What was it you said about "Peak Oil?"

"U.S. crude oil futures turned negative Monday for the first time in history as storage space was filling up, discouraging buyers as weak economic data from Germany and Japan cast doubt on when fuel consumption will recover.

Physical demand for crude has dried up, creating a global supply glut as billions of people stay home to slow the spread of the novel coronavirus.

West Texas Intermediate crude for May delivery fell more than 100% to settle at negative $37.63 per barrel.

Meanwhile, international benchmark, Brent crude, which has already rolled to the June contract, traded 8.9% lower at $25.58 per barrel.

The June WTI contract, which expires on May 19, fell about 18% to trade at $20.43 per barrel. The July contract was roughly 11% lower at $26.18 per barrel.

Investors bailed out of the May contract ahead of expiry later on Monday because of lack of demand for the actual oil. When a futures contract expires, traders must decide whether to take delivery of the oil or roll their positions into another futures contract for a later month."
CNBC contributed reporting.  Reuters

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When I think of all the BS people used to send me about the end of the world coming as fools burned up the last pitiful remnant of Terra's supply of petroleum.  Lawdy! Lawdy!  Bless them all!

Well now, you can't sell the stuff at prices that justify production costs.  An ocean of floating oil containers circles the earth.

Sadly, the newly achieved US domination of the petro scene is finished for the foreseeable future.

And to make it all sooo much worser,  China is a big importer of petro products so they can import it at fire sale prices.  

Fire sale? Hmm!  pl

https://www.reuters.com/article/us-global-oil/oil-crashes-ends-negative-for-the-first-time-in-history-idUSKBN2210V9

 

Comments

[Eric Newhill]

This (oil + the virus) is looking like an economic Pearl Harbor. I think BRICS is playing a far better game of chess so far and will win if we don't replace The Swamp with dedicated people with vision and smarts and who put country above cronyism and self-enrichment.

[JJackson]

What has the fluctuating price of oil got to do with peak oil? One is reflection of demand, plus manipulation of the price by producers, and the other has to do with the long term rates of extraction relative to the creation of new reserves by deposition of marine micro-organism and there decay under pressure and temperature conditions only geological time scales. the two are as similar as the price of fish and oranges.

[turcopolier]

JJackson

Ah! You got it wrong and are not prepared to admit that. Sad.

[Jack]

Sir

You were spot on about Peak Oil. US shale will not die. While shareholders and bond holders will take a haircut today, the extraction technology will continue to improve and their costs of production will decline. As oil prices improve shale production will return. The US is in a strong position as it doesn’t have to be concerned about oil at least for the next several decades.

From a supply/demand perspective, oil density in the west will continue to decline as our economies become more efficient and as solar and nuclear becomes more cost competitive for electricity generation.

An investment maxim is to buy when there’s blood in the streets. We will continue to use oil for at least another couple generations IMO.

The big issue in the short term is going to be the drastic impacts for those economies entirely dependent on crude revenues. The last time crude prices were lower for a sustained period the Soviet Union collapsed. MbS is running massive budget deficits as he keeps his population from revolting against the monarchy. One possible good outcome is there’s going to be less funding for the jihadists in the short term.

[Eric Newhill]

Jack,
there are a lot of jobs in oil in the US that will be lost. Since the US has become a exported of oil, there will be a loss of revenue in the US in both the private and public sector. If the price destruction continues, oil companies in the US could face insolvency and then we have to think about bail-outs, further stressing the already US economy. There might be trouble in the bond markets too - and, as Col Lang said, the Chinese can buy up oil at very low prices. I'm glad we are standing up a space force to defend our satellites and to attack theirs.

[Jack]

BTW, huge opportunity for Trump administration. Buy paper futures for May delivery at negative prices and then accept delivery of physical.

This is the real Art of the Deal.

[srw]

There is oil out there and there will be for a long, long, time. The only determining factor is the price to get it out of the ground. Here in North America fracking has opened the spigot but the price is $40+ a barrel to get it out of the ground. What I can't fathom is why Canada is pushing through with the Keystone XL pipeline taking tar sands oil from Alberta to Nebraska and eventually to the gulf coast. Obama put the stop to it but the Trumpster reversed his executive order and they started building again this month, although a federal judge just stopped it due to environmental review. Several years ago I read that tar sands oil costs $70+/barrel and that doesn't include shipping cost. Does Canada know something about the future price of oil or are they just subsiding their oil companies/workers? I sure wouldn't invest in it.

[TonyL]

Jack,

"As oil prices improve shale production will return. The US is in a strong position as it doesn’t have to be concerned about oil at least for the next several decades."

I disagree.

Putin has made his move to destroy the US shale oil industry. And he did not have to reveal his true intention, MBS has made it too easy. As soon as the shale oil industry collapsed and most everybody in shale oil went out of business, oil output will be reduced again to the point it is north of 60$ per barrell (the break even point for shale oil).

[Yeah, Right]

Does anyone know what the state of the US Strategic Oil Reserve is?

If the storage tanks aren't full then now is definitely the time to top 'em up.

Heck, Trump must be able to find someone willing to pay him to fill up those storage tanks.

[turcopolier]

Yeah Right

That is what he said yesterday and, yes the salt domes are being topped off.

[Yeah, Right]

Salt domes? Well, I learn something new every day.

[Fred]

TonyL,

"oil output will be reduced again to the point it is north of 60$ per barrell "

All that shale oil is still out there. It will be cheaper to extract the next time around as the knowledge, skills and ability are abundent and there will be plenty of actual pieces of equipment on the books of banks that don't want, need or are capable of using. What's the scrap value, that's what its worth, unless the bank cuts a deal for part of the revenue in lieu of cash to get the industry going again. It wouldn't take long.

[upstater]

Yeah Right, The SPR has room for an additional 75M bbl and can accept 500K bbl per day (can't find link at the moment). I recall reading SPR contains a variety of grades to support US refiners, so a barrel is not completely fungible. This morning the June contract is dropping very quickly into the teens.

Re-assembling the hardware and personnel to re-start fracking will be non trivial. Exploration & Production companies confined to that space will go belly-up and default on their bonds. The majors will be wounded. This could last a very, very long time.

Eric, the Space Force will rely on the likes of Lockheed-Martin (of F-35 fame) and Boeing (famous for the KC-46 tanker, CST-100 Starliner and 737 Max) for its enemy satellite-killer hardware. I'm not sure how well we should sleep at night with these guys in charge...

[Laura Wilson]

Both Iowa and Kansas now get 40 percent of their electricity from wind, which outstrips coal in both.

The pain the coronavirus lockdown is bringing is also hurting the renewables, but they are potentially far more resilient than coal. Farmers hurting because food demand has decreased will still pick up some revenue from the wind and solar farms on their property, since people will still need air conditioning this summer. Moreover, research and development is making wind and solar ever cheaper, and so when the economy roars back a year or a year and a half from now, new wind and solar projects will likely be even less expensive than they are now, and coal will be dead in the water. -- Juan Cole

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[Petno10]

You are making a common mistake of conflating stock and flow. One can drown a dehydrated man.

[Brad Beago]

At $10/bbl you'll get to see peak oil very soon.

[turcopolier]

Brad Beago
Good! Bring it on!

[turcopolier]

Petno10

what evidence have you that "stock" is limited?

[Jack]

Eric and TonyL

The oil E&P business goes through cycles. It wasn’t too long ago that Houston went through a bad patch.

Shale oil is not going away. Yes, this collapse of crude prices will hurt shareholders, bond holders and employees in the shale, offshore and pipeline sectors. Smart investors with long term perspectives will buy at the discounts on offer as they know commodity cycles. There will be another cycle up. And the technology will improve as it always does.

What shale has proven is that the US can no longer be held hostage by foreigners. We have the ability to meet our energy needs.

What we shouldn’t have are bailouts of equity and debt holders. They took the risk and when the going was good they profited. Those that will inevitably be unemployed will receive benefits under various programs we have including unemployment insurance. Of course they will hurt as it will not correspond with the wages they received. Remember bankruptcy doesn’t mean the enterprise shuts down entirely. They get restructured. A mistake many investors make all the time is to project the present into the future.

[eakens]

The emerging market economies should be throwing their hats in the air that oil is so cheap. The amount of pressure on their FX reserves is mounting, but this relieves some of that pressure. I personally don't think it's enough of a pressure release valve, but it certainly helps.

The US has printed trillions of dollars in the past few weeks, yet the USD has appreciated against EM economies. What is coming next is going to be absolute and utter carnage. If it gets bad, the USD might fail as a reserve currency not out of weakness, but because of its strength.

The Saudis will then be up a shit creek without a paddle.

[TonyL]

Fred,

"It will be cheaper to extract the next time around"

Perhaps. But the shale oil projects to come will have no business plan that would justify the start ups if the oil price is kept a tad lower than their break even price point. After a long dormant period, all the shale old infrastructure would become scraps. If and when they can start up again, there would be another oil price war. Rinse and repeat.

[Fred]

TonyL,

"if the oil price is kept a tad lower than their break even price point."

1. What would be the new break even price given the write-off of captial costs by banks?
2. What OPEC government collapses firsts because the breakeven price of oil generates less revenue than needed to run that country due to current and expected global demand for oil?
3. What is the effect of an import tarriff by the US on oil that would otherwise be processed by US based refineries? How would such a tarriff affect OPEC members?
4. What other political "deals" could be made with individual OPEC countries to negate the effect of OPEC led market manipulation that is intended to destroy the shale industry, at least in the short term?

"After a long dormant period, all the shale old infrastructure would become scraps."
How many years will OPEC have to keep this up for that to happen?

[Barbara Ann]

eakens

I think you are right about prospects for the dollar. Jeffrey Snider who has much intelligent to say on the subject, describes the theoretical scenario as King Kong Dollar.

"Dollar bears have assumed this whole time that the end of its status as the sole reserve currency will mean a collapse in its exchange value. I’m as bearish as anyone on the eurodollar system’s longer-term future, but that doesn’t necessarily mean the dollar drops to zero at that end. In fact, it’s far more likely, in my view, that the exchange value continues to do the opposite as the shortage grows worse.

If it gets bad enough to finally force people around the world to seriously consider doing something, it might be that a skyrocketing dollar, not a plunging one, is that last straw. This shortage, not a dollar rejection, is the likeliest endpoint. We aren’t quite there yet."

https://alhambrapartners.com/2020/03/25/collateral-shortage-goes-global-hinting-at-the-way-the-eurodollar-reaches-its-eventual-end/

[Enrico Malatesta]

Enjoy your "Peak Oil" laugh, the current situation is defined by an inelastic supply chain and the CoVid-19 economic downturn.

Long term, the US Oil Industry will hinge on the EROEI and the erosion of the U$ Dollar as the world's reserve currency.

[eakens]

Barbara Ann:

Yes. Question is what comes next. Gold? Bitcoin? Debt Jubilee? Trump has replaced each and every one of the board members of the Federal Reserve except Lael Brainard. I would suggest to others here that they visit the names of those that have been replaced, and historically held the chairmanship, and see who he has replaced them with.

Something is afoot, and I think it is going to be big. Perhaps some sort of consolidation of the Central Banks is my guess, with China and Russia being left out in the cold.