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The Collapse of the Oil Industry
Townhall.com ^ | April 23, 2020 | Derek Hunter

Posted on 04/23/2020 5:21:58 AM PDT by Kaslin

The collapse of the price of a barrel of oil this week was something to see. It was cheaper for producers to pay people to take it away than it was to store it themselves, as capacity had been reached. They were offering almost $40 per barrel to take the oil. Made me wish I had an Olympic sized swimming pool I could fill up for a rainy day.

While people watched dumbfounded at how this could happen, people working in the energy industry were terrified - what would this mean for the jobs, millions of them?

The answer isn’t good. Which is probably why progressives like Congresswoman Alexandria Ocasio-Cortez celebrated the collapse by declaring, “You absolutely love to see it.” Someone on her staff with an IQ larger than their shoe size must’ve contacted her immediately upon seeing it because she deleted her comment very quickly, but she had expressed the glee of the left accurately.

Normal Americans were left confused - how could they be paying people to take oil? Oil is valuable, how could it have a negative price attached to it?

It’s simple market principles, the kind the left normally hates. Demand is way, way down. The people drilling, largely in the Middle East and Russia, didn’t stop or cut drilling when demand dropped because few people are driving. There was no one to buy the oil by the end of that monthly cycle, so it started to accumulate. When there’s a glut of oil there are only a couple of options - sell it cheaper or hold on to it for a while.

Well, in the time of quarantines and stay at home orders, no one needs more gas right now, or oil for any of its other applications. That leaves holding it as the only option. But the cupboard is full, there is no mass storage facility space available for the same reason no one wants to buy it. The price of building more storage costs more than “selling” it at minus $40 per barrel, so they offered it up with a cash kickback.

This won’t mean you can drive up to your local gas station and get paid $2 a gallon to take gas off their hands, but it will lower the price of a gallon for us. At a time when so many people are out of work, seeing the pay and/or hours cut, and everything teetering on the edge, that’s not necessarily a bad thing for consumers.

It is, however, a bad thing for the oil industry. While thoughts of huge oil companies taking a bath for a while might fill your heart with a little joy, most of the workers in that industry aren’t wearing top hats and lighting cigars with $100 bills. They’re normal Americans working as hard as anyone else to make ends meet. And they’re kind of screwed right now.

The cost to bring a barrel of oil out of the ground is higher than you can sell it for, which means everyone from the big barons to the farmer with one pump on their property has shut them down. The people who work for them have no work to do. The people who depend on them to support their businesses aren’t getting that support, etc. No one domino falls in the woods inconsequentially - it’s part of a chain of events.

The United States had just become a net oil exporter, meaning after decades of lip service about how we shouldn’t be dependent upon foreign oil, we actually weren’t. But we will be again because demand will return once the lockdown ends. The question is will we have a domestic oil industry left when it does?

Sure, the big companies will survive, but what about the small ones or the refineries? That’s a tougher proposition.

As you would imagine, every step of the oil industry is regulated beyond belief. Some of it is good - mostly safety-related - but others are simply liberal meddling. One example of that is the “renewable fuel standards," which is basically requiring the mixing of gasoline with ethanol as a nod to “big corn” and leftists environmentalists who think it’s somehow better for the planet. It’s not. It just adds costs at a time when no one needs added costs to anything. Those renewable fuel standards could easily be waived, which would be a great place to start to keep that industry alive.

Ending the renewable fuel standard would end the practice of the federal government forcing refiners to engage in trading renewable fuel credits, usually ethanol-based corn. Corn that not only could be better used to feed people in a time of crisis but the basis for a type of fuel best known to damage car engines. The federal government created something called RINs, renewable identification numbers, which makes refiners buy and sell credits so they don’t have to blend ethanol themselves, yet another bastardization of the market.

If you wanted to destroy the oil industry, you’d do pretty much what the AOCs of the world want - make it artificially expensive to drill and add to the cost of refining gasoline at a time when people need a break.

The free market can work, and will work, when governments stop trying to damage each other, when nonsensical regulations are repealed, and leftists just get out of its way. A low price at the pump isn’t good for anyone if there’s nothing to pump.


TOPICS: Business/Economy; Culture/Society; Editorial; News/Current Events
KEYWORDS: economy; energy; oil; oilandgas; oilcompanies; opec; wuhancoronavirus
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1 posted on 04/23/2020 5:21:58 AM PDT by Kaslin
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To: Kaslin

What’s the inverse of “Let them freeze in the dark”?


2 posted on 04/23/2020 5:26:08 AM PDT by babble-on
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To: Kaslin

Give it a year. When we start seeing the consequences of the fallout from this whole mess, including governments just “printing” and handing out trillions and trillions of taxpayer money to keep things from utter collapse, oil will be hitting $100 a barrel again. But that is because a big mack will be $50 and the dow will be at $100,000.

The future price inflation baked into this whole thing is about as obvious as anything happening in real time right now.


3 posted on 04/23/2020 5:26:43 AM PDT by cuban leaf (The political war playing out in every country now: Globalists vs Nationalists)
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To: Kaslin

Except for any existing contracts and of course have to be honored I surely hope we are not importing any oil at this point or natural gas.


4 posted on 04/23/2020 5:27:01 AM PDT by CincyRichieRich (Be still, and know that I am God...Psalm 46:10)
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To: cuban leaf

$100,000 = 100,000 points.


5 posted on 04/23/2020 5:27:08 AM PDT by cuban leaf (The political war playing out in every country now: Globalists vs Nationalists)
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To: Kaslin

A Saudi financier was once asked, “what’s your biggest investment?”

At the time he said, “the oil we haven’t pumped out of the ground, yet.”

And now?


6 posted on 04/23/2020 5:27:34 AM PDT by Liz (Our side has 8 trillion bullets; the other side doesn't know which bathroom to use.)
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To: Kaslin
All this pain and needless suffering would be avoidable with a simple oil import tariff $30.00/bbl until this "crises" is over. A tariff would both protect us workers and raise revenue WIN- WIN.

TARIFF OIL IMPORTS NOW

7 posted on 04/23/2020 5:29:21 AM PDT by central_va (I won't be reconstructed and I do not give a damn...)
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To: cuban leaf

Inflation is a great way for governments to get out of debt. Pay tomorrow’s dollars for yesterday’s spending.

If I was the cynical type, I’d say they were doing it on purpose.


8 posted on 04/23/2020 5:29:39 AM PDT by P.O.E. (Pray for America)
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To: Kaslin

We are going to be Argentina VERY soon.


9 posted on 04/23/2020 5:31:01 AM PDT by MeneMeneTekelUpharsin (Freedom is the freedom to discipline yourself so others don't have to do it for you.)
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To: cuban leaf

Give it a year. When we start seeing the consequences of the fallout from this whole mess, including governments just “printing” and handing out trillions and trillions of taxpayer money to keep things from utter collapse, oil will be hitting $100 a barrel again. But that is because a big mack will be $50 and the dow will be at $100,000.

The future price inflation baked into this whole thing is about as obvious as anything happening in real time right now.

...
That doesn’t seem to be very Sound Logic. I’m not sure if you’re trying to be funny or not.


10 posted on 04/23/2020 5:31:14 AM PDT by CincyRichieRich (Be still, and know that I am God...Psalm 46:10)
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To: Kaslin

A Democrat/Socialists wet dream is underway right now. The virus is being used to destroy the worlds economy and put everyone at the trough of government. The future looks bleak from my seat.


11 posted on 04/23/2020 5:31:43 AM PDT by devane617 (Kyrie Eleison, where I'm going, will you follow?)
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To: P.O.E.

Inflation is a great way for governments to get out of debt. Pay tomorrow’s dollars for yesterday’s spending.

If I was the cynical type, I’d say they were doing it on purpose.


I’ve been of that mind for a very long time - monetizing the deabt. The problem comes when the countries you owe the money to object. In fact, there have been discussions right here on FR about the political fallout of the country doing just that - especially regarding china.

Imagine this being our way to “justify” it without China being able to call foul.

i.e. you may be exactly right.


12 posted on 04/23/2020 5:33:03 AM PDT by cuban leaf (The political war playing out in every country now: Globalists vs Nationalists)
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To: cuban leaf

“Give it a year. When we start seeing the consequences of the fallout from this whole mess, including governments just “printing” and handing out trillions and trillions of taxpayer money to keep things from utter collapse, oil will be hitting $100 a barrel again. But that is because a big mack will be $50 and the dow will be at $100,000.

The future price inflation baked into this whole thing is about as obvious as anything happening in real time right now.”

I’m afraid you’re right. Nobody knows what the long term effects of are going to be, but it’s not going to be good. I thought we might walk away from it till the price of oil collapsed.


13 posted on 04/23/2020 5:34:38 AM PDT by suthener
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To: cuban leaf

In the mean time we will get the Vat Tax, while there is still any value in the dollars we might have saved. It will be “needed” to shore this up, before it collapses utterly.


14 posted on 04/23/2020 5:38:26 AM PDT by Empire_of_Liberty
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To: Kaslin

I talked to a contractor that I used to know and he’s a stone cold liberal. We were talking about the oil crises and that he was glad that the oil companies were hurting. I had to remind him that a lot of oil workers were going to lose their jobs.I used to inspect concrete structures for oil infrastructure. The steel rebar and such. The oil workers are some of the hardest working men in the world. But my contractor friend is totally brainwashed and there’s no gittin through. Waste of time.


15 posted on 04/23/2020 5:41:22 AM PDT by HighSierra5
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To: Kaslin

Home heating oil here in PA is around $1.60/gal.
I pay them, they don’t pay me to take it.
At the pump, they want $2/gal. Walmart is about 15 cents less.


16 posted on 04/23/2020 5:42:10 AM PDT by Buttons12 (Bad flu got you down? Take Anecdotal for fast relief!)
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To: P.O.E.

It isn’t so “great”, right? You still end up as the government of Venezuela.


17 posted on 04/23/2020 5:42:52 AM PDT by Empire_of_Liberty
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To: Buttons12

The Gubmint takes their cut. Otherwise it would basically be free.


18 posted on 04/23/2020 5:44:11 AM PDT by HighSierra5
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To: Kaslin

“”” It was cheaper for producers to pay people to take it away than it was to store it themselves, as capacity had been reached. They were offering almost $40 per barrel to take the oil.”””


What Derek Hunter writes is hogwash.

What happened was a classic long squeeze (and that is a very, very rare occurrence)

There are two players in the Futures Markets. Longs and Shorts.

Those who are Long have bought a contract to take delivery in a certain month. Those who are short have sold a contract to make delivery in a certain month.

There were those people who play the futures market game who had bought a May 2020 crude oil futures contract with the expectation the price would go up and they could sell the contract before expiration of the contract for a profit.

Well, it did not work that way. Prices continued to drop and they held onto their long position until last notice day. At that point the short guys told the long guys: “Where do you want us to deliver your oil?”.

Well, the long guys operating out of their bedroom had no place to store the oil, so the long guys were forced to sell their contract at prices as low as -$37.00.

Bottom line: If a person does not know how the futures markets work, then they had better stay away. As they say in the trade: “Many clocks got cleaned”.

.


19 posted on 04/23/2020 5:44:34 AM PDT by Presbyterian Reporter
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To: Empire_of_Liberty

“Well, in the time of quarantines and stay at home orders, no one needs more gas right now, or oil for any of its other applications”

end the lockdowns everywhere.


20 posted on 04/23/2020 5:44:58 AM PDT by MAGAthon
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