir as well as the need for a workover.
The change in pressure often damages the wall and casing, which increases costs.
With a fracked well, all of this is multiplied.
Shutting in a well is a case by case operation from a reservoir perspective.
Based on the analysis [0] of the experts I talk with, much of the Permian Basin could be damaged not just at the well level, but the reservoir too. (Note that re-fracking is not the same as fracking a virgin field due to the new faults that were created. )
[0] - this is proprietary. Sorry for that, but this is analysis of particular plays, and that is guarded extremely tightly.
The change in pressure often damages the wall and casing, which increases costs.
With a fracked well, all of this is multiplied.
Shutting in a well is a case by case operation from a reservoir perspective.
Based on the analysis [0] of the experts I talk with, much of the Permian Basin could be damaged not just at the well level, but the reservoir too. (Note that re-fracking is not the same as fracking a virgin field due to the new faults that were created. )
[0] - this is proprietary. Sorry for that, but this is analysis of particular plays, and that is guarded extremely tightly.
Can you suggest reading material for those that would like to learn a lot more about this topic? Specifically US unconventional?
I used to work offshore in commercial diving / ROVs. The reasons are not so much technical problems, but there is demand/supply for people who can do that sort of job, as I wrote here[1].
people need many years of experience (recorded in a log-book), before they can do the next certification. Unlike SW engineering where you're promoted to Senior depending on company and sometimes for no apparent reason in oil+gas a lot of people are in their 40ies and 50ies. Our super-intendant on one job was 78. I was the youngest guy out there with 23 yro while the next closest was 12 years older than me (ans also only on one job. one all other gigs all were much older still).
Every 2 or so years you need to do a survival training. There are medical fitness tests etc ... You can't just quickly train a few on-shore engineers and then send them out there.
On the other hand there should be plenty of people "sitting on the beach" without work right now and from my experience it sounds like big oil companies rather not spend the money on this when they think there might be a chance of this blowing over in 3 months.
[1] https://news.ycombinator.com/item?id=22619406
people need many years of experience (recorded in a log-book), before they can do the next certification. Unlike SW engineering where you're promoted to Senior depending on company and sometimes for no apparent reason in oil+gas a lot of people are in their 40ies and 50ies. Our super-intendant on one job was 78. I was the youngest guy out there with 23 yro while the next closest was 12 years older than me (ans also only on one job. one all other gigs all were much older still).
Every 2 or so years you need to do a survival training. There are medical fitness tests etc ... You can't just quickly train a few on-shore engineers and then send them out there.
On the other hand there should be plenty of people "sitting on the beach" without work right now and from my experience it sounds like big oil companies rather not spend the money on this when they think there might be a chance of this blowing over in 3 months.
[1] https://news.ycombinator.com/item?id=22619406
Can you share the format of the log book? Interested in doing that for my career. Having a documentation of problems I faced, even not in detail, would help a lot in the coming years I think.
sure, it's fairly simple. You can see some screenshots of the pages with a google image search "commercial diver logbook" or "saturation diver logbook".
Has fields for name of ship/vessel, name of project, name of client, type of gear, date, and then time spent in bell or lock-out, and what you were working on, then you would calculate the total time spent in saturation at the end of the decompression (e.g. number of days/weeks etc). there would be signature field for yourself and supervisor/super-intendant:
https://www.subsupply.eu/store/image/cache/catalog/logbooks/...
https://www.google.com/search?q=commercial+divers+log+book&h...
https://www.google.com/search?q=saturation+divers+log+book&t...
ROV log books are similar with the difference that you're logging the time of the vehicle and your experience as the pilot not the diver (so no saturation, decompression etc):
https://www.google.com/search?q=off+shore+rov+logbook&tbm=is...
Has fields for name of ship/vessel, name of project, name of client, type of gear, date, and then time spent in bell or lock-out, and what you were working on, then you would calculate the total time spent in saturation at the end of the decompression (e.g. number of days/weeks etc). there would be signature field for yourself and supervisor/super-intendant:
https://www.subsupply.eu/store/image/cache/catalog/logbooks/...
https://www.google.com/search?q=commercial+divers+log+book&h...
https://www.google.com/search?q=saturation+divers+log+book&t...
ROV log books are similar with the difference that you're logging the time of the vehicle and your experience as the pilot not the diver (so no saturation, decompression etc):
https://www.google.com/search?q=off+shore+rov+logbook&tbm=is...
I just have "Debugging.docx" with stuff stored in a hierarchy by language. Having related error messages near each other lets you browse them to see solutions that worked for other problems. Example:
PYTHON
--Problems with error messages
----IDLE won't give a command prompt
--Problems with error messages
PYTHON
--Problems with error messages
NameError: name is not defined
You tried to use a class before you defined it.
----IDLE won't give a command prompt
Ctrl+F6, or kill that instance of IDLE and start a new one
--Problems with error messages
...The elephant in the room is that the current crisis has revealed how dependent some producers are on high prices for oil. Basically the current crisis is a double crisis of first Russia deciding to stop voluntarily limiting their oil production to keep the prices artificially high so the US producers don't go bankrupt. And then the demand collapsed due to the lockdown. So over supply and demand collapse happened nearly at the same time.
What this means for producers in the US, that are increasingly relying on more expensive sources of oil is that Russia can collapse the prices to below their break even point any time they want. Same for the Saudi's. That used to be the nuclear option when Opec controlled the prices. This is also where the word oligarchy comes from. Once oligarchies stop fixing prices they are suddenly competing for cost per barrel. And the simple truth is that when it comes to fracking, the cost is too high.
What that means in turn is that oil related investments suddenly got a lot more risky than they already were. All the easy sources have long been invested in and the remaining sources are increasingly difficult to exploit. Institutional investors have already been divesting away from oil for a few years. Price fluctuations like we've seen in the past decade ranging from negative to above 100$ per barrel means it's a highly risky investment as you simply can't know if you get back your money.
So, shutting down right now may get a permanent nature for a lot of companies as they'll have a hard time getting investors to back bringing their plants online. The longer this lasts, the worse it gets. I expect a lot of recent investments to be written off completely. Also things like the Keystone pipeline are probably dead in the water as it is debatable whether the thing will ever be profitable.
IMHO that's actually good news and will force people to look at alternative technologies and accelerate the agenda on e.g. switching to electrical vehicles, battery technology, alternative energy etc.
What this means for producers in the US, that are increasingly relying on more expensive sources of oil is that Russia can collapse the prices to below their break even point any time they want. Same for the Saudi's. That used to be the nuclear option when Opec controlled the prices. This is also where the word oligarchy comes from. Once oligarchies stop fixing prices they are suddenly competing for cost per barrel. And the simple truth is that when it comes to fracking, the cost is too high.
What that means in turn is that oil related investments suddenly got a lot more risky than they already were. All the easy sources have long been invested in and the remaining sources are increasingly difficult to exploit. Institutional investors have already been divesting away from oil for a few years. Price fluctuations like we've seen in the past decade ranging from negative to above 100$ per barrel means it's a highly risky investment as you simply can't know if you get back your money.
So, shutting down right now may get a permanent nature for a lot of companies as they'll have a hard time getting investors to back bringing their plants online. The longer this lasts, the worse it gets. I expect a lot of recent investments to be written off completely. Also things like the Keystone pipeline are probably dead in the water as it is debatable whether the thing will ever be profitable.
IMHO that's actually good news and will force people to look at alternative technologies and accelerate the agenda on e.g. switching to electrical vehicles, battery technology, alternative energy etc.
This is how the economics of all resource extraction works, not just oil. As prices rise and fall the economic viability of extracting a particular resource pocket changes. It's all in equilibrium and prices typically don't move as much as oil has in the last three months because market forces and people generally don't want to shoot themselves in the foot. The long term economics of Russia and KSA crashing the price so they get a monopoly doesn't make sense, doing so minimizes their profit if done over the long term since capital costs per barrel are fixed. Resource investments are multi-decade, the overall effect of this is going to be a blip in the grand scheme of things rather than an end to the industry.
> Once oligarchies stop fixing prices they are suddenly competing for cost per barrel. And the simple truth is that when it comes to fracking, the cost is too high.
On the other hand I can imagine the US government subsidize at least part of their fracking/shale oil capacity - access to oil is a national security question.
On the other hand I can imagine the US government subsidize at least part of their fracking/shale oil capacity - access to oil is a national security question.
The US does subsidize domestic oil production.
> This is also where the word oligarchy comes from.
The word has been in use for 500 years. According to the Oxford dictionary it derives from the Greek oligarkhia, from oligoi "few" and arkhein "to rule":
https://www.lexico.com/definition/oligarchy
The word has been in use for 500 years. According to the Oxford dictionary it derives from the Greek oligarkhia, from oligoi "few" and arkhein "to rule":
https://www.lexico.com/definition/oligarchy
This is also where the word oligarchy comes from
Im pretty sure the word oligarchy existed before humans relied on petroleum.
Im pretty sure the word oligarchy existed before humans relied on petroleum.
it comes from greek ὀλιγαρχία [0]: from ὀλίγος (olígos), meaning 'few', and ἄρχω (arkho), meaning 'to rule or to command')[1]
[0] https://en.wiktionary.org/wiki/%E1%BD%80%CE%BB%CE%B9%CE%B3%C... [1] https://en.wikipedia.org/wiki/Oligarchy
[0] https://en.wiktionary.org/wiki/%E1%BD%80%CE%BB%CE%B9%CE%B3%C... [1] https://en.wikipedia.org/wiki/Oligarchy
Maybe it should have spelled "oiligarchy"?
I'm pretty sure jillesvangurp is referencing the OPEC cartel here, that they are the oligarchies, and the behavior they have is where the word comes from. Not that the word oligarchy comes from something around oil.
Could also be that I'm reading it too favorably, but I guess that's better than the opposite.
Could also be that I'm reading it too favorably, but I guess that's better than the opposite.
I interpreted that to mean "this is effectively an oligarchy", not a claim of recent etymology.
Every producer is dependent on high prices of their product, whether they sell oil or apples. It is just property of some products that it takes time to scale production up after it was scaled down. It is also difficult to scale production of apples, because, you know, once you shut it down it takes multiple years to grow them again, but this does not imply any particular problem with the producer.
Now, when it comes to setting up the prices, which would normally be called anti-competitive, the rules do not apply when you are large and important enough. We also kind of grandfathered in the situation, it's been running for over half a century now.
If these were coalition of almost anything else, there would definitely be an outcry.
People do need to be reminded that the way the world works is whole lot different from idealistic notions. The rules we set are not and cannot be objective, they are just an optimization from constant blundering through reality.
Now, when it comes to setting up the prices, which would normally be called anti-competitive, the rules do not apply when you are large and important enough. We also kind of grandfathered in the situation, it's been running for over half a century now.
If these were coalition of almost anything else, there would definitely be an outcry.
People do need to be reminded that the way the world works is whole lot different from idealistic notions. The rules we set are not and cannot be objective, they are just an optimization from constant blundering through reality.
The problem with oil is, that the costs of production are very different across many countries. While in Saudi Arabia they make a profit at $10/barrel, many other locations require 30-50$/barrel to be profitable.
The Saudi royal family can make a profit at $10/barrel for a few years, then they lose control of the country and the oil because they had to stop most of the bribes (social services, etc) they were paying the population to continue to go along with the regime. (The Russian government is in a similar situation to some extent.) But yeah, someone in Saudi will continue to sell the oil, maybe after a few months or a few years of chaos, even if they can only get $10/barrel.
I don't see that as a problem. You use what you have. As a country you have some resources and you need to learn make best use of them. Norway is producing gas at a very substantial cost, yet it was able to save a huge amount of money and current situation is largely a speedbump rather than catastrophe.
It seems the problem is not with the costs of production but rather maturity of the country that wields the power over the resource, whether it understands that a) they are largely dependant on it, b) it is not given that tomorrow the prices will be the same, c) it will run out some day and d) it is easy to spend money now but actually you have to be frugal to save them for when it runs out.
It seems the problem is not with the costs of production but rather maturity of the country that wields the power over the resource, whether it understands that a) they are largely dependant on it, b) it is not given that tomorrow the prices will be the same, c) it will run out some day and d) it is easy to spend money now but actually you have to be frugal to save them for when it runs out.
Noraway's costs are actually about middle of the road. Higher than middle east, N. Africa , S. America but much lower than N. America and the rest of Europe. This is impressive when you account for their environmental standards and relatively challenging locations.
Their huge savings is the combination of saving but also very high cost of living & taxation. The state provides a lot but also places high taxes on everything.
I live in Alberta where we have relatively low taxes and no oil savings. We've been boom/bust for our entire existence, but one huge difference - we've subsidized huge parts of the entire country during those good times. Those transfer payments add up to an incredible amount of money.
Their huge savings is the combination of saving but also very high cost of living & taxation. The state provides a lot but also places high taxes on everything.
I live in Alberta where we have relatively low taxes and no oil savings. We've been boom/bust for our entire existence, but one huge difference - we've subsidized huge parts of the entire country during those good times. Those transfer payments add up to an incredible amount of money.
dntbnmpls(2)
Oil income is supporting many horrible regimes.
I have some hope a prolonged oil glut might make some of them fall.
A world where Russia or Iran or Venezuela was run by decent government would be a great improvement!
I wish the same for Saudi, but I think that regime is safe.
I have some hope a prolonged oil glut might make some of them fall.
A world where Russia or Iran or Venezuela was run by decent government would be a great improvement!
I wish the same for Saudi, but I think that regime is safe.
I like your sentiment, but it conveniently forgets the significant amount of bloodshed and instability that usually occurs when one such regime collapses.
Just look at Libya. The West got rid of Gadaffi and the country went from stability under a dictator to fractured chaos where tourism industry is dead and slave markets have opened.
Just look at Libya. The West got rid of Gadaffi and the country went from stability under a dictator to fractured chaos where tourism industry is dead and slave markets have opened.
I'm absolutely not advocating US invasions.
These petrostate governments get their power from controlling the oil wealth.
If that becomes worthless, they have no power basis and serve no purpose anymore. Sure, what comes after, nobody knows. But in general, I think non-oil economies, that have to thrive of regular people working, produce much healthier governance.
These petrostate governments get their power from controlling the oil wealth.
If that becomes worthless, they have no power basis and serve no purpose anymore. Sure, what comes after, nobody knows. But in general, I think non-oil economies, that have to thrive of regular people working, produce much healthier governance.
This is the problem with pie in the sky US neoconservatism or neoliberalism. Not every has a secular civil society ready to jump in and create lasting national institutions. Then they get all hot and bothered when what replaces a dictatorship is either control by a party they don't like, mass corruption, total anarchy, or some combination of the three.
See: Iraq, Afghanistan, Egypt, Syria, Libya, South Sudan
The particularly dumb thing about Libya is that the US administration at the time was quite keen on emphasizing that they did not want to get involved initially, since the US was tired of war and the US has no major presence there. Britain and France, who loved waxing on about Iraq being an immoral war, were the primary supporters of intervention.
See: Iraq, Afghanistan, Egypt, Syria, Libya, South Sudan
The particularly dumb thing about Libya is that the US administration at the time was quite keen on emphasizing that they did not want to get involved initially, since the US was tired of war and the US has no major presence there. Britain and France, who loved waxing on about Iraq being an immoral war, were the primary supporters of intervention.
One could say "A world where US was run by decent government would be a great improvement" as well, but the collapse that you now seem to be in front of, does not give me any joy, even though I enjoy the thought of a future US that doesn't wage wars.
> A world where Russia or Iran or Venezuela was run by decent government would be a great improvement!
There is no guarantee that whoever comes out on top after civil war is better than the previous big dog.
There is no guarantee that whoever comes out on top after civil war is better than the previous big dog.
There's a structural difference in the needs that a government needs to satisfy in order to stay in power depending on these economic factors. If your economy runs on extraction and export of a few raw commodities, then any government that can keep that concentrated industry running will be successful, and it does not need a strong citizenship, quite the opposite, it needs a weak citizenship so that it's easier to control that concentrated source of wealth - that's part of the "resource curse" (https://en.wikipedia.org/wiki/Resource_curse) that facilitates dictatorships in such areas. A similar country without oil or comparable resources, on the other hand, simply has to rely on decentralized citizenship producing wealth through their labor and skill, and its leadership needs to facilitate a strong population even if it wanted to be an extractive dictatorship, because otherwise there's nothing to extract. In the long run, these circumstances push towards a society structure that's more reasonable and beneficial for the population masses than the resource-rich countries.
True. But when are there ever guarantees?
There is also no guarantee civil wars will happen.
There is also no guarantee civil wars will happen.
I think a big reason why Saudi Arabia and US are keeping oil prices low is because it’s a useful attack on Russia, Iran and Venezuela.
I don’t see why Venezuela say is worse than Colombia which is a far worse human rights offender.
I don’t see why Venezuela say is worse than Colombia which is a far worse human rights offender.
That's funny, because other conspiracists think Russia and Saudi Arabia are keeping prices low to attack the US. Everyone has an incentive to be the primary player and drive others out of business, so "A & B are conspiring to hurt C" is always going to make some sense.
If I were to reality check though, this isn't the time the US would be choosing to take another hit on its own economy to disrupt Iran or Venezuela.
If I were to reality check though, this isn't the time the US would be choosing to take another hit on its own economy to disrupt Iran or Venezuela.
After reading this piece it seems I do indeed have in backwards! https://www.counterpunch.org/2020/05/01/so-were-all-in-this-...
It is hard to close, but is there no way to ramp down either?
The sources I've been encountering make it sound like ramping down is an option up to a point, and then fluid dynamics kick in and the next flow rate below ~60% is 0%. I'm giving them some credence because they're very obsessive about the oil industry, but a bit of skepticism because they feel a little apocalypse heavy.
That is, like rocket engines :) Those are not usually designed to be throttled below 50-ish% either.
Walked past a petrol (gas) station earlier in the UK. Its still priced at £1.07 a litre.
Prices vary for a lot of reasons, and in the UK tax is a significant part of the retail price. Right now perhaps it’s more than half of the pump price.
Some parts of the US are under a dollar a gallon. Couple weeks ago it was as low as 89 cents a gallon in some places in Oklahoma. Looks like it’s up to 95-99 cents at Costco now.
But in Oregon, it’s just about $1 more a gallon. And not much of that is taxes. We have a different refinery system for the western US, we never get the really good prices here.
Some parts of the US are under a dollar a gallon. Couple weeks ago it was as low as 89 cents a gallon in some places in Oklahoma. Looks like it’s up to 95-99 cents at Costco now.
But in Oregon, it’s just about $1 more a gallon. And not much of that is taxes. We have a different refinery system for the western US, we never get the really good prices here.
Just filled up outside of Boston, Massachusetts. $1.89/gallon "regular" ($0.50/liter) and $2.37 "premium" ($0.63/liter). I have a friend with a Costco card paying $1.63, which I haven't seen since the 1990s.
Is this why they pay to get rid of produced oil (negative prices)? I guess is better to lose a bit hoping things turn around than closing well /suffering long term damage.
It was the oil exchange traded funds (ETFs) who trade the oil contract that suddenly found themselves trapped between owning oil contracts and not being able to offload them in time for delivery.
Commodity prices are based on the delivery of the physical goods for a given month. If you don't get rid of the contract by the date stipulated in the contract, you are contractually obligated to take delivery.
If you're a financial institution setup to buy contracts from producers and sell contracts to refineries, you probably don't have any infrastructure to take delivery and safely store crude (which is highly toxic stuff).
This is partly why prices went negative. Too many contracts were held by institutions who could not deal with delivery.
IMHO I believe there are other reasons behind negative oil prices:
* Co-ordinated central bank action since 2008 that has led to 'ZIRP'--zero interest rate policy.
* ZIRP leads to the misallocation of capital (US shale may not have happened if interest rates were higher)
* The Petrodollar System (oil is denominated in USD)
* The Eurodollar System (non-US banks make USD denominated loans to non-US firms)
* Geo-politics of the US reserve currency status which is being challenged by Russia (Russia doesn't like the foreign policy constraints that come with the USD being the world's reserve currency)
* Geo-politics of the Saudis not liking US oil production (the Saudi influence on US geopolitics has waned since the US has become the largest oil producer)
* The 'milkshake dollar theory' (the USD will gain relative to other currencies and that will cause systemic domestic and global economic problems).
The obvious thing is to blame it all on the COVID-19 demand shock, but I think it's really a multivariate problem. The global economic outlook and geopolitics were shaky prior to the pandemic.
Commodity prices are based on the delivery of the physical goods for a given month. If you don't get rid of the contract by the date stipulated in the contract, you are contractually obligated to take delivery.
If you're a financial institution setup to buy contracts from producers and sell contracts to refineries, you probably don't have any infrastructure to take delivery and safely store crude (which is highly toxic stuff).
This is partly why prices went negative. Too many contracts were held by institutions who could not deal with delivery.
IMHO I believe there are other reasons behind negative oil prices:
* Co-ordinated central bank action since 2008 that has led to 'ZIRP'--zero interest rate policy.
* ZIRP leads to the misallocation of capital (US shale may not have happened if interest rates were higher)
* The Petrodollar System (oil is denominated in USD)
* The Eurodollar System (non-US banks make USD denominated loans to non-US firms)
* Geo-politics of the US reserve currency status which is being challenged by Russia (Russia doesn't like the foreign policy constraints that come with the USD being the world's reserve currency)
* Geo-politics of the Saudis not liking US oil production (the Saudi influence on US geopolitics has waned since the US has become the largest oil producer)
* The 'milkshake dollar theory' (the USD will gain relative to other currencies and that will cause systemic domestic and global economic problems).
The obvious thing is to blame it all on the COVID-19 demand shock, but I think it's really a multivariate problem. The global economic outlook and geopolitics were shaky prior to the pandemic.
redis_mlc(1)
It is a question of whether it will cost more to store the oil than it does to "sell" it at a loss.
That said, I doubt many producers truly sold for negative prices. The negative prices were a commodities market effect where traders were required to pay to offload their futures contracts in order to not take delivery of the oil. In other words, I suspect the commodities traders bore the brunt of the negative pricing.
That said, I doubt many producers truly sold for negative prices. The negative prices were a commodities market effect where traders were required to pay to offload their futures contracts in order to not take delivery of the oil. In other words, I suspect the commodities traders bore the brunt of the negative pricing.
"traders were required to pay to offload their futures contracts in order to not take delivery of the oil"
That doesn't seem accurate, since the expiring futures rebounded to a positive value the next (and final) day, right?
It seems more like people were panicking and thought they had to unload at any price, but it was simply an error. Although I'm not knowledgeable about it.
That doesn't seem accurate, since the expiring futures rebounded to a positive value the next (and final) day, right?
It seems more like people were panicking and thought they had to unload at any price, but it was simply an error. Although I'm not knowledgeable about it.
If you were a speculative trader, and absolutely didn't want to have any oil delivered to you, it makes sense to sell at close the day before the futures become binding.
You could wait until the last day, but you'd have a big problem if the market was closed that day becomes of unexpected circumstances.
You could wait until the last day, but you'd have a big problem if the market was closed that day becomes of unexpected circumstances.
Wouldn't a refinery or storage facility in a country with lax regulations just burn their existing stockpile and take some off this oil at a negative price
I guess the issue with this is that it’s a physical item being delivered to the US, not any country. I’m not sure what the laws are when it comes to burning stuff off in the US.
My understanding is that at least some oil fields have a decay rate once drilled whether producing or not.
Why do we call it "producing"? Most of the oil is harvested not produced, right?
People are extracting more oil from the planet than people are currently consuming.
contractual obligations.
Lifting costs vary a great deal but for my high-cost-of-living part of the world, we still don't spend more than about $20 a barrel to produce the oil. Most of the world would be far less.
I think for the vast majority of the oil industry, we still make a small profit on low oil prices. The economics of oil production is really that you spend a shitload up front (CAPEX) and then your continuing costs (OPEX) are an order of magnitude smaller.
And as our CEO said recently, when prices are low everybody expects to rise back to what we're used to again soon, because we're naturally optimistic. But that's not a law written in stone, it might be true that oil prices drop again in future, so we're better off selling it today.
Also what they mentioned about waxy pipelines doesn't affect most facilities. Usually we would do a shock biocide dose for preservation, which is not a particularly high cost. And if you've got a waxy crude, you're probably going to get your wax issue within 12-24 hours anyway as soon as you cool to ambient, so a long shut-in and a short shut-in would be dealt with similarly.