WTI crude now now selling at the apocalyptically low price of -$37.45!
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Take my oil... please!
Is this thing on?
Is this thing on?
TheTalkingMule
Distributed Energy Enthusiast
I have that problem sometimes.
Rigs take a day or two to set up and a day or two to take down. Really depends on the rig and the crew. Hell when batch drilling some rigs can walk to the next well to drill. Which requires not much time to rig up. I haven’t looked at the rig count lately but I assume it’s super low.
Wells are easy to turn off you just have to turn a valve in most cases. Depending on the well it can be easy or difficult to turn them back on. It really depends on what type of reservoir they are producing from and the recovery technique that is used. Some wells do better after they are shut-in but many of them do worse because of damage to the wellbore. They may need to be reperfed, fracked again, or may need an acid job. SAGD wells in the Alberta oil sands can be tricky to start again especially if they have cooled down a lot. The producer may need to be circulated with steam for a couple of months to get it back on production.
I should add it’s the processing facilities that are hard and expensive to turn back on.
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TheTalkingMule
Distributed Energy Enthusiast
Dangnabbit, I really suck as a short!
Just kidding, just thinking, What would Bathroom Mark do?
Why Today’s 300% Oil Price Crash Isn’t As Bad As It Seems | OilPrice.com
"Just look on the bright side of life!" --Monte Python, Life of Brian
It looks like futures traders who don't have physical storage capacity need to learn to sell their front-end contracts much earlier in the month. It seems we've observed something like a squeeze of speculators long on oil.
This seems like a fairly obvious lesson. But have traders really learned anything. May 2020 futures are at -$11.76/b while June 2020 is at +$21.89/b. How many of these panicking speculators just rolled forward from May to June? Could we see the same kind of freak out next month?
There are ETFs that roll forward a block of oil futures to try to track the price of oil. What the heck happens to these funds as prices go negative? The basic point of these funds is to give retail speculators exposure to the oil prices. Perhaps these investors think they are hedging inflation risk. It seems that WTI is far to close to zero value to be useful as an inflation hedge. That is, the hedge value is totally swamped by the risk of negative prices, a risk few retail investors would really won't exposure too. So all this begs the question, will investors abandon WTI as a hedge for inflation risk. This sort of speculation has be part of what perennially props up the price of oil. Investors want financial "exposure" but they don't want physical oil.
This could be a pivotal moment in de-financializing the price of oil.
"Just look on the bright side of life!" --Monte Python, Life of Brian
It looks like futures traders who don't have physical storage capacity need to learn to sell their front-end contracts much earlier in the month. It seems we've observed something like a squeeze of speculators long on oil.
This seems like a fairly obvious lesson. But have traders really learned anything. May 2020 futures are at -$11.76/b while June 2020 is at +$21.89/b. How many of these panicking speculators just rolled forward from May to June? Could we see the same kind of freak out next month?
There are ETFs that roll forward a block of oil futures to try to track the price of oil. What the heck happens to these funds as prices go negative? The basic point of these funds is to give retail speculators exposure to the oil prices. Perhaps these investors think they are hedging inflation risk. It seems that WTI is far to close to zero value to be useful as an inflation hedge. That is, the hedge value is totally swamped by the risk of negative prices, a risk few retail investors would really won't exposure too. So all this begs the question, will investors abandon WTI as a hedge for inflation risk. This sort of speculation has be part of what perennially props up the price of oil. Investors want financial "exposure" but they don't want physical oil.
This could be a pivotal moment in de-financializing the price of oil.
TheTalkingMule
Distributed Energy Enthusiast
As an FRO investor my feeling is that exactly what's happening. They will keep rolling it like bad debt and it'll pretty soon leech into Brent pricing settling the whole mess at $10 in June.
This idea of an unwinding once coronavirus is done is a joke. Gonna take 6-12 months to ramp back to anything remotely resembling normal consumption, overproduction will continue throughout, and demand won't exceed supply ever again.
Dr. J
Active Member
The May contract expires tomorrow, so yes, if you have a place to put a million barrels tomorrow (i.e take delivery on the contract)., they will pay you to take the oil.
Edit: I'm not sure when you have to take delivery, but the price indicates it will be difficult to find a place to put it, whatever the delivery date is.
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Dr. J
Active Member
I'm sympathetic, but:
“The higher priced, longer-dated futures contracts are indicative of the market expecting some level of clearing in the cash market over the course of the next several months,” he told CNBC. “Given the rapid decline in the U.S. oil rig count and the expected cutback by OPEC+ members that is a reasonable assumption.”
That said, he noted that as the subsequent contracts reach expiration, they could engage in their own “death march down towards the super-low cash prices.”
This oil price crash isn't as bad as it seems — here's why
How about down an abandoned coal mine/pit? If we're being paid to take it, there's no need to find value in reselling it at a later date!
TheTalkingMule
Distributed Energy Enthusiast
adiggs
Well-Known Member
if you're an energy consumer, you're loving this price action. at least short term. way more energy consumers than producers. (one way of thinking about it)
SebastianR
Active Member
The optimist in me doubts the fast/complete V-shaped oil demand recovery. At our workplace we work towards specific KPIs to reduce the number of travel and office space used beyond COVID19. We saw we can deliver value add with everyone sitting home so we won’t get people to travel/ commute as much in future. I suspect we’re not the only ones doing so.
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Mo City
Active Member
Ignore this.
1. USA does not import much Saudi oil.
2. He is only "considering", which means it's a public bluff to KSA / campaign soundbite.
Nothing to see here.
TheTalkingMule
Distributed Energy Enthusiast
I think we could see a considerable bump in the import statistics this week, hence the selloff in WTI. SA may very well be pushing 1.5Mb/d to the US rather than the 400k we've become accustomed to. They own half our refinery capacity after all, right?
I wonder how the hell that works? Can a Saudi-owned refinery just decide to only use imported cheap Saudi crude?
Mo City
Active Member
They own nothing of the sort, which would be impossible. That is completely ludicrous.
WTI has risen to $2/b while Brent has fallen 21% to $20/b. So the WTI-Brent spread is narrowing. It looks like WTI could be dragging Brent down. As tankers reroute to scoop up free crude in the US, this must come at the expense of Brent.
adiggs
Well-Known Member
Just look at the contango in the oil market! OMG! BUY BUY BUY!
I mean - I get paid to take oil, and then I deliver it later and get paid again! Who ever gets paid on both sides of a transaction!?! I'll have 1B barrels of that deal please!
It's a glorious time to be following the oil market from afar
EDIT to add. Sure seems like there's a bunch of ink being spilled to try and persuade us that deeply negative prices for crude oil really aren't such a big deal. And to convince us that next month will be different from this month. And presumably the month after will be even better - virtually normal.
One notion I've seen pretty consistently is that shutting down production is pretty painless / easy. It's expensive and hard to restart. So part of the problem right now is producers who are hanging onto the idea that the black gold will regain value soon enough, that it's worth continuing to produce and pay people to take their barrels.
I like @jhm's earlier suggestion - refiners etc.. using the barrels themselves to create electricity. Anybody setup to use gas, diesel, or even raw crude to generate electricity is now being paid to acquire their raw material to produce electricity.
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I would be shocked if most businesses aren't realizing they don't need expensive office space after this. Commercial real estate may be in trouble for a long time. That will also drag on any service that supports people commuting into work. Autos, starbucks, parking, business travel (also may never recover fully) etc.
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