The world could soon run out of space to store oil. Prices may plunge below zero(edition.cnn.com)
edition.cnn.com
The world could soon run out of space to store oil. Prices may plunge below zero
https://edition.cnn.com/2020/04/01/business/oil-prices-crash-storage-space/index.html
54 comments
You are also encouraging people to build storage which will buffer prices in the future as demand comes up again.
Depends heavily on the location, but just expanding a crude tank farm in the US is a multi-year design and permitting job, even when you can just throw money at it. There's also significant ongoing regulatory costs of keeping them, even if they're just sitting idled.
Plus much of storage that exists isn't really for storage, but is a needed buffer on the supply line for steady-state infrastructure, like pipelines and refineries. Some amount of empty is required (both practical and by regulation) to absorb surplus, like in the event of an emergency refinery shut down due to fire.
Other cases are for when pipelined supply isn't single product, or is shared by multiple users... Your plant might need 500k bbl/day, but you only get the pipeline every other day at 1000k bbl/day. Or you get different products on different days.
Part of the US strategic oil reserve's purpose is for what's happening right now, and they've been using it to absorb excess capacity for a few weeks, with a few more weeks to go before full. And this is filling entire underground salt domes with oil, at a scale way beyond any manufactured tank capacity.
We'll probably see more tankers and even rail car tankers repurposed for storage, but I don't see anyone justifying the need to build more fixed storage, unless there's some existing/ contributing need for storage that was already permitted and is suddenly cost justified. But even that is at tiny scales compared to the current surplus.
It's just easier and cheaper to start shutting in the more isolated and/or expensive wells. Which is just storing it in the ground, anyway.
Plus much of storage that exists isn't really for storage, but is a needed buffer on the supply line for steady-state infrastructure, like pipelines and refineries. Some amount of empty is required (both practical and by regulation) to absorb surplus, like in the event of an emergency refinery shut down due to fire.
Other cases are for when pipelined supply isn't single product, or is shared by multiple users... Your plant might need 500k bbl/day, but you only get the pipeline every other day at 1000k bbl/day. Or you get different products on different days.
Part of the US strategic oil reserve's purpose is for what's happening right now, and they've been using it to absorb excess capacity for a few weeks, with a few more weeks to go before full. And this is filling entire underground salt domes with oil, at a scale way beyond any manufactured tank capacity.
We'll probably see more tankers and even rail car tankers repurposed for storage, but I don't see anyone justifying the need to build more fixed storage, unless there's some existing/ contributing need for storage that was already permitted and is suddenly cost justified. But even that is at tiny scales compared to the current surplus.
It's just easier and cheaper to start shutting in the more isolated and/or expensive wells. Which is just storing it in the ground, anyway.
my heart goes out to all Venezuelans right now. Their poorly run government pretty much bet the entire farm on oil and with the depreciation in recent years it was already tough living there. At a price close to 0, it can not be good.
And sadly they can't quickly grow tourism due to the crime rate and instability (and now coronavirus). The country has incredible opportunities for tourism but it will take years first to solve its problems and then overcome its reputation.
And like most places who try to swap resource extraction for tourism they will find that it pays a lot less. States like West Virginia still haven't recovered from the collapse of coal jobs starting in the 1980s, even with tourism. Even in states like Colorado, being a liftie doesn't pay nearly as well as being a hard rock miner.
Covid-19 can't be helping things but oversimplifying Venezulea geopolitical situation as "a poorly run government" ignores the fact that there are multiple state-level actors (internally and externally) working against their best interests.
Hrm....and why do those state actors work against Venezuelas interest? Perhaps they have aligned themselves with other other oppressive global regimes which nationalize resources to be managed by friends and family rather than competitive enterprises? And who did that alignment? Yep, poorly run government.
That aside, their monetary policy has also been a train wreck from the 70's, and compounded with more bad decisions in the early 2000's. https://mises.org/wire/venezuelas-economic-collapse-was-enab...
Until they fix core issues in their central government/bank, they will continue to struggle in a global economy.
That aside, their monetary policy has also been a train wreck from the 70's, and compounded with more bad decisions in the early 2000's. https://mises.org/wire/venezuelas-economic-collapse-was-enab...
Until they fix core issues in their central government/bank, they will continue to struggle in a global economy.
Focusing on external actors instead of internal corruption is missing the forest for a couple of trees.
Any speculation about what this will mean for electrification efforts? Specifically for cars. I thought high prices were good for that, but if the oil market collapses entirely it could drive some suppliers out of business.
Battery and electric vehicle lifetime costs (including electricity) are rapidly approaching the manufacturing and maintenance costs of internal combustion engine vehicles. That means that even if the fuel is free, it will be cheaper to operate an electric vehicle.
Low oil prices can delay that cost intersection, but won't prevent it from eventually happening because internal combustion vehicles are more complex and costly to maintain even without taking into account fuel costs. So as long as EV manufacturing costs continue to decline and electricity continues to get cheaper from low cost renewables, ICE vehicles will eventually become obsolete no matter the oil price.
Low oil prices can delay that cost intersection, but won't prevent it from eventually happening because internal combustion vehicles are more complex and costly to maintain even without taking into account fuel costs. So as long as EV manufacturing costs continue to decline and electricity continues to get cheaper from low cost renewables, ICE vehicles will eventually become obsolete no matter the oil price.
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and yet gas prices will remain the same...
In central Kansas, gas prices are totally plummeting.
Agreed. Every time I fill up, I now save $20. And I fill up 2-3 times a week.
And, this is on top of it happening once before 2 years ago. I'm now pocketing over $500 a month that I used to spend on fuel.
And, this is on top of it happening once before 2 years ago. I'm now pocketing over $500 a month that I used to spend on fuel.
Regular 87-octane gasoline has dropped almost seventy cents per gallon in price in central Texas since this madness started. Oil producers in the state are getting squeezed hard right now.
The price is trying to go to a level to force companies to keep the oil in the ground. If it has to go negative to incentivize that behavior, then it will.