West Texas Intermediate (WTI) futures collapsed 45% today from the already collapsed price, to $10 a barrel, lowest since 1999.
By Wolf Richter for WOLF STREET.
Under a historic destruction of global demand for crude oil, ballooning supply, nearly full storage facilities, and 20 Saudi oil tankers heading to the Gulf Coast, the price of the US crude oil grade West Texas Intermediate (WTI) collapsed unceremoniously late Sunday and early Monday. While the WTI June futures contract plunged nearly 10% to $22.60, the front-month May futures contract, which expires tomorrow and is close to the WTI spot market cash price, plunged by 45% to $10.06 a barrel Monday morning, the lowest since 1999. WTI is down about 90% from mid-2014 when it traded at over $100 a barrel:
But that’s not the price shale oil drillers get at the wellhead. Wellhead prices in Texas had plunged to as low as $2 a barrel last week already, as difficulties mount trying to find storage for the oil, after demand has collapsed. There are now worries, reported by Bloomberg, that Texas producers might soon have to give away their oil – or pay traders to take it.
In a strategic move to maximize pain for the US shale oil drillers, and wipe out as many as it can, Saudi Arabia has sent a flotilla of 20 tankers carrying a combined 40 million barrels of Saudi crude oil to the US Gulf Coast to flood the US market that is already flooded with oil. The tankers are carrying about seven times as much crude as the Gulf Coast took from Saudi Aribia per month in 2019, when there was still strong demand for crude oil in the US.
These tankers with Saudi oil, which were loaded in March and early April, are plodding toward the US and are expected to arrive in Texas and Louisiana in May.
US crude oil inventories soared by 19.2 million barrels last week, from the prior week, to 504 million barrels, according to the Energy Department, and is expected to keep soaring – and now come the 40 million barrels of Saudi oil on top of it.
“This is the American energy producers’ Pearl Harbor. We know the ships are coming in, and yet nobody is doing anything about it,” Kirk Edwards, president of West Texas oil company Latigo Petroleum LLC, told the Wall Street Journal. “Every barrel they’re bringing in on those ships backs out a barrel of oil produced here in the Permian Basin.”
This Saudi move, which has caught US political attention, is confirmation that the presumed Saudi-Russia price war is all about shutting down the high-cost US shale producers that have dared to muck up the global hierarchy of dominant producers, with Saudi Arabia and Russia on top, reducing OPEC to a sideshow.
US shale oil producers have made the US the top producer in the world. Last year, the Permian Basin, where production surged, became the most productive field in the world, blowing past Saudi Arabia’s Ghawar field, at the expense of global oil prices and market share by OPEC and Russia.
The Saudi-Russia price war was an effort to shut these upstarts down – though it may not have been clear to all players at the time what they had unleashed at the eve of the historic demand destruction caused by Covid-19 lockdowns.
The effect on the targeted attack on the US shale oil sector can be seen in the global crude oil benchmark grade Brent. This morning, the Brent oil contract fell “only” 5.3% to $26.60 are barrel.
This is the first time ever that WTI trades at less than half the price of Brent. Since shale-oil production took off in the US years ago, WTI tended to trade at a discount of a few dollars to Brent, but not like this. Global crude prices have collapsed, but North American crude prices have been annihilated.
US drillers have hedged some of their production at higher prices. And so they’re not 100% exposed to this price collapse.
However, there are counterparties at the other side of these hedges, and those are getting crushed. In addition, there are oil traders that ended up on the wrong side. Top Singapore oil-trading company Hin Leong Trading Pte Ltd, which owes 22 banks nearly $4 billion, has already collapsed, amid allegations that surfaced in a court filing over the weekend that it hid $800 million in losses. And there will be others that ended up on the wrong side of this collapse, including hedge funds and many banks, whose collateral just about vanished.
Here is the sequel just a few hours later. Read… Holy WTF Moly: WTI May Contracts Collapse to Negative -$37
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Oil cheap but nowhere to drive, nowhere to fly. Can’t go anywhere.
Sounds like a great plan.
Saudi Aramco on the Texas coast has its own refinery, by the way, the largest in North America (600 thousand barrels per day). And the best, at the moment, choice for them is to process their own oil at these facilities. Since the independence of the Arabs in making such decisions is very exaggerated, it must be assumed that some difficulties are expected with the supply of local raw materials.
Record cheap oil is GREAT for non-oil producing countries. Bring it on.
So much this. I really don’t understand when cheap oil started being bad for the economy. Yet like clockwork markets tank on falling oil prices and soar when production cuts are announced. Is it related to financialization of the economy?
Oil is a valuable resource that can’t be replaced. If it is sold below production cost that is waste. If the producers can’t repay their debts than debt and equity gets wiped out. Further there is no money left for CAPEX and the exploration of reserves. Cheap oil prices kill green energy and Tesla. These are all reasons why low oil prices are bad for the economy.
I can’t agree that cheap oil kills green energy and Tesla. Tesla is up
and in Norway:
“Last month, in an economy hit by the coronavirus crisis, fully electric cars accounted for just under 60% of Norway’s new car market, and plug-in hybrids just over 15% – meaning three in four of all new cars sold were either wholly or partly electric.
It still has some way to go, but the country looks on course to meet a government target – set in 2016, with full cross-party parliamentary support – of phasing out the sale of all new fossil-fuel based cars and light commercial vehicles by 2025.
(The Guardian UK)
Also, I drove a friend’s Tesla, and they are sweet. She charges it off solar array on her property.
The US (and I include Canada and Mexico) is significantly decoupled from the rest of the world in terms of oil imports. There are some imports into parts of the US not served well by pipelines (California!), but most of US oil comes from the US, Canada and Mexico.
Prior to shale fracking, increasing amounts of this “US” production was Canada and Mexico.
With Shale fracking, however, the capital investment, operational spending, jobs, hotels, etc are being put into the US economy rather than Canada or Mexico. We’re talking leasing land, drilling, housing/feeding/finding drillers, transporting the oil etc. This contributes a lot of money into the US economy much like a manufacturing job.
So whereas in the past – price of oil/gasoline was a net drain on the US economy because most of the spend went to some other country (i.e. not America) without much accompanying American economic activity, today a lot of that economic value goes to Americans.
And the converse then holds true: lower oil prices = less revenue for US companies producing oil = less positive economic impact from production. There will be less spend on gas/oil due to lockdowns, true but the normal impact of lower oil/gas prices is higher economic activity – which won’t happen either due to lockdowns.
1000% tariffs ought to work just fine. Afterall, we do have anti-dumping laws on the books.
Clearly this is a targeted effort to kill an industry and make us dependent on foreign oil. Will we ever learn that mfg and extraction industries need to stay home as much as possible.
$2.50+/gal is peanuts for energy independents.
The Saudi’s are not dumping. They have a cost of $5 per barrel. Welcome to the free market and the “invisible hand”
As a producer, US low oil price pain to employment in industry outweighs benefit of low consumer prices.
your focus is on the wrong thing. The issue here is demand destruction or in this case, annihilation. Demand has dropped off a cliff and it’s pretty easy to predict where it’s going to go from here.
Yes. Next step is for the USA to start fake gasoline shortages. That’ll get the USA sheeple clamoring in lines miles long at the gas stations. Even though they can’t drive, by golly, they’ll have full gas tanks and full gas storage cans at home, just waiting for the recovery that won’t come for years.
USA is a big oil producing country.Oil is also not cheap because of supply, which is weak at the moment. But because demand has collapsed. This is not
Canada is now paying others to take our oil…
Funny system we have.
Know anyone that needs a city? Calgary’s got one for sale.
The problem with the shale producers is that they refuse to play by OPEC rules. Their production cost are much higher than in Russia and Saudi Arabia and they are highly indebted.
Update: WTI now at $8.74 a barrel, down 52%.
I expect some hedge-fund blowups to emerge over the next day or two. This looks like forced selling.
I meant, $7.80… this thing is going to heck in a straight line.
It’s hard to keep up at this point, and just as hard to find the bottom for buying the dip. This is crazy to watch.
how are the oilsands from Alberta looking in this landscape?
Will Suncor, Sincrude, Cenovus, etc shut down operations?
If they totally stopped producing, then other companies would fill their void…
So, unfortunately, some of these companies still have to produce at a huge loss and hoping the politicians jump in like they did for the pipeline at a huge profits for a failing company at the time.
Canada has three large vertically integrated oil companies: Suncor, Imperial Oil and Husky. They make out like bandits when oil is cheap because people are still burning about 70% of what they were before and the verticals can use their own oil or somebody else’s to produce refined product. They will be the last men standing.
Remember that companies like Exxon sold off their gas stations and much of their refinery capacity because they weren’t profitable enough. All those places with Exxon signs are owned by someone else.
Suncor is shutting down one oil sands chain and that is only the beginning. They also own half of Syncrude so they will go on producing. Also, Irving, who supply the east coast from their refineries and gas stations can continue to buy dirt cheap oil from anywhere. I expect about 40% of Canadian crude production to cease and what’s left will be in a few strong hands.
By the way, Canada is very likely to apply anti-dumping duties because we owe nothing to the Saudis or Russians who have p**ed on us at every turn. Canadian consumption is about 2.5 mbpd and that is probably where we will bottom out.
The oil frackers are getting the back hand of oversupply that they administered to the natural gas frackers.
Payback is a bitch.
Harris Kupperman pointed to another hedgie blog noting that the oil frackers were supplying 40% of US natural gas; and the implosion of that sector could/would lead to significant shortfalls late this year.
So hope for a warm winter otherwise it could get ugly.
-$3.70 at 1:25pm. This is the strangest thing I’ve ever seen.
I read USO bought into the June contract to hedge.
Doesn’t the expiration/execution date of futures contracts have a significant amount to do with this (ie, lack of storage availability means that futures buyers have no where to put the oil…so they are dumping their “buy rights” at very low prices…that way they recoup *something* – but very few players want/need/have a place to store oil being delivered today or tomorrow…so the buy price has collapsed – but oil for delivery in May (a month from now) has not seen the same degree of collapse.).
Also, the “financial” longs – who never take delivery and have no way to operationally do so – are now nose against the wall…they held on to losing positions as prices fell hoping for price reversal…and now they have run out of time…so they are dumping “buy rights” at any price…leading to price collapse.
Absolutely agree- a few someones are being butchered today.
Wolf, can you explain what that means for those of us not as financially savvy? A link to a previous article or some news article? Trying to understand ‘forced selling’ in this context and why the lower cost would tank hedge-funds. Thanks.
One factor, there is a lot of purely “financial” trading in commodities markets – people buy (and sell) oil brls they have zero ability to accept (or produce) – they are simply speculating on price movements.
In normal times, these “financial” oil buyers (frequently leveraged hedge funds) will “offset” their initial positions before actual futures expiration/commodity delivery by taking the opposite side of the trade and netting out their position.
But this time, oil prices have fallen so far, so fast, that netting out the position weeks ago would have wiped out these hedge fund speculators…so they held on to the very end (today) hoping that oil prices might recover some…and allow them to avoid ruin.
But now the fuse has run out – if they did not “net out” their long/buyer positions today…they would be legally liable for accepting delivery of the actual oil.
Which they have zero means to do.
So they sold their “buy/delivery” rights for almost anything, no matter how low.
But since even gasoline producers have almost nowhere to store oil before processing…there are very very few buyers willing to take a actual delivery of oil today/tomorrow.
So oil prices collapsed.
I am fairly sure this is what is going on.
WTI spot now down 57% or $7.89 a barrel….that’s not a misprint BTW.
I thought our Great Leader is friends with Russian and Saudi Arabia? He is all knowing and all powerful (he says so every day) so why has he allowed this to happen?
We’ll see what he does. All of our allies take advantage of us in one way or another because they know they can get away with it. US energy independence should be a priority for us, just like medical, steel and many more industries that are vital to our security in time of war.
If only our American globalist oligarchs agreed.
The USA cannot have energy independence without energy efficiency and renewables and the USA will forever refuse to do either of them because leaving unburnt oil around, that would free up resources for Everyone Else and ‘we’ can’t have that!
It doesn’t matter what is being paid in USD and in blood for energy because the USA is going to default anyway and most of the blood is un-American!
Aren’t these tankers enroute to refineries for processing that once were sold to Aramco around 1989 by Texaco (Port Arthur, TX,Convent, La, Wilmington, DE)? That deal formed Star Enterprise, if i recall. If so, is this crude scheduled for processing into products?
Tankers just don’t show up unannounced for delivery unless this delivery is planned for months in advance.
We need more information about these tanker deliveries before people go off half cocked.
Good luck with that! Thanks to the 24/7 news cycle, social media and internet half cocked is baseline behavior.
The “first wave” of these tankers is composed of ships owned by Bahri, the State-owned Saudi shipping company, and don’t even bother hiding behind a flag of convenience. In short Aramco is sending a very clear message.
You are absolutely right on one thing: this stunt was planned well in advance. Since the first two tankers are already in front of Galveston an educated guess tells me the decision to send these tankers to the Gulf Coast had been taken in the second week of February at the very latest.
The first two tankers’ route plans aimed straight for Galveston and they never slowed down, even when oil started thumbling down, when it’s customary for tankers used to sell oil and LNG on spot contract markets to ask for new orders. “Somebody” wanted these tankers to get to their destination even with oil in the low $30’s.
MC01 (and others):
Almost my question…..
In my old businesses the idea of these tankers with millions of gallons of oil on the way to the US smacks of outright “dumping in consignment” without any orders for the product……
Which in this case makes no sense at all. I can understand the ships being loaded up to two months ago before this “collapse”.
Or, maybe they will be just “parked” offshore like so many thousands of other loaded tankers across the world?
If the Saudi royal family has to flee a collapsed SA, every brl of oil shifted to America in advance, is goodwill/safety bought.
I wonder if the Shah hiked exports to the US before he was deposed?
Sierra, it’s a very similar concept to dumping in consignment: crude and especially oil products are shipped all over the world without any orders to be traded in spot markets.
For example it was extremely common for Gulf Coast energy companies to send tankers loaded with ULSD (Ultra Low Sulfur Diesel) and kerosene (for blending in aviation fuel) to Europe when prices of those oil products were low in the US. These oil products were sold on spot markets throughout Europe, but chiefly at ARA (Amsterdam-Rotterdam-Antwerp), the most important point of entry for crude and oil products in Europe and one of the largest spot markets in the world.
The chief difference is Gulf Coast energy companies did this to make a quick buck: the spread in wholesale prices between US and Europe alone made it worth the effort.
Saudi Arabia is doing this merely to sink the price of WTI by increasing the amount of oil available on spot markets in the Gulf Coast: since the beginning of the year their plan has been all-out war against US energy companies. What will happen to the crude itself is none of their business: it may be sold at a loss on the Gulf Coast, sent to Brazil or whatever. That’s irrelevant.
WTI spot now $4.73 down 73% industry wipe out taking place.
Under $2.50. Aren’t these futures usually traded with very high leverage? This is going to obliterate some traders.
Holly molly I’m still holden BP. Access to 32 billion, 22 billion cash. Hilcorp they put 500 million down. How long can it stay down. With oil down, it’s all down. Jobs, jobs, jobs! I don’t think we see the low again, but it’s not good all around. I don’t think we will have the tests we need in time to figures this virus out. I believe the American people would rather go down fighting versus’ losing everything! Lord have mercy!
Now at $1.20
There are going to be some big wipe-outs in the hedge fund and oil trader space.
Updated chart for historical purposes. I never thought I’d ever see anything like this:
Wolf I think today’s historic market collapse of spot priced WTI will need a “Late Edition” special posting. What does it portend for June contracts now and what oil company, bank or hedge fund has been wiped out?
To add maybe the USO etf is part of the problem as the volume today is insane.
Wolf, this is negative now. You need faster updates. This thing went to heck in a very very straight line
Your mugs are now collectors’ items. Like cash with a printing error on it. . .
Please update this chart with closing price -35.20 USD, it will go to the history books
Mr. Richter, I’m having a difficult time feeling sorry for the hedge funds, banks, and speculators.
P.S. After they blow out all the hedge funds, investment banks, and speculators maybe the Trump administration could put $50 a barrel tariff on Saudi crude?
Yes, they can cry on my shoulder for $1,000 a minute :-]
Fear – “Lets have a war!”
“Let’s have a war!
Jack up the Dow Jones!
Let’s have a war!
It can start in New Jersey!
Let’s have a war!
Blame it on the middle-class!
Let’s have a war!
We’re like rats in a cage!”
Price dropped while you were publishing, lol, better update headline!
How many sigma is that?
wow! What a day!
In terms of positive suggestions to deal with the oil crisis, the Federal Reserve can easily pay cruise ship owners and commercial jet airliners to travel with heavy loads- perhaps water ballast- at full throttle to burn off the oil, that way storage doesn’t overflow. Doing something with the oil averts the risk of the oil spilling out of the wells onto the ground.
This will just be a temporary measure until the pandemic is over.
The Fed needs setup a Repo Desk to buy U.S. at $60/barrel. Also too, foreign oils that would impact dollar liquidity and the Fed’s dollar swaps with various govmits.
Because isn’t that the Fed’s job now?
LOL. I expect that in 3,2,1…
(or something similar)
I hear explosions in the derivative space. This HAS TO activate swaps. $1.20?? Maybe an interday low, but still shocking! Kind of like Lehman trading at $2.00 in 2008.
Can’t be done. US refineries sell their production not only in the US but also in the wider world. With $60 oil they would be (highly) uncompetitive.
WTI….as of 10:30 am WCTime trading at $3.60 DOWN 80.95%
Arte you kidding mer?
WTI…as of 10:31am WCT. now down to $3.18/barrel or 83.31%
Time to short some oil stocks & make some serious molar!
But what happened to peak oil?
In practical terms we may have just passed it.
Is the pentagon full of chickens? Don’t let the Saudi tankers unload. Tell them to go back where they came from. We still have the world’s largest navy….. and airforce (until the navy gets there.)
The first two Saudi tankers, Awtad and Jada, have already joined the growing queue in front of Galveston to unload their cargo.
This tells you how brazen the Saudi are: these ships are owned by Bahri (State-owned shipping company) and fly the Saudi flag. They didn’t even bother hiding behind a Greek shipping company or a flag of convenience: Aramco wants to send a very clear message.
Today morning, I posted a oil trade related comment in another post. Long story short, if I purchased oil at $10.50, my position will be 60% lost. now its less than $4. Something wrong.
Now how USO handles this is pretty interesting, as mention I think they spread value forward to the June contract. Be fun to be in that conversation. Someone call Jerome Powell to bail us out!!! ETFs for commodities are tricky
Anybody here got their stimulus $1200 check yet? Anybody?
Yeah, $3400, wife and 2 kids. Direct deposit refund every year.
I already spent our $2400 deposit.
I’m not getting one. But I am happy that those who need it are getting it and I sincerely hope this eases the pain of many people who have lost their livelihoods.
Thank you for asking! My Senator’s nice aide called me back and said if I don’t get it by the end of the week to call her and he will do–something. It’s supposed to go on my SS debit card, and they are still figuring that out apparently. God, I hope they didn’t outsource this to Blackstone…
Some guy got deposited 8 million bucks. Then told everyone. OMG.
I’m afraid of the G-word and the S-word: Glut and Surplus! Nobody on Wolfstreet used those words today, and I hope no-one never will.
Always remember: There has never ever been and there never will be a real surplus of oil. What we do have is a huge surplus of expensive holes in the ground, and massive overproduction or over-pumping caused in part by the need to pay interest on all the nasty debt incurred to finance the aforementioned expensive holes in the ground.
Oil is a finite resource and should be kept in the ground, for the sake of future generations and for the sake of the existence of future generations.
KEEP THE OIL IN THE GROUND. NO OVERPRODUCTION. NO OVERCONSUMPTION.
If the “greenies” want to know what the world economy will look like if they get their way,,,I think we’re looking at it.
That’s a ridiculous comment. I am pretty sure that the “greenies” would not have set up a system so dependent on oil that an event like this could cause this calamity.
Look at Tesla and tell me they don’t set up failing systems that will end in misery if the government and FED don’t keep pumping free money into them. No one is innocent in this financial system.
This is deadly for renewables, and climate change policy. At this point you wonder how long the backlog of cheap oil will persist when the economy recovers.
AB, I don’t think this is deadly for renewables at all, at least in more enlightened countries.
And Prairies, IMHO it is not the greenies that set up failure, it is the entrenched industries that fight tooth and nail to co-opt and sabotage new technology.
Portia, Has nothing to do with enlightenment. Countries need jobs which green energy, unlike imported oil, supplies and everybody can see that there will be a supply problem in 5 year as the oil companies will not have money to invest.
Yes, sometimes enlightenment is seeing the handwriting on the wall and not waiting to slam into it before doing something about it.
Oh nonsense. I think we are seeing some good things amid all the bad. For example, domestic air travels is down to about 100k passengers per day, versus 2M passengers day. That is about 5% of what it used to be.
Most air travel is just vanity and self-importance and status, business and personal trips BOTH. We could cut it by 95%, no problem. Those industries that depend on incessant oil-burning just need to go away,
Not to mention the stress on the destinations–I hear all over the world the animal populations are relaxing and having some fun these days. Sea turtles are thriving on empty beaches, etc. Air quality has improved. That’s good for all of us, right?
People like virtual reality, time to build some holodecks.
I play on my choice of holodecks courtesy of PUBG video game.
US agreed to take Mexico’s portion of OPEC production cutbacks, 250k(bpd). US fracking industry built on cheap credit has no cash reserves. Stop pumping oil that is the end, investment collapses. US could build above ground storage (faster than a Chinese Covid hospital) and buy excess oil using JP’s USTaxpayer CC. Man I would love to own some storage right now. (in the GD the price to store farm commodities was often higher than their value)
This is a much smarter play than what transpired in 2014-2016.
With storage capacity maxed due to enormous demand shock – price doesn’t even matter anymore.
If there isn’t demand and there isn’t storage, either the oil gets spilled onto the landscape or wells have to be shut down.
Is there a cost/investment to stop a well from producing? And if there is, what is the time/cost to bring it back?
An oil or gas well can be shut in within an hour (drive truck to well site, turn a valve). Bringing it back to production my take a bit longer. Not much cost in either case.
Have often wondered why exhausted oil fields could not be used for quick, easy *storage*…is pressure 2k feet down too high for gravity to simply refill “empty” fields?
Or, if field pressure is not a hurdle to getting oil in, is artificial lift too costly to get stored oil back out?
Often wondered why costly salt storage was created de novo with so many essentially emptied oil fields around…
So why aren’t shaky US oil producers seeing a huge drop in stock prices today?
Are they expecting that Trump will do something? Tariffs?
When there’s a down there’s an up right?
Because today is the day to unload all those futures contracts, simply mechanical selling, does that mean that tomorrow will be the greatest rise of the oil price ever?
Just thinking from a trading perspective, a 3X long ETF might be good no?
Just looked and its at $2.72, wow
Sorry my second comment in a short time. WTI $1. >90% loss. Why there is no circuit breakers for this one? Probably, i will go crazy trying to comprehend the situation before they go bankrupt. Just tell me when to buy the oil stocks. I will wait.
Growing up in India, oil is the most precious commodity in my mind next to water. Nothing makes sense anymore.
Understand this doesn’t represent the long-term price of oil, this is only for the futures contract which expires today. That means whoever owns it at the end of the day has to take delivery of actual oil. If there’s nowhere to store it, what are you going to do?
I’m curious, I know the spot price can theoretically go negative. Is there any market mechanism for the futures to go negative? Because the way I understand it, the futures could easily have a negative value too (storage costs more than the oil is worth). But I wonder if the futures trading platform can go negative?
Expiration tomorrow I mean.
According to a page at forexlive.com (Google search, I’m not sure if posting links is allowed.
futures can trade negative.
Currently under $0.50, supposedly hit $0.01 as the day low. I wonder if negative has already been achieved.
Negative $3.54 right now.
No, this is a first for oil to trade negative according to an article on Bloomberg Energy. Yet another chart of those dreaded straight down lines…
LOL, I think that would make them insolvent. Imagine trying to raise cash so you can make it to the expiration of the contract.
WTI is now $1.13.
In a crisis like this, the United States should order an immediate blockade of all inbound oil, enforced by the Coast Guard and Navy.
I, like most enjoy cheap oil. Once US production is wiped out and things go back to a semi normal, oil will not be cheap.
The price collapse is in WTI, which is our domestic oil. Brent (global seabound) is not collapsing.
One has an effect on the other, no?
It has a slight drop but the Brent supply isn’t the one receiving a major influx of product that was put into motion months ago before realizing how far the consumption side of the market was going to drop.
free market capitalism is a ‘crisis’ now to be intervened by our military?
The world is NOT ending folks.
Some folks are being taken to the woodshed and beat to a pulp. Happens all the time.
“things go back to a semi normal, oil will not be cheap.”
And US oil pools will not have vanished.
And fracking tech will not have been lost to the mind of Man.
All that will have happened is that some overleveraged shareholders got zeroed out.
With a huge line of new shareholders waiting in the wings.
I hate to ask the question. But, so what if May oil is less than 2 bucks?
If you have no more room to store it, what’s it worth?
Looks at though the stock market just got the word about crude. This market is at record disconnect from reality.
Why the disconnect between the more fungible Brent and landlocked WTI?
Lifted this from a comment on a site which must not be named, apologies if it’s not accurate, but it sounds reasonable to me:
“-any traders long the front month on WTIC, expiring tomorrow, must take physical delivery;
-to take physical delivery, the trader long tomorrow must take the crude and store it or move it immediately.
-there ain’t no storage available.
-brent does not require physical delivery, i.e. may be cash settled,hence the relative absence in the front month of the huge decline-expires Apr 30.”
This is a pending sign that the USD is going to get much much stronger against other currencies. For a while.
This has to do nothing with Saudi oil. Clearly, there should be an investigation into this epic market collapse and who instigated it. As I write WTI is trading at 20 cent a barrel.
If anyone can argue this is called a market, well, many would probably think that the command economy is better.
The bid price is 3 cents.
I wonder what happens tomorrow. Most likely the trading will be suspended pending the investigation. It should have been suspended earlier, of course.
If your producing Canadian Oil…
Then the breakeven is around $60 with a $20 sur charge.
So, free from Canada, $80 a barrel of oil at current prices.
1) Can WTI price be negative : Yes !!!
2) Pay me to buy your physical oil.
3) Gravity with negative prices will pull the next paper oil price down.
Can stock prices be negative : YES !
Oil just went negative!
This is crazy.
My first reaction is we should not let in the Saudi tankers, although I am sure it is more complicated.
Our “friends” the Saudis. We need to at least protect our interests to some extent here.
Hi Michele. My thoughts about “our interests” run along the lines of relations with “the Saudis” have always seemed to me to be shrouded in mystery and subject to strange personal friendships with wealthy American politicians and businessmen. Now the DOJ is refusing to release records from 9/11 for a lawsuit by relatives of the dead relating to the Saudis and is even refusing to say why because “national security.” They give me the creeps as a woman. It’s totally weird.
Right now, oil traders will pay you about $10 to take a barrel of oil from them, physical delivery.
How much is shipping?
Seems likely they stop pumping oil no revenue to service their corporate debt that finance gets dicey.
I follow your work very closely, but stay clear of the comment section. However, a few years ago, Steve Ludlum from the website Economic Undertow brought to your attention the concept of “Energy Deflation.” You disputed his claim and unfortnuately I do not have the original commentary. Essentially, energy deflation simply means that the price of oil would continue to decline to zero and regardless of the price, it would always be just beyond the reach of the average consumer. We were headed to zero regardless of the recent virus situation which only sped up the process. What has been and is currently taking place is the convergence of oil companies requiring higher costs for extraction and debt ridden consumers who can afford less and less. Now we are trapped in a Black Hole of which we cannot escape. Economies run on energy flows not money. We built a modern day society based upon cheap oil, not deep sea, fracked or sludge from the Tar Sands. And worse, there is nothing that the Fed or the Wall Street hucksters can do to fix this. They already played their magic with cheap interest and the bullshit story of Saudi-America. Let’s wait and see who is going to invest now.
This is the most important story of our time.
Re: This is the most important story of our time.
Isn’t this just a simple supply and demand dislocation just like other commodities? There’s milk being thrown away and vegetables left to rot.
What’s the difference.
Probably a bit more important is the misallocation of credit.
If society was built on cheap oil, then how would dropping prices be an insult? If expensive oil is not economic, the market will respond with an adjustment in demand / use and innovators will arise with potential solutions that solve consumers’ problems.
Are you really saying there is no demand because consumers are debt ridden? You don’t think the exogenous lock down has anything to do with plummeting demand?
And why are you morally judging sea drilling, fracking, etc. If it’s for environmental reasons fine, but why do you care if an entrepreneur decides to risk a venture? How are you negatively affected? I would disagree that economies run on energy flows or money. This is preposterous….they run on human intelligence which the most adaptable thing in our known universe!
I am not judging anything. I suggest you do some research on the concept of Energy Return On Energy Invested (EROI).
This has nothing to do with environmental concerns, intelligence or bullshit supply and demand curves neoclassical economists and their voodoo propogate. Energy that derives little or no surplus from an individual barrel does not respond in a conventional economic model. Traditional economists consider energy only as an input. They and you are going to find out , it’s not simply an input that you can muster because of demand. It doesn’t work that way when it’s THE most important resource that runs our economy. This is a very long story and the reason I have stayed off the comment section of this website. The analysis and commentary for the most part is excellent but there is a void when it comes to understanding the role energy, in particular, fossil fuels plays in Modern Industrial Society. Fossil fuels cannot be compared to milk and other commodities. Our GDP is function of energy flows not milk. When the cost of energy to extract, refine and transport exceeds the consumer’s capacity to pay for it, energy deflation takes hold. In order to fund growth and retire debt you must have inexpensive energy costs period. Don’t believe me, think demand will increase the price to $100 plus dollars a barrel which is what the oil industry needs, think again. If oil gets to that price the entire financial system will break again. We are trapped.
“We are trapped.”
I don’t know who “we” are. It’s very American to enslave customers to a product. Diversification is inevitable, though, at this point, and if the oil industry takes subordinate place or goes the way of the Dodo, there will be a transition period, and the oil industry can try to make that as painful as possible.
My point is your prognostications are not germane to current events. I understand the concept (linear thinking though it may be) of EROI. What in holy hell does that have to do with today? Storage is selling at a premium. We are awash in oil. There is no demand and excess supply. Seems like the supply / demand curve is pretty operational. I do not attribute the entire mess to covid…yes there were signs of a weakening economy, but come on, the lock down has clearly nuked the economy. And I disagree we are trapped…only to the extent we believe it so. Inspiration is always available to us. Will a transition be painful? Very possibly but I see growth and transcendence, not implosion.
Guess we’ll see these 1960s prices again:
Gulf Good: 29.9
Gulf No-nox: 33.9
Naaaaaaaaah. Gubmint will see a good opportunity to put a $2/gal. tax on it.
Very possible. Gobmint needs its income!
Good. I hope they do. Gas needs more tax in this country.
I would be happy to pay more for gasoline in my state of Minnesota if they used it to fix the roads and bridges. Hell, I pay a little bit more already for non-oxygenated gas; 91 octane & no ethanol for my car, motorbikes, lawn mower & garden tiller.
It is a red/blue wedge issue. We had a red Governor who vetoed a gas tax increase, and now we have a red Senate that won’t invest in the state’s infrastructure for ideological reasons (no new taxes).
I actually remember those days. It was regular and ethel at most stations. Gas, a quart of oil, air and water: $1.50. Spiderman #1 12 cents. All the stations had those hoses you run over that went ding ding and a guy would come running out.
Interesting memories reminded me of spring of 1970, with a ”drive away” picked up in Miami to be delivered to Everett,WA,, picking up every hitch hiker IF they had any money at all for gas,,, coming over the hill on the 10 into SoCal and feeling great relief seeing the ”gas war” pricing of 10 cents that would make it possible to deliver the car…then hitching back to the bay area,, that was the closest call ever!
And don’t forget the ‘pump jockey’ would also clean the windshield, check the oil and tires, adding either if needed,,, some of the stations in OR still do check oil if asked, and they all pump the gas, apparently a state law there, a good one IMO.
OR changed the law a few years back. Many stations are self-serve only.
A bankrupt oil company pays no bills.
Odd, I always thought how shale worked was that this is something you could literally just pull the plug on; I am curious about why they keep producing like this. I assume that there are certain contracts that are out there based on hedged prices, but isn’t the whole idea behind shale that you can turn these things on and off at will?
The real interesting thing is that the genie is out of the bottle anyway, the technology is there, and so is the oil. The only thing missing is the price, the Russians and the Saudis may be able to take the current supply off the market, but to keep it off, they’d have to keep prices low for an extended period of time. If prices ever get back up to the $50 to $60 a barrel range, then wouldn’t those shale companies just come back out?
Or are they hoping that investors are going to be worried about not making money the next time around to such an extent that they won’t back these companies. Seem self-defeating in the long run. Oil is a finite commodity, unless the plan is to wait for all of the companies in the US to go bankrupt, and then buying up the shale directly afterwards, but that seems problematic.
Nixon sent a Solomon Brothes gun slinger along with Henry Kissinger (aka super K) to read the riot act to the House of Saud. The gold back dollar was dead and our only hope was for Saud to take our debt as payment for oil. They were given an “offer they could not refuse”. The Petro Dollar was born and it’s had a helluva run.The treasury backed Peto Dollar has made us fat and stupid with a huge military to boot.Those oil tankers fron Saudia Arabia in the Gulf of Mexico are a stick in the eye pay back for their humiliation. The Bedouin have a gift to smell weakness and and a patience to wait a thousand years to seek revenge.
The run is over as in past tense.
Now at -19.99. The Four Horsemen of the Apocalypse… Vlad, MbS, Xi and the Cheeto!
May 2020 WTI contract closed at -$37.63 apparently. (That’s NEGATIVE $37.63.)
“West Texas Intermediate crude for May delivery fell more than 100% to settle at negative $37.63 per barrel, meaning producers would pay traders to take the oil off their hands.”
Just a couple of words. The US consumes 18 million barrels of oil equivalent per day, imagine the dimensions and steps to obtain all the derivatives. And there is a fundamental theme: closing and reopening, transporting, and processing is not like opening and closing any plant of everyday products
Torpedo … Los !!!
Sink them tankers. Sink them now.
So the infrastructure portion of the stimulus bill could just be oil storage caverns. Pump it out of the ground, just to pump it back into the ground…
So, let the ships just sit in the Gulf. They cost a lot ($60k/day) even if not moving. If they can’t unload, the oil can’t hit the market. And it’s not like Pemex or Venezuala are going to be able to take it. They want to play that game make them pay, and every day that ship sits full it’s an ecologic nightmare waiting to happen.
Last I heard, the House of Saud owns some refineries down that direction.
They may, but unless US Customs clears the ship it can’t berth. Likewise, If they refine it they have to store it. If they can’t, who knows?
Oliver Hardy : (after being buried in pile of coal) ” Well, here’s another nice mess you’ve gotten me into.”
And so it goes, as another famous guy said once or twice, eh
Actually, the ”short covering” explanation seems the most rational at this point in this fine mess, even though it does not really provide any path out going forward.
So Wolf, back to a more important question: How about some larger mugs, say a liter or so, for some serious suds? Maybe with a bunch of straight or straits lines??
I would very much like to fill up my tank and then have the guy at the register hand me a 20.
Unfortunately, I won’t be filling up my tank any time soon.
For the last five weeks I’ve just been driving to the mailbox and back, down at the end of my driveway, about 900 Feet.
Haven’t bought any gasoline for 2 months. Have enough food stored to last a year and a cistern for water, enough diesel fuel for the emergency generator to last 6 months.
My timber trees continue to add value every year and they don’t need a financial advisor to tend to that.
The ultimate effects of a hundred Saudi tankers heading for Galveston will be marginal for me, handled in due course.
Tizzys are rare in my microuniverse.
It would be nice to have a glut of trees in this world. It would take time so would not affect the monetary value of your timber to much.