Posted on 04/21/2020 6:08:46 AM PDT by EyesOfTX
The NYMEX price for West Texas Intermediate (WTI) fell into negative territory on Monday, the lowest level ever recorded, and the only real question is why was anyone surprised by this turn of events?
Think about it: As much as we like to talk about renewables and the Green New Deal and all the other pop-culture things, the global economy still runs by and large on oil and natural gas. Demand for oil is entirely dependent on economic growth. As the U.S., China and well over 150 other countries have gone about closing down vast swaths of their economies to try to deal with the COVID-19 pandemic, some are estimating that economic growth in the U.S. for April could be negative 25-30%, and May isn’t looking to be much better.
The result of this negative economic growth has very predictably been a collapse of demand for crude, with some experts again estimating it to be in the negative 25-30% range for April. The consequence of that particular train wreck is that tens of millions of barrels of produced crude with nowhere else to go are flowing into storage facilities in the U.S. and across the globe. Given that the NYMEX price for WTI is set on a forward month futures contract, that negative price we saw on Monday is basically a projection of the market’s belief that U.S. storage will be completely full by May 20.
When that happens, many producers without market leverage will be faced with a choice between shutting in their wells or actually paying someone to take their oil away. We have to remember that wells drilled into some reservoirs can lose pressure and be difficult or impossible to restart once they have been shut-in.
Even worse, that negative price in effect becomes a bleak leading indicator of what traders think the state of the U.S. economy will look like in late May barring drastic changes. Looking at the gradual, staged plans most state governors are now rolling out to govern the reopening of their respective economies, no such drastic changes appear to be in the offing. Thus, we should expect these negative or single-digit prices for WTI to linger for days or even weeks before beginning to recover.
Read the Rest at Forbes.com
China is arse hoe.
It’s a perfect time for a new imported oil tariff to protect US jobs and promote domestic industry. I’d say a tariff $30.00/bbl on IMPORTED OIL should do it.
On the more jocular side,:
I stopped at a local Walmart this morning to pick up a few things. Put the stuff in the car and lit up a smoke (don't smoke in car or at home), and a lady, in mask and gloves was returning her cart and gave me a "Hmmmph", then said, "Well you have your priorities, don't you?"
I looked at her and said, "Your mask isn't on right."
She instinctively checked by touching it with her gloved hands and realized what she had done and just stared at me for a second, so I finished with, "It isn't keeping your nose out of my @$$ or my business."
Watching her stalk off on stilted legs made my morning - may have made my whole day.
Some of those “futures delivery” traders are going to end up with LOTS of crude oil being dumped on their front lawn...
The biggest game of “Hot Potato” ever.
Good for you! Great come back. I refuse to wear a mask or gloves. I do carry hand sanitizer. Living in the Seattle region, it’s just a matter of time before, I’m sure, I get a Karen in my face.
The economic canary in the coal mine. The coming economic collapse is going to be one for the history books for centuries, if the Lord waits.
And it is self inflected.
The economy was already headed off a cliff (eventually) the response to this virus was the equivalent of hitting the gas when we meant to hit the brake, and add NOS to boost.
Give it a couple of months, and this won’t be something that is apparent to only a few of us.
No, it’s not a matter for celebration but the oil patch has lean times and boom times. It will recover and probably ahead of many other parts of the economy.
As Rush pointed out yesterday, the American oil economy is based on a fairly simple equation: can I extract and sell this oil at a profit? Right now, the answer is “no” but it has always rebounded in the past when this has happened and should again.
There is no substitute for oil around the world and I know once the glut ends and there starts to be shortages, the oil patch will open back up for business. This has always been a volatile section of the economy but what is great is knowing there is so much still available under the ground in the U.S. and Canada that we do not need to be dependent on the Saudis or Russians for the forseeable future.
Our friends the Saudis timed this to come off at the United States greatest time of weakness. They’ll lose because their dollar reserves can never equal the printing press owned by the issuer of the dollar.
Jan 21 futures price is over 30 per barrel.
We need a tariff now to protect oil jibs. A $30.00 bbl tariff on oil imports should do it.
A floating tariff to put a floor on oil would be the absolute best thing we as a nation could do. But to Free Traitor™ GOP types American workers should in all cases be treated like krill.
The oil production boon was based on fracking. Fracking is not profitable, according to most, at under 50 per barrel sales. It will take awhile for the world wide glut to be burned through, in a less than dynamic economic cycle, so a return to the recent good old days will take some time.
Meanwhile, there is also a glut in the NGas area BUT NG is a by product of fracking too. IMO, the NG glut will fade quicker. Current NG price is around 1.90 verses about 2.35 last year. NG stock have got pummeled this past year too yet they may recover sooner but not necessarily much, so my guess is to look at the pipeline stocks, they get paid to transport energy, kind of like a tariff. Investment money seems to be flowing in that direction these days and they pay a decent ROI.
I think there will be a tariff imposed on imported oil soon. Trump cannot afford to lose the energy sector states and we cannot lose their control over the ability of domestic to control the market.
Energy is a national necessity if we wish to sustain a modern age economy and way of life. It is not just a matter for those states that happen to provide it but to ALL of the states who DEPEND on the energy it provides to exist. If someone uses a product and depends on a product it certainly is in their best interest to make sure that the producer of that product stays in business. Oil, and those who have located, drilled, refined, and delivered it to our doors has been demonized by politicians and the media to the extent that the appreciation and respect for what they have provided us is in short supply.
This is a 50 state problem, not just the oil producing states problem.
The wife and I carry hand sanitizer and wipes in our cars...also have a spray bottle of alcohol and roll of paper towels.
I usually take a wipe in stores to wipe things off as I shop and then sanitize my hands when i get back to the car....if I were to take sick and then had to go out, I'd wear the mask, but that's the only time they are really utile - when worn by a sick person.
and therefore exactly why he cannot afford to lose those states BECAUSE the nitwit left here would close down all energy production in the US aside from some fart driven windmills.
I have loathed futures trading since it began. It is profiteering that destroyed the stability of the oil markets. From the day of the first trial movement the oil business lived hand to mouth with more bust cycles in the ensuing 40 years than in the previous 100 that were deeper and with higher highs. Nobody but traders and the few who hedged with it have been served by the futures market. The whole process has engendered waste and horrible uncertainty in a business that could not easily adjust to short planning and activity cycles. At least shale has that much going for it.
Oil is too cheap. It represents only a fraction of my cost even at $60 a barrel. It is one of the very best values going. What else delivers so much work or freedom per dollar?
Most people have no idea how vital the oil industry is to the entire nation. It is responsible for a thriving economy both in the value of the production and the vitality of the industry to provide high value jobs and consumption thereby keeping legions of people employed.
It's also crucial for National Security.
I’m afraid you are totally correct. We have not even begun to count the cost of this pandemic response.
We have come to an almost full crash stop. In the physical world you usually, if you are wise and experienced, take the time to check out all systems and then restart slowly.
I bought a load of diesel yesterday. The young man who delivered it usually takes a few days to get out here. I am a small customer. This time he came within a day of my call. Nice young man, pretty sharp to be driving s fuel truck and I visit with him a bit trying to teach him when he is receptive. This time I asked him about activity in his work. It has ground to a near halt. The filling station drivers have little to do. Canary in the coal mine for sure.
I’ve shut down in the Gulf for hurricanes more times than I can count. Coming back up to speed is never easy. You don’t just flip the switch. Getting people back into the swing of things and efficient operation is also harder than some may think. You don’t just switch them on either.
Add to just these systemic things the fact that so many people who live hand to mouth are more broke then they usually are. That said though, the boom in local buying when the stimulus checks arrived is amazing. Any extra money they spend.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.