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Learning, Sharing, and Teaching => Investor Alley => Topic started by: BTDretire on March 23, 2020, 07:37:29 AM

Title: Oil at $23
Post by: BTDretire on March 23, 2020, 07:37:29 AM
With oil at $23, a price that would have seemed impossible 2 months ago, it has had a 62% drop! A year from now are we going to look back and say, I should have invested in oil in one form or another?
  Several years ago, I dabbled in a 3x leveraged fund, and lost my butt! Lucky I only gambled $1,080.
   Just trying to start a little discussion.
Title: Re: Oil at $23
Post by: vand on March 23, 2020, 07:52:07 AM
Yes, it's almost unbelieveable. As someone who looks at ratios a lot, it puts the gold/oil ratio at an amazing 66, whereas the typical range is 10-25 with the 25 usually considered expensive. This is not a 3 StdDev move, more like a 5 StdDev move!

I've personally stated accumulating the WisdomTree commodities fund in a very small way and also hold a fair few commodity stocks (which unsurprisingly have been smashed!), but I'm confident that they will recover as the world goes into QE-infinity and there is a rush for real assets.
Title: Re: Oil at $23
Post by: WranglerBowman on March 23, 2020, 07:54:08 AM
I also gambled 4-5 years ago on a 3x leveraged fund, and "lost my butt".  I dollar cost averaged into that fund when oil was $60, $50, $40/barrel and bought stock in oil companies thinking it was going to be a short blimp initially, most of those companies went broke.  I think cheap oil is here to stay now with so many alternatives looking more promising everyday, which I also support, and I severely underestimated fracking and cheap natural gas prices.  I do hope that these cheap oil prices don't discourage alternative energy innovation...
Title: Re: Oil at $23
Post by: alcon835 on March 23, 2020, 04:08:51 PM
Agreed. Who knows what the Saudi's can actually do or how the post-coronavirus recovery will play out, but I'm betting pretty big on oil having at least a pretty sizable return to form in the next 12-18 months.
Title: Re: Oil at $23
Post by: ice_beard on March 23, 2020, 04:23:32 PM
I used to work in O/G in Alaska over ten years ago and so I've always kind of followed the industry a little bit.  There is a nice app called OilPrice and I've been reading is regularly for the past month or so.  Right now are fascinating times in O/G... 

Right now is like a global drama playing out in real time....  Russia and Saudi Arabia are trying to kill off the US shale industry for good (they've tried a couple times already) but at significant costs to themselves.  SA reportedly needs oil close to $100/barrel to meet their governments budget.  So $25 oil is going to kill them.  But they want to harm Russia now who refused to reduce production, so they are selling their oil to some countries in the middle east at 6-7$ a barrel cheaper than market rate!  Russia has apparently been building a slush fund to whether a low price storm.  US companies are slashing capex, capping wells and pulling out of the Permian Basin and other shale plays as fast as they can.  Everyone is waiting for the other to blink.  Many US oil companies are highly leveraged in debt, with some companies having their credit downgraded rated to junk.  However, some are in better shape. 

I've taken some nibbles already and am watching many companies...
XOM (they have to decrease their dividend, right?  Which will cost them their dividend aristocrat status!)   
EOG and CVX are supposedly some of the bigger players in better financial shape right now.  Not sure when to get in but it will happen.
BP, HES, COP, GPRK, MGY and CPE (my favorite penny stock to watch!) HAL are all on my watch list...  XLE is an ETF but the expense ratio is 0.13 which isn't terrible, but seems like a lot for a Vanguarder....  That might be the smartest/easiest play. 

I'm of the opinion there is still a lot of room for bloodshed even with prices as depressed as they already are, but global demand is currently falling off a cliff, so the short term outlook for oil is not good.  But this could change quickly if any sort of agreement on price controls were met and/or life gets back to semi-normalness at some point in time (maybe this summer?)  OPEC+ plans on meeting in June and some US representatives have been invited (sorry no link but just read that yesterday).  That seems like a lifetime away right now.   

I am a tree hugger at heart and I fear 99 cent gas (exists in Kentucky now) will not bode well for the future of electric cars.  But no one will be able to afford new big ass trucks either, so who knows how it will play out. 
Title: Re: Oil at $23
Post by: Telecaster on March 23, 2020, 04:27:17 PM
When oil crashes it can crash hard.  The producers see their incomes fall, so they produce more because they need the money, which pushes prices lower, so they produce more...the blood letting can go on for a surprisingly long time. 
Title: Re: Oil at $23
Post by: BicycleB on March 23, 2020, 06:24:11 PM
Posting because curious. @ice_beard, interesting post.
Title: Re: Oil at $23
Post by: markbike528CBX on March 23, 2020, 07:30:37 PM
Mostly PTF.    I bought PWE (now OBE) at 28. it is now less than 0.2.  What is worse, there have been reverse splts, so I can't even sell covered puts, as I'm less than 100 shares. So - 99.91%.
 
Me: It is an oil company, we are near PEAK OIL*, what could go wrong?


*March 2007.
I never believed in PEAK OIL, but I was willing to let people think so.
I remember reading a Mechanic's Illustrated from the early 1920's, where the PEAK OIL concept was floated.
Crap, I'm having to distinguish between 1920s and 2020, when I say the " '20s".   Maybe flappers as a style will come back.  The living room is already Art Deco.
Title: Re: Oil at $23
Post by: markbike528CBX on March 23, 2020, 07:51:07 PM
I used to work in O/G in Alaska over ten years ago and so I've always kind of followed the industry a little bit.  There is a nice app called OilPrice and I've been reading is regularly for the past month or so.  Right now are fascinating times in O/G... 

Right now is like a global drama playing out in real time....  Russia and Saudi Arabia are trying to kill off the US shale industry for good (they've tried a couple times already) but at significant costs to themselves.  SA reportedly needs oil close to $100/barrel to meet their governments budget.  So $25 oil is going to kill them.  But they want to harm Russia now who refused to reduce production, so they are selling their oil to some countries in the middle east at 6-7$ a barrel cheaper than market rate!  Russia has apparently been building a slush fund to whether a low price storm.  US companies are slashing capex, capping wells and pulling out of the Permian Basin and other shale plays as fast as they can.  Everyone is waiting for the other to blink.  Many US oil companies are highly leveraged in debt, with some companies having their credit downgraded rated to junk.  However, some are in better shape. 

I've taken some nibbles already and am watching many companies...
XOM (they have to decrease their dividend, right?  Which will cost them their dividend aristocrat status!)   
EOG and CVX are supposedly some of the bigger players in better financial shape right now.  Not sure when to get in but it will happen.
BP, HES, COP, GPRK, MGY and CPE (my favorite penny stock to watch!) HAL are all on my watch list...  XLE is an ETF but the expense ratio is 0.13 which isn't terrible, but seems like a lot for a Vanguarder....  That might be the smartest/easiest play. 

I'm of the opinion there is still a lot of room for bloodshed even with prices as depressed as they already are, but global demand is currently falling off a cliff, so the short term outlook for oil is not good.  But this could change quickly if any sort of agreement on price controls were met and/or life gets back to semi-normalness at some point in time (maybe this summer?)  OPEC+ plans on meeting in June and some US representatives have been invited (sorry no link but just read that yesterday).  That seems like a lifetime away right now.   

I am a tree hugger at heart and I fear 99 cent gas (exists in Kentucky now) will not bode well for the future of electric cars.  But no one will be able to afford new big ass trucks either, so who knows how it will play out.

I've heard (somewhere on this forum) that producers are sort of insulated by 1 to 2 year futures previously sold?       ------ Your ( @ice_beard  )thoughts?

Unfortunately for some of us (even forumites) June _may_ be a lifetime away.

Well, gas stations haven closed down yet, so road trip at 0.99USD/gallon?   
---- totally off topic, my keyboard 4,USD sign and cent sign are non functional (MPP, yes, I know).

Title: Re: Oil at $23
Post by: ice_beard on March 23, 2020, 09:55:51 PM
Let me preface this by saying I am no expert at this, but I'll give this a whirl.

First, I read this article about hedging a few weeks ago...
https://www.mercatusenergy.com/blog/bid/86597/the-fundamentals-of-oil-gas-hedging-futures

Basically, oil companies sell contracts to buyers at specific prices at specific times in the future.  Lots of companies know if the price of oil were to drop to $23, they would be in trouble fast.  So they take a risk and promise to sell x amount of oil at certain time in the future at a certain price.  It's not a bad deal for either side because each knows what they are going to get at what price. 

Right now, it's good for the oil companies, because their $23 oil is selling for whatever their contracts stated, probably $45 or higher, but the buyers (refiners?, airlines?) are overpaying.  Eventually those contracts will expire and new contracts will have to be re-negotiated.  This is where the pain gets really bad because oil is now selling for $23 and there is not a whole lot of oil that can be produced and be profitable at that price point.  It gets a lot more confusing with swaps and puts, but that's the general idea (I think).

Most oil companies have protected themselves against low prices by having contracts at profitable prices through a portion of 2020.  At some point though they will need new future contracts.  They know what price they need per barrel to be profitable but if Saudi Arabia and Russia still have their production taps flowing free, the global supply of oil is going to make for a very low price because supply is great and demand is projected to be low. 

It's interesting to see how much information analysts seem to have about oil companies, their holdings and their prospects for say the next six months.  They know how much each well produces, how much each barrel costs to produce and how much debt publicly traded companies have.  So it seems like it's not that difficult to know which ones will be profitable at specific prices.  The short version.... lots of American oil companies simply cannot be profitable with oil prices in the $20s, hence the collapsing share prices. 
Title: Re: Oil at $23
Post by: MustacheAndaHalf on March 24, 2020, 12:39:46 AM
I used to work in O/G in Alaska over ten years ago and so I've always kind of followed the industry a little bit.  There is a nice app called OilPrice and I've been reading is regularly for the past month or so.  Right now are fascinating times in O/G... 
Does that app graph when oil contracts are ending?  Or would that mean looking at the options market?

XOM (they have to decrease their dividend, right?  Which will cost them their dividend aristocrat status!)   
EOG and CVX are supposedly some of the bigger players in better financial shape right now.  Not sure when to get in but it will happen.
BP, HES, COP, GPRK, MGY and CPE (my favorite penny stock to watch!) HAL are all on my watch list...  XLE is an ETF but the expense ratio is 0.13 which isn't terrible, but seems like a lot for a Vanguarder....  That might be the smartest/easiest play. 
Looking at Energy Select ETF (XLE), it's 25% XOM (Exxon) and 25% CVX (Chevron).  Last year Vanguard started a $0 commission price war, and most companies followed suit.  At discount brokerages people can buy XOM or CVX for $0/share, and that's half of XLE.  I see other ETFs with 25% SLB (Schlumberger), which is similar.  To me, I want an ETF that buys lots of different companies to diversify against the risk of default.

I'm normally an index investor, but these times seem extraordinary to me.  I understand people want a greener world, but the reality is almost all cars on the road burn gas.  I don't expect oil producing countries to hold out forever at these low prices, although more drops are quite possible (didn't oil briefly drop below $20/barrel last week?).

I'm wary of predicting the oil industry - I thought after the U.S. killed Soleimani, chaos and shipping problems would push up oil prices.  Iran mistakenly shot down a civilian plane landing at it's own airport, and Soleimani was gone from the news.  My prediction was wrong - world events of greater significance can always unfold.  Well... maybe not when it's a worldwide pandemic.

If major consumers of oil get back to normal, I imagine oil demand will spike upwards.  I wonder if Saudi Arabia and Russia will continue their price war... but at a higher price point?
Title: Re: Oil at $23
Post by: bigblock440 on March 24, 2020, 06:50:50 AM
snip
I'm wary of predicting the oil industry - I thought after the U.S. killed Soleimani, chaos and shipping problems would push up oil prices.  Iran mistakenly shot down a civilian plane landing at it's own airport, and Soleimani was gone from the news. 

It was worse than that, it was taking off from it's own airport.
Title: Re: Oil at $23
Post by: familyandfarming on March 25, 2020, 08:07:31 AM
PTF.
Title: Re: Oil at $23
Post by: frugalnacho on March 25, 2020, 08:15:51 AM
gas is $1.27/gal by me in metro detroit.  Insane.  I don't ever remember gas prices this cheap in my entire life. 
Title: Re: Oil at $23
Post by: tedman on March 25, 2020, 08:44:48 AM
I do accounting for an Energy company, we do electricity, fuel oil and natural gas. The issue right now is that, as far as I understand it, for a lot of companies who are using these contracts and futures to secure their supply for customers is that the market for say oil and natG are Complementary?? Someone check my Econ 101, and so when oil took a dump they started hedging NatGas and then the market goes bonkers which disrupts everyone.

The owner of my company has been doing this as an owner for 25 years, in total 35 years, lived through so much and they seem in full blown panic over this.

My 2C since I don’t know what would be construed insider info is be very, very careful with BP. I probably don’t know enough about gas/oil companies but then again, if you can’t explain it to me in a way I can understand doesn’t that portend bad things? My parents would say the same sort of things about how derivatives started getting used in the financial markets and look where that got us. I’m not saying I’m predicting the end of the world but something smells off about all these companies in Shale and when I look at their financials I’m going, how are you in business???
Title: Re: Oil at $23
Post by: FreddieWinter on March 25, 2020, 09:14:23 AM
I think oil will be 20$
Title: Re: Oil at $23
Post by: MustacheAndaHalf on March 26, 2020, 03:43:28 AM
The owner of my company has been doing this as an owner for 25 years, in total 35 years, lived through so much and they seem in full blown panic over this.

My 2C since I don’t know what would be construed insider info is be very, very careful with BP. I probably don’t know enough about gas/oil companies but then again, if you can’t explain it to me in a way I can understand doesn’t that portend bad things? My parents would say the same sort of things about how derivatives started getting used in the financial markets and look where that got us. I’m not saying I’m predicting the end of the world but something smells off about all these companies in Shale and when I look at their financials I’m going, how are you in business???
According to the Securities and Exchange Commission:
"Insider trading" refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security. Insider trading violations may also include "tipping" such information, securities trading by the person "tipped," and securities trading by those who misappropriate such information.
https://www.sec.gov/Archives/edgar/data/25743/000138713113000737/ex14_02.htm

Sounds like you just avoid material, non-public information.  Better yet, discuss a different company that's common in a lot of oil ETFs (which I don't own).  Could you show me where I'm wrong about Schlumberger Ltd
(SLB)?
https://www.morningstar.com/stocks/xnys/slb/quote

On the "quote" page, SLB has a 0.85 price/book ratio
On the "financials" page, SLB shows a 0.64 debt/equity ratio

What I see is a company that could sell assets to cover debts, if needed.  But the oil market is quite bad at the moment, and assets would fetch far lower prices if sold, owing to a lack of demand.  So the "equity" and "book" values might be misleadingly low.  Lower equity means a higher debt/equity ratio.  But hopefully I can filter out bad companies using just morningstar data.

How would you improve this very basic thought process on evaluating SLB using only morningstar data?
(I don't care about SLB in particular - I'm open to better examples of companies in trouble, and showing it through their morningstar data)
Title: Re: Oil at $23
Post by: ChpBstrd on March 31, 2020, 09:23:36 PM
If anyone is betting on reversion to some mean, please explain why the mean has anything to do with the price of oil in Saudi Arabia.
Title: Re: Oil at $23
Post by: Telecaster on March 31, 2020, 09:39:30 PM
I'm not betting, but oil ultimately has to be priced above the cost of production.  So eventually it will get there, otherwise there won't be any oil.  The problem is that states and companies need the money, so they continue to pump oil when it otherwise would make no business sense.  Eventually the weak actors will get killed and prices will return to normal.  Might be one year, more likely ten years before things return to normal. 

From a contrarian investing standpoint, it is best to invest when things are darkest.  Which might be right now.  But recognize things can stay in the crap pile for a very long time. 
Title: Re: Oil at $23
Post by: MustacheAndaHalf on April 01, 2020, 12:46:57 AM
If anyone is betting on reversion to some mean, please explain why the mean has anything to do with the price of oil in Saudi Arabia.
Taking Schlumberger Ltd (stock "SLB", which I don't own) as an example, the stock started 2020 near $40/sh and fell to $13/sh now.  COVID-19 means less travel, and an oil price war makes oil an unprofitable business - so the price drop makes sense.  But for the future, the world still depends on oil... COVID-19 will eventually be less severe... and the price war can't go on indefinitely.

I invested (elsewhere) owing to the COVID-19 drop.  But the price war changes the mean, so I'm not sure where things will revert to, ultimately.

Title: Re: Oil at $23
Post by: bthewalls on April 01, 2020, 04:11:06 AM
can anyone suggest a good oil based stock to buy?  is there an EFT in that?
Title: Re: Oil at $23
Post by: bwall on April 01, 2020, 04:48:48 AM
Oil is low and going to stay low for awhile, imo.

Upthread someone mentioned the Saudi-Russian price war with the aim of knocking out US shale. One huge side benefit for the Saudis is that low oil prices also severely hurt their regional competitor, Iran. The Iranians have difficulty selling oil on the international market due to sanctions. Only the Chinese (and Indians?) will buy from them and then only at a significant discount to the world market price. Due to sanctions the Iranians cannot sell oil futures in New York or London. Of course they can enter into a futures contract with a set price with the Chinese government, but.... maybe the Chinese gov't doesn't want that? Not so easy for the Iranians.

With all the COVID induced shut-ins, etc. a lot less oil is being consumed every day, pretty much all across the world. So, the pipelines are going to get backed up and storage facilities filled b/c it's not so easy to stop pumping from one day to the next.

Thus there's lots of $20 oil in storage now that has to drawn down before the price can rise. Not going to happen within the next 6-12 months without a supply disruption.
Title: Re: Oil at $23
Post by: bthewalls on April 01, 2020, 04:54:49 AM
Oil is low and going to stay low for awhile, imo.

Upthread someone mentioned the Saudi-Russian price war with the aim of knocking out US shale. One huge side benefit for the Saudis is that low oil prices also severely hurt their regional competitor, Iran. The Iranians have difficulty selling oil on the international market due to sanctions. Only the Chinese (and Indians?) will buy from them and then only at a significant discount to the world market price. Due to sanctions the Iranians cannot sell oil futures in New York or London. Of course they can enter into a futures contract with a set price with the Chinese government, but.... maybe the Chinese gov't doesn't want that? Not so easy for the Iranians.

With all the COVID induced shut-ins, etc. a lot less oil is being consumed every day, pretty much all across the world. So, the pipelines are going to get backed up and storage facilities filled b/c it's not so easy to stop pumping from one day to the next.

Thus there's lots of $20 oil in storage now that has to drawn down before the price can rise. Not going to happen within the next 6-12 months without a supply disruption.

totally agree.  asked on another thread, but whats a good oil stock to buy (dont know much about)?  it can only go up over time....at some point after our life time oil will become a precious substance due to dwindling reserves...
Title: Re: Oil at $23
Post by: frugalnacho on April 01, 2020, 06:49:18 AM
Oil is low and going to stay low for awhile, imo.

Upthread someone mentioned the Saudi-Russian price war with the aim of knocking out US shale. One huge side benefit for the Saudis is that low oil prices also severely hurt their regional competitor, Iran. The Iranians have difficulty selling oil on the international market due to sanctions. Only the Chinese (and Indians?) will buy from them and then only at a significant discount to the world market price. Due to sanctions the Iranians cannot sell oil futures in New York or London. Of course they can enter into a futures contract with a set price with the Chinese government, but.... maybe the Chinese gov't doesn't want that? Not so easy for the Iranians.

With all the COVID induced shut-ins, etc. a lot less oil is being consumed every day, pretty much all across the world. So, the pipelines are going to get backed up and storage facilities filled b/c it's not so easy to stop pumping from one day to the next.

Thus there's lots of $20 oil in storage now that has to drawn down before the price can rise. Not going to happen within the next 6-12 months without a supply disruption.

totally agree.  asked on another thread, but whats a good oil stock to buy (dont know much about)?  it can only go up over time....at some point after our life time oil will become a precious substance due to dwindling reserves...

Will it though? I've been hearing the exact same argument since I was in elementary school (37 now) and gas is the cheapest it's ever been in my life time.  It was $1.19/gal this morning on my drive to work.  Maybe 30 years from now it will be even cheaper for a whole variety of reasons and people will still be talking about how "it can only go up" because it's a limited and non-renewable resource.   
Title: Re: Oil at $23
Post by: ChpBstrd on April 01, 2020, 07:43:08 AM
Oil is low and going to stay low for awhile, imo.

Upthread someone mentioned the Saudi-Russian price war with the aim of knocking out US shale. One huge side benefit for the Saudis is that low oil prices also severely hurt their regional competitor, Iran. The Iranians have difficulty selling oil on the international market due to sanctions. Only the Chinese (and Indians?) will buy from them and then only at a significant discount to the world market price. Due to sanctions the Iranians cannot sell oil futures in New York or London. Of course they can enter into a futures contract with a set price with the Chinese government, but.... maybe the Chinese gov't doesn't want that? Not so easy for the Iranians.

With all the COVID induced shut-ins, etc. a lot less oil is being consumed every day, pretty much all across the world. So, the pipelines are going to get backed up and storage facilities filled b/c it's not so easy to stop pumping from one day to the next.

Thus there's lots of $20 oil in storage now that has to drawn down before the price can rise. Not going to happen within the next 6-12 months without a supply disruption.

totally agree.  asked on another thread, but whats a good oil stock to buy (dont know much about)?  it can only go up over time....at some point after our life time oil will become a precious substance due to dwindling reserves...

Will it though? I've been hearing the exact same argument since I was in elementary school (37 now) and gas is the cheapest it's ever been in my life time.  It was $1.19/gal this morning on my drive to work.  Maybe 30 years from now it will be even cheaper for a whole variety of reasons and people will still be talking about how "it can only go up" because it's a limited and non-renewable resource.

Or oil could go the way of whale oil for lamps or coal for powering steam trains. Electric cars are approaching cost parity with oil, and the COVID 19 pandemic has exposed just how much office space and commuting are unnecessary in the age of Microsoft Teams, Zoom, and Go To Meeting. All things cheap could get cheaper.
Title: Re: Oil at $23
Post by: bthewalls on April 01, 2020, 08:02:06 AM
no, im happy enough to trade it for short term fun. 

suggestions for decent oil stock anyone?
Title: Re: Oil at $23
Post by: bwall on April 01, 2020, 08:35:16 AM
no, im happy enough to trade it for short term fun. 

suggestions for decent oil stock anyone?

I can't think of any oil stock that I would buy for any reason whatsoever.
Title: Re: Oil at $23
Post by: MustacheAndaHalf on April 01, 2020, 08:45:53 AM
Yes it's April 1, but the chance of oil going negative was mentioned days ago, and won't stop today.
https://www.cnbc.com/2020/04/01/coronavirus-oil-prices-could-turn-negative-as-storage-nears-capacity.html
Within a few weeks, oversupply of oil and COVID-19 driven drops in demand could result in oil storage reaching 100% capacity worldwide.  It's unclear what happens then - oil could go negative, since there's no demand and no place to put it.  So besides oil staying low, it could go lower, or even negative, according to analysts.

I agree with a goal of electric cars, but reality is very few vehicles are plug-in electric.  It will be a long time before electric car sales equal gas powered - let alone replacing them.  During that whole time, cars need oil.  I think the question isn't if oil can go away in the future, it's when.
Title: Re: Oil at $23
Post by: bthewalls on April 01, 2020, 10:13:30 AM
no, im happy enough to trade it for short term fun. 

suggestions for decent oil stock anyone?

I can't think of any oil stock that I would buy for any reason whatsoever.

whys that bwall?  you dont think it'll jump up again in the next while?
Title: Re: Oil at $23
Post by: bwall on April 01, 2020, 10:38:53 AM
no, im happy enough to trade it for short term fun. 

suggestions for decent oil stock anyone?

I can't think of any oil stock that I would buy for any reason whatsoever.

whys that bwall?  you dont think it'll jump up again in the next while?

Oil stocks and spot oil price is tough for me to gauge. I'm wrong more often than I'm right, I feel. However, right now there is an oversupply on the market and I don't see that going away.

If you don't know the what the phrases 'contango' and 'backwardation' mean and can't explain them to a 5 year old, then I would highly recommend staying away from oil stocks.
Title: Re: Oil at $23
Post by: bthewalls on April 01, 2020, 10:41:16 AM
no, im happy enough to trade it for short term fun. 

suggestions for decent oil stock anyone?

I can't think of any oil stock that I would buy for any reason whatsoever.

whys that bwall?  you dont think it'll jump up again in the next while?

Oil stocks and spot oil price is tough for me to gauge. I'm wrong more often than I'm right, I feel. However, right now there is an oversupply on the market and I don't see that going away.

If you don't know the what the phrases 'contango' and 'backwardation' mean and can't explain them to a 5 year old, then I would highly recommend staying away from oil stocks.

cool..ta v much...will do
Title: Re: Oil at $23
Post by: use2betrix on April 01, 2020, 06:30:27 PM
Oil is low and going to stay low for awhile, imo.

Upthread someone mentioned the Saudi-Russian price war with the aim of knocking out US shale. One huge side benefit for the Saudis is that low oil prices also severely hurt their regional competitor, Iran. The Iranians have difficulty selling oil on the international market due to sanctions. Only the Chinese (and Indians?) will buy from them and then only at a significant discount to the world market price. Due to sanctions the Iranians cannot sell oil futures in New York or London. Of course they can enter into a futures contract with a set price with the Chinese government, but.... maybe the Chinese gov't doesn't want that? Not so easy for the Iranians.

With all the COVID induced shut-ins, etc. a lot less oil is being consumed every day, pretty much all across the world. So, the pipelines are going to get backed up and storage facilities filled b/c it's not so easy to stop pumping from one day to the next.

Thus there's lots of $20 oil in storage now that has to drawn down before the price can rise. Not going to happen within the next 6-12 months without a supply disruption.

totally agree.  asked on another thread, but whats a good oil stock to buy (dont know much about)?  it can only go up over time....at some point after our life time oil will become a precious substance due to dwindling reserves...

Will it though? I've been hearing the exact same argument since I was in elementary school (37 now) and gas is the cheapest it's ever been in my life time.  It was $1.19/gal this morning on my drive to work.  Maybe 30 years from now it will be even cheaper for a whole variety of reasons and people will still be talking about how "it can only go up" because it's a limited and non-renewable resource.

But in your lifetime (just 12 years ago) oil was a staggering $165/barrel.

I could certainly see oil going lower, however where it sits right now few, if any companies or countries can be profiting off $23/barrel oil. Eventually, a demand will be created and the only companies to meet it will be the select few companies (and countries) who can handle this current downfall.

You also have to remember that there are many major oil and gas companies that do more than just “drill for oil.” You have the 3 major divisions, Upstream (drilling), Midstream (transporting, i.e. pipelines), and Downstream (Refineries). Many of these companies are diverted in two or even three of those different divisions of the oil and gas sector.

Not only that, is many of these companies do more than just oil. There are ethane crackers going up all over the country that manufacture resins/plastics. These ethane crackers require ethane to operate, which is transported through a pipeline.

My guess is that prices slowly bounce back to around $35-$40/barrel within the next 12 months. The longer it lasts, the more it’s going to keep bankrupting the smaller producers, which is going to increase prices in the long run.

Our country really needs to harness nuclear power better, however the regulations are so incredibly severe in new construction of nuclear power plants (I’ve worked on one) that they are becoming nearly impossibly to justify the cost.
Title: Re: Oil at $23
Post by: LightStache on April 01, 2020, 08:11:20 PM
I have a bit of speculation money allocated and I bought DBO around $6. Like a few of the other posters, I've been slammed by oil in the past and wouldn't be surprised if it happened again!
Title: Re: Oil at $23
Post by: ice_beard on April 02, 2020, 08:35:06 AM
Man, this stuff is volatile!!
I was prepared to place some buys this morning but not now.  Word that China was going to make a big purchase to top off its reserves and most OG companies are up +10%!!


Title: Re: Oil at $23
Post by: vand on April 05, 2020, 09:40:14 AM
Probably a good chance we have seen the bottom.

You know that when people are talking about a negative price and paying people to take the stuff off your hands that the last bull has turned bear... I mean WHY would you pay someone to take it off your hands? Just stop pulling it out of the ground before then.. duh!
Title: Re: Oil at $23
Post by: ice_beard on April 05, 2020, 12:06:43 PM
Bottom now??  After a massive two day rally sparked by the Twitterer in Chief throwing out some unrealistic promises?  Prediction: Monday/Tuesday are going to be brutal for oil.  SA and Russia were supposed to meet on Monday but Russia angered SA somehow and the meeting got pushed back until Thursday.  The US will never agree to broad-based production cuts because it somehow goes against freedom or is socialist or some other redneck bullshit, so the number of smaller producers who will likely face bankruptcy will increase.  Whiting was the first last week.  Who is next?   

It's not that easy to just stop pumping oil.  It costs a lot of $$ to shut in a well and a lot more to bring it on-line in the future when prices are higher.  There is a lot of emphasis on keeping currently producing wells/sectors producing at the minimum needed to keep the things open.  Pipelines need a certain amount of volume in them to keep flowing.  You can't just stop pumping and putting oil into a sophisticated system like TAPS (Trans-Alaska Pipeline System) hence they need to keep producing oil even though it costs them ~$55/barrel and it's only selling for $23. 

Maybe prices won't crater, but at some point those hedges for 2020 are going to expire. 
Did anyone see the price spikes for oil tanker companies?  That was interesting. 
Title: Re: Oil at $23
Post by: markbike528CBX on April 05, 2020, 02:01:52 PM
Me 2007 or so : oil tanker company, what could go wrong?
Me 2020 TK down 95%. 
But back when I could be bothered to read annual reports, I remember that they had a side line of turning old tankers into off-load/storage terminals.

Edit, spelling, verb case has, had

4/6/20 Update:  TK only -93.49% now!  Whoohoo!
Title: Re: Oil at $23
Post by: effigy98 on April 05, 2020, 03:42:44 PM
Been buying some tanker stocks and they have great dividends. That oil has to go somewhere and they are not going to stop pumping it in Russia (too expensive to stop). The Shale in North America is going to go out of business, then the rest of the world is free to jack up oil and we will see price spikes with inflation once that plays out in a year or two.
Title: Re: Oil at $23
Post by: bwall on April 05, 2020, 05:26:05 PM
Been buying some tanker stocks and they have great dividends. That oil has to go somewhere and they are not going to stop pumping it in Russia (too expensive to stop). The Shale in North America is going to go out of business, then the rest of the world is free to jack up oil and we will see price spikes with inflation once that plays out in a year or two.

I don't see price spikes happening anytime soon. There is huge decrease in demand due to COVID-19. Lots of people stopped driving and this won't be changing anytime soon. The oil still flows in the meantime. Stable supply and decrease demand means the price will be low for a long, long time.

Added side effects; Iran and Venezuela sweat, as do their benefactors; (Hezbollah, militias in Iraq, Cuba). Maybe the world becomes more peaceful?
Title: Re: Oil at $23
Post by: Alternatepriorities on April 05, 2020, 07:05:29 PM
Man, this stuff is volatile!!
I was prepared to place some buys this morning but not now.  Word that China was going to make a big purchase to top off its reserves and most OG companies are up +10%!!

Gas is volatile? Who knew :)

This thread is of particular interest to me with my state's economy do dependent on oil... And energy is my only experiment in sector investing... Seemed like the price of energy was unreasonably low when i bought in and I figured owning some of the means of production would be a good hedge against rising fuel prices. Now it's even lower and I did't really consider the state's economy when I came up with the hedging idea. Deciding if I should buy more or if I have enough eggs in this basket.

Today I built a spread sheet to calculate the value of the wood 70 year old father is heating his house with. At current prices it's really questionable. Basically he can save about $150 by cutting, splitting, stacking, and then burning a cord of spruce.
Title: Re: Oil at $23
Post by: Financial.Velociraptor on April 06, 2020, 08:53:19 AM
Oil back down today but Henry Hub price for nat gas finally showing some life at 1.71/MMBtu - https://markets.businessinsider.com/commodities/natural-gas-price (https://markets.businessinsider.com/commodities/natural-gas-price)

The most efficient gas drillers will soon be putting on their break even hedges again. 
Title: Re: Oil at $23
Post by: MustacheAndaHalf on April 06, 2020, 11:40:41 AM
COVID-19 has ensured oil demand has plummeted, right as Saudi Arabia began flooding the market as part of a price war with Russia.  Because of the two unusual circumstances coinciding, oil storage on land is filling up fast.  And yet existing producers and just pumping more oil, with no one using it and nowhere to go.

That's why you're seeing tankers and tanker stocks come back to life: the tankers are going to be used to store the oil, not transport it.  They have contracts to fill up with oil, but no destination for it.

I'm not clear if China or U.S. have begun buying oil for their strategic reserves - there were hints of it.  If that happens, it opens up more oil storage and delays the inevitable "all oil storage full" moment.  When that happens... when all oil storage is full of oil, the price of oil could fall again.

As countries leave COVID-19 inspired lock downs (like China), oil demand goes up.  If Saudis and Russians agree on oil supply cuts, oil prices go up.  But if diplomacy doesn't work, and China/U.S. both wait to buy oil for their reserves, it's possible oil could drop below $20.  It all depends which events play out in what order.
Title: Re: Oil at $23
Post by: ice_beard on April 12, 2020, 10:23:36 PM
What is going to happen this week? 
An agreement was apparently made for future cuts but right now demand remains low and supply is still high. 
Title: Re: Oil at $23
Post by: Kyle Schuant on April 12, 2020, 10:36:12 PM
https://www.reuters.com/article/us-global-oil-opec/opec-russia-approve-biggest-ever-oil-cut-to-support-prices-amid-coronavirus-pandemic-idUSKCN21U0J6

This will put the price back up, but US shale oil still won't be profitable.
Title: Re: Oil at $23
Post by: bwall on April 13, 2020, 04:30:31 AM
Look for US shale companies to cap their wells and buy oil on the spot market to fulfill their futures contracts. This keeps the oil in the ground to extract another day when prices are higher.

Seen from another point of view, since all US shale is privately held, it will keep a lid on prices ever getting too high again. A price increase simply draws US shale into the market.
Title: Re: Oil at $23
Post by: alcon835 on April 13, 2020, 12:52:55 PM
It's going to be an interesting couple of months for sure....
Title: Re: Oil at $23
Post by: MustacheAndaHalf on April 14, 2020, 12:01:05 AM
Thread title still relevant: WTI Crude  $22.61, according to my search for "oil price".

https://oilprice.com/Energy/Crude-Oil/The-Sad-Truth-About-The-OPEC-Production-Cut.html
"... global supply is to be cut by (sort of) 10 million barrels per day (bpd) whilst global demand has fallen by around 30 million bpd. That is really all anyone needs to know ..."
Title: Re: Oil at $23
Post by: Kyle Schuant on April 14, 2020, 03:43:45 AM
A price increase simply draws US shale into the market.
Yeah maybe over $100 a barrel. Good luck with that in a multi-year recession.

https://www.reuters.com/article/us-global-oil-twitter/troll-no-more-energy-twitter-groups-big-short-on-shale-comes-good-idUSKCN21W0E7
Title: Re: Oil at $23
Post by: bwall on April 14, 2020, 04:48:25 AM
A price increase simply draws US shale into the market.
Yeah maybe over $100 a barrel. Good luck with that in a multi-year recession.

https://www.reuters.com/article/us-global-oil-twitter/troll-no-more-energy-twitter-groups-big-short-on-shale-comes-good-idUSKCN21W0E7

I assume you mean a multi-year recession in the oil patch? Since no one is talking about a multi-year general recession.

The US created shale production from nothing. Literally. They invented everything needed to produce shale oil and gas where none was produced before--technology, process, know-how, not to mention built/re-purposed the equipment necessary, built the pipelines, got financing, everything.

So why would a multi-year recession in oil prevent US shale from returning? Why is simply re-assembling the pieces harder than creating them from scratch? What am I overlooking?
Title: Re: Oil at $23
Post by: Kyle Schuant on April 14, 2020, 10:39:16 PM

I assume you mean a multi-year recession in the oil patch? Since no one is talking about a multi-year general recession.

No, but they should be. You can't have unemployment of 10-15% and expect it to bounce back under 5% in a year. It's typically five years or so. This is particularly so when you're loaded with debts. This leaves you with monetary policy, aka printing money.

Across the West, governments are tossing money at people to try to soften the recession. But this is of limited utility when people are locked inside and not allowed to go out and spend it anyway. They'll have to wait 6 months or more to be able to spend that money, and maybe they lost their job in the meantime, so they'll hold onto that money and spend it in dribs and drabs - recessions cause people to save rather than spend, thus deepening and lengthening the recession.

This is going to be years.

Quote
The US created shale production from nothing. Literally. They invented everything needed to produce shale oil and gas where none was produced before--technology, process, know-how, not to mention built/re-purposed the equipment necessary, built the pipelines, got financing, everything.

Yes. That's one of the reasons it's so unprofitable. The other main one is the shitty EROEI.

Quote
So why would a multi-year recession in oil prevent US shale from returning? Why is simply re-assembling the pieces harder than creating them from scratch? What am I overlooking?

Because,

Firstly, as you mentioned, "know-how" - you take a skilled person and make them unemployed for a couple of years, they go and find work in a different field, making it a LOT harder for you to restart things later, as from the article below,

"They won’t be fracking many wells for the rest of the year," said Davis, who after 16 years in the oilfield would now consider work outside the oil business. "I can’t wait around for the industry to come back," he said.

Secondly, with a long recession, the oil price stays low throughout, and

Lastly, in the meantime, these companies still have to pay their debts. But they now have no income. That's called insolvency.

Now, normally when a company can't pay its debts, the creditors seize the assets and liquidate them. But absent $100/bbl demand for oil, shale oil assets don't have much value. So that's bad debt that'll have to be written off. Now, can you recall another instance when the US faced a significant amount of bad debts that had to be written off, and what happened? Oh yes, the GFC. And so we're back to a recession.


Ask yourself why Russia and KSA have now come to an agreement about cutting oil production? Two reasons:

1. the virus lockdowns have killed demand, dropping the prices lower than they'd planned for in a price war, and

2. one of the main aims of the action, killing US oil and thus the US economy (just as the US/KSA did to the USSR in the 1980s), has already been achieved, or will be over the next twelve months.

More:- https://www.reuters.com/article/us-global-oil-shale-bust-insight/oil-in-the-age-of-coronavirus-a-u-s-shale-bust-like-no-other-idUSKCN21X0HC (https://www.reuters.com/article/us-global-oil-shale-bust-insight/oil-in-the-age-of-coronavirus-a-u-s-shale-bust-like-no-other-idUSKCN21X0HC)
Title: Re: Oil at $23
Post by: bwall on April 15, 2020, 06:38:09 AM
I think that we interpret the same data in different ways.
Title: Re: Oil at $23
Post by: alcon835 on April 15, 2020, 07:18:35 AM
Well, Oil is officially sub $20. If this holds, it's going to be an interesting week.
Title: Re: Oil at $23
Post by: MustacheAndaHalf on April 15, 2020, 09:03:43 AM
Normally oil is more valuable than it's storage tank.  But storage is getting to be a scarce resource.
 Shouldn't oil storage costs should get higher and higher as mid-May approaches?
https://oilprice.com/Energy/Crude-Oil/US-Oil-Storage-To-Hit-Its-Limit-By-Mid-May.html

In general I don't think I can predict oil, so I haven't really planned to change anything.  It's still possible oil producers change their minds, and come up with bigger production cuts.
Title: Re: Oil at $23
Post by: ice_beard on April 15, 2020, 10:30:23 AM
WTI < $20 today.  Probably more where that came from.  I picked up some SLB and COP. 
SLB has maintained a $.50 dividend for a long time.  Wonder when they'll pull the plug on that? 
Title: Re: Oil at $23
Post by: MustacheAndaHalf on April 15, 2020, 08:32:00 PM
WTI < $20 today.  Probably more where that came from.  I picked up some SLB and COP. 
SLB has maintained a $.50 dividend for a long time.  Wonder when they'll pull the plug on that?
You see prices probably going lower, but you're buying now?
Title: Re: Oil at $23
Post by: ice_beard on April 15, 2020, 10:00:03 PM
WTI < $20 today.  Probably more where that came from.  I picked up some SLB and COP. 
SLB has maintained a $.50 dividend for a long time.  Wonder when they'll pull the plug on that?
You see prices probably going lower, but you're buying now?

I don't know how low they'll go.  Do you?  They recovered nicely after I bought.  My hope is in maybe ten years they will be worth more. 
Title: Re: Oil at $23
Post by: alcon835 on April 16, 2020, 06:52:50 AM
WTI < $20 today.  Probably more where that came from.  I picked up some SLB and COP. 
SLB has maintained a $.50 dividend for a long time.  Wonder when they'll pull the plug on that?
You see prices probably going lower, but you're buying now?

I don't know how low they'll go.  Do you?  They recovered nicely after I bought.  My hope is in maybe ten years they will be worth more.

Agreed. Don't try to time the market - you'll miss out.
Title: Re: Oil at $23
Post by: Nicholas Carter on April 16, 2020, 11:44:46 PM
If anyone is betting on reversion to some mean, please explain why the mean has anything to do with the price of oil in Saudi Arabia.
Worldwide production as of April 10 is up 3 percent. But worldwide supply in storage is up over 10 percent. The idea is that the price action is not really driven by rising supply, but falling demand. When Shelter in Place Orders end, assuming there isn't a three year long recession kicking off, the price of oil should be expected to go back to basically where it was in February, which was about 55 dollars, as demand returns to February's demand. So if you assume SPO's ending in the next six months, you should expect a 100% return on oil prices by this time next year. If the economy is really rocked so bad that oil is still under 30 dollars in 12 months, you'll be too busy buying the S&P for 1,000 to care.
Will it though? I've been hearing the exact same argument since I was in elementary school (37 now) and gas is the cheapest it's ever been in my life time.  It was $1.19/gal this morning on my drive to work.  Maybe 30 years from now it will be even cheaper for a whole variety of reasons and people will still be talking about how "it can only go up" because it's a limited and non-renewable resource.
The cheapest gas in my part of the country that I can remember was about 90 cents nominal, which adjusts to about 1.70 in current dollars. The place across the street is still selling gas for 1.60. But a month ago that price was about 2.40. Right now oil and the S&P are basically the same bet: When the lockdowns end, everything is just going back to business as usual.
Title: Re: Oil at $23
Post by: PJC74 on April 17, 2020, 08:14:03 AM
home heating oil in my area of the northeast is down to 1.49 gallon.
Title: Re: Oil at $23
Post by: MustacheAndaHalf on April 17, 2020, 08:58:47 AM
WTI < $20 today.  Probably more where that came from.  I picked up some SLB and COP. 
SLB has maintained a $.50 dividend for a long time.  Wonder when they'll pull the plug on that?
You see prices probably going lower, but you're buying now?
I don't know how low they'll go.  Do you?  They recovered nicely after I bought.  My hope is in maybe ten years they will be worth more.
Oh, I didn't mean it like that.  I'm actually curious about why you did it now, instead of waiting one week or one month.

Next month oil storage should be close to full, pushing oil prices even lower.  But things can change - so I'm guessing you have a reason why you aren't waiting for mid-May to buy.

When money I sent to Interactive Brokers arrives, I plan to make several investments - one of them would be heavily impacted by oil prices.  I have no choice but to wait right now, but I'm also wondering how to spread out the investment (probably half next week, half the week after that).
Title: Re: Oil at $23
Post by: bwall on April 17, 2020, 09:54:33 AM
Worldwide production as of April 10 is up 3 percent. But worldwide supply in storage is up over 10 percent. The idea is that the price action is not really driven by rising supply, but falling demand. When Shelter in Place Orders end, assuming there isn't a three year long recession kicking off, the price of oil should be expected to go back to basically where it was in February, which was about 55 dollars, as demand returns to February's demand.

Once the Shelter in Place order ends, demand might return to February's level (or it might not). But, let's assume that it does. There is still a glut of oil in the marketplace that has to be worked off before prices can rise to February's level.

COVID-19 led to a drop in demand, but not a drop in supply. (Supply in fact went up). So, in order for the prices to rise, demand must be greater than supply. I think it's going to be a long time still before demand for oil is greater than the supply of oil. YMMV.
Title: Re: Oil at $23
Post by: markbike528CBX on April 17, 2020, 10:42:56 AM
Any thoughts on buying long USO
http://www.uscfinvestments.com/uso    even though it has a 73% fee?


Asking for a friend ( really). 
"Also bought oil (uso) longer term speculative play...."

As I recall, this friend tends to buy bad things at bad times. So I tend to do nothing, but sometimes regret that I hadn't bought contrary positions.

I have no dry powder at this time, so I'll spectate again.
Title: Re: Oil at $23
Post by: powskier on April 17, 2020, 10:24:22 PM
Been buying some tanker stocks and they have great dividends. That oil has to go somewhere and they are not going to stop pumping it in Russia (too expensive to stop). The Shale in North America is going to go out of business, then the rest of the world is free to jack up oil and we will see price spikes with inflation once that plays out in a year or two.

History is full of times where full tankers just had to drop anchor and wait. Plenty of the new work at home crowd will remain work at home after this. Plenty of people will adopt the depression era mentality of only buying essentials. The roaring 20's are over already, demand for oil will not come roaring back. Oil is also easier and easier to get. I wouldn't bet on any oil play personally.
Title: Re: Oil at $23
Post by: vand on April 20, 2020, 04:20:00 AM
Sub $15 now.
These are incredible days.
Title: Re: Oil at $23
Post by: marty998 on April 20, 2020, 04:23:20 AM
WTI < $20 today.  Probably more where that came from.  I picked up some SLB and COP. 
SLB has maintained a $.50 dividend for a long time.  Wonder when they'll pull the plug on that?
You see prices probably going lower, but you're buying now?

I don't know how low they'll go.  Do you?  They recovered nicely after I bought.  My hope is in maybe ten years they will be worth more.

Agreed. Don't try to time the market - you'll miss out.

Holy crap. That advice applies if you're an index investor. Not if you are buying individual oil stocks.

God the advice on this forum is downright terrible sometimes.
Title: Re: Oil at $23
Post by: marty998 on April 20, 2020, 04:26:00 AM
Sub $15 now.
These are incredible days.

Oil is cheaper than water at 10c a litre lol.

If you take the view that the maximum downside is US$15 per barrel, and the chances of oil staying at $15 and not going above that forever is slim.... I'm asking myself why I'm not gobbling up as much oil as possible...
Title: Re: Oil at $23
Post by: Juan Ponce de León on April 20, 2020, 05:59:51 AM
Sub $15 now.
These are incredible days.

Oil is cheaper than water at 10c a litre lol.

If you take the view that the maximum downside is US$15 per barrel, and the chances of oil staying at $15 and not going above that forever is slim.... I'm asking myself why I'm not gobbling up as much oil as possible...

Just hit $11.44 as I type this.  The big fear right now is they are running out of places to store it, might have to pay people to take your oil at this rate.  What that does to the global economy noone knows.
Title: Re: Oil at $23
Post by: bwall on April 20, 2020, 06:07:16 AM
Probably a good chance we have seen the bottom.

You know that when people are talking about a negative price and paying people to take the stuff off your hands that the last bull has turned bear... I mean WHY would you pay someone to take it off your hands? Just stop pulling it out of the ground before then.. duh!

Oil is cheaper than water at 10c a litre lol.

If you take the view that the maximum downside is US$15 per barrel, and the chances of oil staying at $15 and not going above that forever is slim.... I'm asking myself why I'm not gobbling up as much oil as possible...

Just hit $11.44 as I type this.  The big fear right now is they are running out of places to store it, might have to pay people to take your oil at this rate.  What that does to the global economy noone knows.

What a difference two weeks make!
Title: Re: Oil at $23
Post by: darkelfx on April 20, 2020, 06:09:06 AM
Sub $15 now.
These are incredible days.

Oil is cheaper than water at 10c a litre lol.

If you take the view that the maximum downside is US$15 per barrel, and the chances of oil staying at $15 and not going above that forever is slim.... I'm asking myself why I'm not gobbling up as much oil as possible...

Just hit $11.44 as I type this.  The big fear right now is they are running out of places to store it, might have to pay people to take your oil at this rate.  What that does to the global economy noone knows.

Apparently not enough. While Crude oil is down to $11/barrel (-38%), oil stocks are only down 5%. Oil companies haven't hit their all-time lows yet, while crude oil is hitting record lows.
Title: Re: Oil at $23
Post by: TheAnonOne on April 20, 2020, 10:07:14 AM
Sub $15 now.
These are incredible days.

Oil is cheaper than water at 10c a litre lol.

If you take the view that the maximum downside is US$15 per barrel, and the chances of oil staying at $15 and not going above that forever is slim.... I'm asking myself why I'm not gobbling up as much oil as possible...

Just hit $11.44 as I type this.  The big fear right now is they are running out of places to store it, might have to pay people to take your oil at this rate.  What that does to the global economy noone knows.

Apparently not enough. While Crude oil is down to $11/barrel (-38%), oil stocks are only down 5%. Oil companies haven't hit their all-time lows yet, while crude oil is hitting record lows.

Silly question maybe, but can you actually "buy" an ETF that tracks oil price? I have a "fun" account that wouldn't mind to go up 500% in a few months ha
Title: Re: Oil at $23
Post by: vand on April 20, 2020, 10:13:17 AM
The contago in the oil markets puts the next month contract at almost double the current spot price. That effectively means its costing you as much to store it for 1 month as it does to buy the oil itself...
Title: Re: Oil at $23
Post by: maizefolk on April 20, 2020, 10:19:33 AM
Sub $15 now.
These are incredible days.

Oil is cheaper than water at 10c a litre lol.

If you take the view that the maximum downside is US$15 per barrel, and the chances of oil staying at $15 and not going above that forever is slim.... I'm asking myself why I'm not gobbling up as much oil as possible...

Just hit $11.44 as I type this.  The big fear right now is they are running out of places to store it, might have to pay people to take your oil at this rate.  What that does to the global economy noone knows.

The May contract apparently expires tomorrow.

My guess is that nobody has anywhere to put the oil and futures traders are dumping the contract because they really don't know what they would do if they are still holding when the contract settles and end up getting assigned the oil.

June contract (still a month left to go) is at $23/barrel. May contract (one day left to go) now down to $10/barrel and may hit single digits before the end of the day. 

Edit: contract closing tomorrow now below $8/barrel $5/barrel and continuing to drop.
Title: Re: Oil at $23
Post by: bwall on April 20, 2020, 12:06:43 PM
Oil now at under $1.00 per barrel, trading at 77 cents.

It can still drop another 90%.
Title: Re: Oil at $23
Post by: bwall on April 20, 2020, 12:08:11 PM
Oil now at under $1.00 per barrel, trading at 77 cents.

It can still drop another 90%.

Just hit 12 cents. I think it's going negative before the day is over. It's only 2 p.m. now.
Title: Re: Oil at $23
Post by: Alternatepriorities on April 20, 2020, 12:30:25 PM
At this point it might be worth investing in 55 gallon drums... I used to live in a weird little place that could only be reached by air or river and the local fuel company had a complete monopoly. It was actually about $3.50 a gallon cheaper to buy a drum, fill it with fuel, and ship it out on the barge than to buy locally. The barge company would ship empty drums up river for free, so the second year you saved an additional dollar per gallon. I never thought I would consider doing such a thing again since moving back to the road system... It's probably still not worth the time and effort.
Title: Re: Oil at $23
Post by: bwall on April 20, 2020, 12:45:03 PM
Oil now at under $1.00 per barrel, trading at 77 cents.

It can still drop another 90%.

Just hit 12 cents. I think it's going negative before the day is over. It's only 2 p.m. now.

Yep. Just saw it at -35 dollars. Did I see that correctly? WTH, right?
Title: Re: Oil at $23
Post by: maizefolk on April 20, 2020, 12:53:59 PM
Currently shows up as approximately -$7/barrel for me.

We're definitely out of storage and down 140% from the opening price. Never thought I'd see that happen.
Title: Re: Oil at $23
Post by: hodedofome on April 20, 2020, 01:02:25 PM
Oil now at under $1.00 per barrel, trading at 77 cents.

It can still drop another 90%.

Just hit 12 cents. I think it's going negative before the day is over. It's only 2 p.m. now.

Yep. Just saw it at -35 dollars. Did I see that correctly? WTH, right?

You are correct. May contract went to -$40.32 on my screen. Now at -$26.58.

I am mostly a trend follower so I went short oil (via long SCO) last week. Didn't think I'd see a gain like this so quick. I sold off half just now.
Title: Re: Oil at $23
Post by: vand on April 20, 2020, 01:27:29 PM
At least it blows away the argument that short sellers can only ever profit to 100% of the downside
Title: Re: Oil at $23
Post by: kenmoremmm on April 20, 2020, 01:43:33 PM
so for those of you in the know (as much as practical): what's the upcoming play? what are you buying/shorting/etc?
Title: Re: Oil at $23
Post by: maizefolk on April 20, 2020, 01:51:30 PM
I'm surprised there hasn't been more movement in the price of the June WTI contract.

If I were holding an asset that might go to zero, and now I knew there was a risk it might go to negative -200% can cost me a lot more money than I spent to buy it, I'd be trying to unload it right now for any price >$0.

Then again, there's a reason I'm not a professional (or amateur) futures trader.
Title: Re: Oil at $23
Post by: Alternatepriorities on April 20, 2020, 02:10:28 PM
At what point do people start to "buy" oil just to set it on fire?
Title: Re: Oil at $23
Post by: J Boogie on April 20, 2020, 02:11:56 PM
My friend is buying USO.

I'm buying TNP. Tanker company. Along with a couple others to diversify.

I don't know if I want to buy cheap oil. But I do know there's plenty of cash out there and plenty of speculators who will buy and they'll need somewhere stable to store it while they wait for covid lockdowns to ease up and people travel again.




Title: Re: Oil at $23
Post by: bwall on April 20, 2020, 02:15:15 PM
I'm surprised there hasn't been more movement in the price of the June WTI contract.

If I were holding an asset that might go to zero, and now I knew there was a risk it might go to negative -200% can cost me a lot more money than I spent to buy it, I'd be trying to unload it right now for any price >$0.

Then again, there's a reason I'm not a professional (or amateur) futures trader.

Agreed.

Makes no sense. I'd be dumping the June tomorrow if I were long them today.
Title: Re: Oil at $23
Post by: kenmoremmm on April 20, 2020, 02:29:44 PM
forgive me for my naivety here:
1. if you buy an ETF, say USO, and put in $1k, is the most you can lose $1k? it's not like a short where you can really get it handed to you, right?
2. is there an ETF or stock or other fund that is currently negative in value, like today's current price point on a barrel of oil?
3. if the answer to #2 is yes, how do gains work? let's say you bought "oil" at $-37, and then eventually it goes up to $40, do you just make $77? or, is there some dividing by zero or negative multiplier involved?

i hate oil and the impacts on the world. but i can't help but think this is a once in a lifetime bargain on it. i mean, buy and hold long enough and you should come out way ahead when things stabilize. we all know that pumped quantities will be reduced to meet storage limitations. and, demand will pick up, sometime in the next 2-12 months. how can this not go up?
Title: Re: Oil at $23
Post by: J Boogie on April 20, 2020, 02:48:23 PM
forgive me for my naivety here:
1. if you buy an ETF, say USO, and put in $1k, is the most you can lose $1k? it's not like a short where you can really get it handed to you, right?
2. is there an ETF or stock or other fund that is currently negative in value, like today's current price point on a barrel of oil?
3. if the answer to #2 is yes, how do gains work? let's say you bought "oil" at $-37, and then eventually it goes up to $40, do you just make $77? or, is there some dividing by zero or negative multiplier involved?

i hate oil and the impacts on the world. but i can't help but think this is a once in a lifetime bargain on it. i mean, buy and hold long enough and you should come out way ahead when things stabilize. we all know that pumped quantities will be reduced to meet storage limitations. and, demand will pick up, sometime in the next 2-12 months. how can this not go up?

I don't know the particulars, but no, you cannot lose more than your outlayed investment when you invest in an oil or any etf, even leveraged ones.

I'm not so sure this is the once in a lifetime bargain. Oil producers and speculators have a cost of storing this low demand commodity. The storage infrastructure that isn't limited to oil will have an opportunity cost of storing oil when it could be storing something more profitable. This will mean oil barrels will be given away so this storage infrastructure can become productive again, which is especially a factor if this infrastructure is leased or not owned outright.
Title: Re: Oil at $23
Post by: marty998 on April 20, 2020, 03:58:34 PM
My post just up there didn't age well.

Went to bed, woke up just now. Apparently economics broke.
Title: Re: Oil at $23
Post by: ChpBstrd on April 20, 2020, 09:33:56 PM
If anyone had a place to take physical delivery, they could buy at $10 today and lock in the $23 price to sell it next month. These prices tell us the top is in, as in the top of the storage tanks! Anyone with spare capacity would be all over arbitraging that deal, but there’s no one left.

Meanwhile demand will continue to crater. No airlines, no school busses, no cruising, reduced commuting...

I would need to look into whether USO is affected by such severe contango.
Title: Re: Oil at $23
Post by: kenmoremmm on April 20, 2020, 09:36:25 PM
but, doesn't it seem apparent that over most of recent history, USO should be at least $11/share? and that with today's $3.75/share, you're looking at a performance that should trounce general market returns until things return to "normal"?
https://finance.yahoo.com/quote/Uso?ltr=1
Title: Re: Oil at $23
Post by: ChpBstrd on April 21, 2020, 08:10:45 AM
Most ETFs that use futures contracts or options have a disclaimer in the prospectus about how results will deviate from the underlying asset’s price. This is due to the inefficiencies of rolling contracts, paying bid-ask spreads, approximating durations by bridging across futures with different maturities, management fees, contango/backwardizarion, overnight price moves, time decay, volatility, changes in interest rates, etc. Some prospectus disclaimers day the instrument should not be relied to track prices for longer than a day.

So if the plan is to buy USO or similar and hold for 1-5 years until prices recover, that may or may not work for a couple dozen reasons.
Title: Re: Oil at $23
Post by: J Boogie on April 21, 2020, 09:07:57 AM
And that's it, no more buying USO. They closed it. Probably should have closed it a while ago.
Title: Re: Oil at $23
Post by: kenmoremmm on April 21, 2020, 10:13:29 AM
i ended up jumping in on XLE for about $1k. first time buying an ETF or anything outside of an index fund. time will tell.
Title: Re: Oil at $23
Post by: ice_beard on April 21, 2020, 10:34:09 AM
I woulda just put that $$ on something like TOT.  The oil that went negative is all coming from the US and ETFs like USO are the reason for it.  All those paper holdings and no where to actually put that oil.  Can't believe the price held up as long as it did.  Were none of those holders paying attention?? 

Who wants to bet the Texas RR commission does hold their nose and actually impose a significant mandatory cut?  It seems like the only reasonable option.   
Title: Re: Oil at $23
Post by: ChpBstrd on April 21, 2020, 12:36:06 PM
Here’s a good write up on the USO meltdown:

https://markets.businessinsider.com/news/stocks/oil-etf-uso-sinks-crude-record-lows-price-issuance-frozen-2020-4-1029113642 (https://markets.businessinsider.com/news/stocks/oil-etf-uso-sinks-crude-record-lows-price-issuance-frozen-2020-4-1029113642)
Title: Re: Oil at $23
Post by: joleran on April 21, 2020, 01:51:50 PM
At what point do people start to "buy" oil just to set it on fire?

Environmental impacts would probably limit this strat to third world nations where you could bribe your way though any obstacles.  Good business opportunity though!

"Some people just want to watch the world burn" was never so literal :D
Title: Re: Oil at $23
Post by: magnet18 on April 21, 2020, 02:26:36 PM
At what point do people start to "buy" oil just to set it on fire?

Environmental impacts would probably limit this strat to third world nations where you could bribe your way though any obstacles.  Good business opportunity though!

"Some people just want to watch the world burn" was never so literal :D

I live in the middle of BFE, at $-40/barrel  I'm sure somebody is trying to figure out how to modify their heating oil stoves to crude oil stoves

(Eta, mostly ptf
I've seen crude in person, i don't think that *actually* feasible, plus it smells terrible)
Title: Re: Oil at $23
Post by: Alternatepriorities on April 21, 2020, 03:02:05 PM
At what point do people start to "buy" oil just to set it on fire?

Environmental impacts would probably limit this strat to third world nations where you could bribe your way though any obstacles.  Good business opportunity though!

"Some people just want to watch the world burn" was never so literal :D


I live in the middle of BFE, at $-40/barrel  I'm sure somebody is trying to figure out how to modify their heating oil stoves to crude oil stoves

(Eta, mostly ptf
I've seen crude in person, i don't think that *actually* feasible, plus it smells terrible)

I'll grant the environmental impact would be awful. I didn't say it was a good idea, mostly commenting on how bizarre it is. I do hope we're stuffing the strategic reserve full at negative prices... I also hope the price doesn't stay low long after the viral panic is over the sake of the planet as well as my state's budget.
Title: Re: Oil at $23
Post by: magnet18 on April 21, 2020, 07:09:42 PM
At what point do people start to "buy" oil just to set it on fire?

Environmental impacts would probably limit this strat to third world nations where you could bribe your way though any obstacles.  Good business opportunity though!

"Some people just want to watch the world burn" was never so literal :D


I live in the middle of BFE, at $-40/barrel  I'm sure somebody is trying to figure out how to modify their heating oil stoves to crude oil stoves

(Eta, mostly ptf
I've seen crude in person, i don't think that *actually* feasible, plus it smells terrible)

I'll grant the environmental impact would be awful. I didn't say it was a good idea, mostly commenting on how bizarre it is. I do hope we're stuffing the strategic reserve full at negative prices... I also hope the price doesn't stay low long after the viral panic is over the sake of the planet as well as my state's budget.

If the reserve wasn't full, I'm pretty sure prices wouldn't be negative

Pretty sure the reserves are all full up, all across the planet
Title: Re: Oil at $23
Post by: ice_beard on April 21, 2020, 09:52:33 PM
It's helpful to remember that not all oil went negative, just for one region in the US, the one that sells West Texas Intermediate.  Yes, this was freaky but not all oil went negative.  The same contracts that were selling for -$40 yesterday ended up selling for $10 today, the last day of the contract period.  The next months contracts are selling cheap and because there is a crap ton of oil around and not much use for it. 
Again, not all oil is selling for $-40 or even close to that.  These headline grabbing numbers were some desperate people trying to get rid of some contracts that were about to expire.  If the holders of these contracts do not sell them, they MUST physically take possession of X number of barrels of oil in the contracts they hold.  So rather than a bunch of office people trying to figure out how they were going to take possession of, move and store hundreds of thousands of barrels of oil, they sold them, or rather, they paid someone to take their oil from them!  This is getting even more difficult as there is literally no storage left to store the stuff.  All the tanks are nearing full and the oil keeps flowing.

Strange indeed.  Do not buy USO.   
Title: Re: Oil at $23
Post by: frugalnacho on April 21, 2020, 11:00:48 PM
At what point do people start to "buy" oil just to set it on fire?

Environmental impacts would probably limit this strat to third world nations where you could bribe your way though any obstacles.  Good business opportunity though!

"Some people just want to watch the world burn" was never so literal :D

I live in the middle of BFE, at $-40/barrel  I'm sure somebody is trying to figure out how to modify their heating oil stoves to crude oil stoves

(Eta, mostly ptf
I've seen crude in person, i don't think that *actually* feasible, plus it smells terrible)

If that was even possible why would anyone have bothered to refine it in the first place? This is a weird price inversion due to extenuating circumstances, but I would guess the normal economics of the situation would be that crude would be cheaper than the refined oil.  How could that not be true? How could the refiners make any profit if it wasn't true?
Title: Re: Oil at $23
Post by: KBecks on April 22, 2020, 06:16:24 AM
At least you used the proper verb, "gambled".  You want to "invest".  Learn the difference and pick a better industry for your life savings.
Title: Re: Oil at $23
Post by: Financial.Velociraptor on April 22, 2020, 07:20:31 AM
It's helpful to remember that not all oil went negative, just for one region in the US, the one that sells West Texas Intermediate.  Yes, this was freaky but not all oil went negative.  The same contracts that were selling for -$40 yesterday ended up selling for $10 today, the last day of the contract period.  The next months contracts are selling cheap and because there is a crap ton of oil around and not much use for it. 

This was also driven by speculation and not hedging.  Producers don't ordinarily sell their product for negative prices.  Your typical producer in the Permian has 80-90% of their production hedged in the futures market and sells the rest "spot".  Refiners likewise have the majority of their supply chain hedged as the producer's counter parties.  The rest of the contracts are held by speculators basically gambling on the price of oil.  When the contracts got down to the last two days left, it is clear a number of speculators were left with the problem of being legally obligated to take delivery of product they had no use for and couldn't unload on a third party.  It was forced selling (and not a lot of it, volume was low).  Second month futures never got close to negative. 

This will start to unwind.  New drilling will taper off (it won't go to zero because many producers have hedged production they haven't even drilled yet).  But de-novo capex for wells that have not be pre-emptively hedged will simply not happen until the price of hedges moves back above break even. 
Title: Re: Oil at $23
Post by: bwall on April 22, 2020, 08:15:19 AM
It's helpful to remember that not all oil went negative, just for one region in the US, the one that sells West Texas Intermediate.  Yes, this was freaky but not all oil went negative.  The same contracts that were selling for -$40 yesterday ended up selling for $10 today, the last day of the contract period.  The next months contracts are selling cheap and because there is a crap ton of oil around and not much use for it. 

This was also driven by speculation and not hedging.  Producers don't ordinarily sell their product for negative prices.  Your typical producer in the Permian has 80-90% of their production hedged in the futures market and sells the rest "spot".  Refiners likewise have the majority of their supply chain hedged as the producer's counter parties.  The rest of the contracts are held by speculators basically gambling on the price of oil.  When the contracts got down to the last two days left, it is clear a number of speculators were left with the problem of being legally obligated to take delivery of product they had no use for and couldn't unload on a third party.  It was forced selling (and not a lot of it, volume was low).  Second month futures never got close to negative. 

This will start to unwind.  New drilling will taper off (it won't go to zero because many producers have hedged production they haven't even drilled yet).  But de-novo capex for wells that have not be pre-emptively hedged will simply not happen until the price of hedges moves back above break even.

Great info and insight. Thanks for sharing.
Title: Re: Oil at $23
Post by: ctuser1 on April 22, 2020, 08:39:07 AM
I don't specifically know what drove the oil prices negative. However, I am not sure speculation is involved. :-)..

Negative prices used to happen all the time in the electricity markets when I was last involved in them. Plain vanilla market supply and demand drives that - not speculation. It is incredibly expensive to shut down nuclear plants, very expensive to do so with coal plants, so on and so forth till you get to the gas powered peakers that can be turned up or down quickly.

In this setup, sometimes it is less expensive for a nuclear power plant to pay someone else to take electricity off their hands than to try and shut the plant down. In fact, the plants are required to submit detailed bids to ISO's ahead of time showing the price points at which they plan to operate, with negative prices very much a planned feature of many non-gas-powered plants. No speculation is involved here.

I bet that if you picked up the wholesale prices of all the 8700 electricity pricing nodes on PJM on 4 consecutive Sunday 12AM-3AM hours, you will find a few negative prices in there. i.e. it used to be very common and prevalent when I last looked.

Any commodity that requires storage can have similar mechanics play out. No place to store or very expensive storage + expensive to discontinue operations => sometimes negative prices.

No speculation is required.

Again, my work no longer involves commodity markets. So I don't "know" what is going on beyond just the headlines. But the above is just my educated guess.
Title: Re: Oil at $23
Post by: maizefolk on April 22, 2020, 08:52:33 AM
Any commodity that requires storage can have similar mechanics play out. No place to store or very expensive storage + expensive to discontinue operations => sometimes negative prices.

In addition to those criteria, you also need a commodity where it's impossible to get rid of the commodity for free.

Milk has very limited and short term storage, and it's very difficult to ramp up or down production quickly. Cows still need to be milked whether or not a farmer has anyone to sell the milk to. But when demand gets too low, prices don't go negative because farmers can and do just dump milk down the drain (https://abcnews.go.com/US/dairy-farmers-dumping-milk-amid-covid-19-pandemics/story?id=70268302).
Title: Re: Oil at $23
Post by: ctuser1 on April 22, 2020, 09:21:56 AM
Any commodity that requires storage can have similar mechanics play out. No place to store or very expensive storage + expensive to discontinue operations => sometimes negative prices.

In addition to those criteria, you also need a commodity where it's impossible to get rid of the commodity for free.

Milk has very limited and short term storage, and it's very difficult to ramp up or down production quickly. Cows still need to be milked whether or not a farmer has anyone to sell the milk to. But when demand gets too low, prices don't go negative because farmers can and do just dump milk down the drain (https://abcnews.go.com/US/dairy-farmers-dumping-milk-amid-covid-19-pandemics/story?id=70268302).

True. Didn't think of the milk example.
Title: Re: Oil at $23
Post by: MustacheAndaHalf on April 22, 2020, 09:27:01 AM
I don't follow the Motley Fool in particular, but they echo what I've heard elsewhere... The US Oil Fund (USO) halted trading a few times recently, and may be forced to liquidate it's assets like a similar ETN already did.  This article also claims USO trailed the price of oil by a surprisingly large amount (-78% over about a decade).
https://www.fool.com/investing/2020/04/22/3-reasons-not-to-buy-oil-etfs-like-uso.aspx

So... oil ETF buyer, beware.
Title: Re: Oil at $23
Post by: Financial.Velociraptor on April 22, 2020, 09:27:24 AM
@ctuser1

Electricity markets are very different than Oil or milk markets.  I don't follow those markets outside of ERCOT (Texas) but I do know that in my state, negative (spot) electricity rates have always been driven by a perverse market incentive.  The renewable producers, especially west Texas wind producers receive generous tax credits for their production.  It makes financial sense for them to sell surplus electricity at a loss so long as the loss does not exceed the size of the tax credit.  To my knowledge, that scenario has never played out.  Neither have I ever seen futures prices turn negative.  Only spot and only during night time hours when demand is low and wind power sometimes exceeds base load needs.
Title: Re: Oil at $23
Post by: magnet18 on April 22, 2020, 10:41:20 AM
At what point do people start to "buy" oil just to set it on fire?

Environmental impacts would probably limit this strat to third world nations where you could bribe your way though any obstacles.  Good business opportunity though!

"Some people just want to watch the world burn" was never so literal :D

I live in the middle of BFE, at $-40/barrel  I'm sure somebody is trying to figure out how to modify their heating oil stoves to crude oil stoves

(Eta, mostly ptf
I've seen crude in person, i don't think that *actually* feasible, plus it smells terrible)

If that was even possible why would anyone have bothered to refine it in the first place? This is a weird price inversion due to extenuating circumstances, but I would guess the normal economics of the situation would be that crude would be cheaper than the refined oil.  How could that not be true? How could the refiners make any profit if it wasn't true?

Being possible and being a good idea are very different.  I'm sure it's possible in some limited sense, and I'm equally sure it's a terrible idea.  Crude is a thick sludge that's hard to work with.  Refining essentially splits it up into it's components so they can be used most efficiently in fuels, plastics, cosmetics, etc.   (All the "crude is never coming back, yay electric cars" people forget how much stinking plastic we rely on.  Plant based alternatives are coming along though)

And, yes, of course crude is normally cheaper than refined products.  My sister is an engineer for a refinery, they *definitely* don't operate at a loss.  I don't think they have a single employee that makes less than 6 figures.
Title: Re: Oil at $23
Post by: Alternatepriorities on April 22, 2020, 11:01:12 AM
If I were to take a stab at how to design an effective crude burning heating system, I would probably start with a concept similar to the whispererlite international camping stoves that heat the fuel before burning it. The other reasonably starting point would probably be the old used motor oil shop stoves that would use corn cobs or other low quality fuel to hold the fire and then drip heated oil onto the pile to improve the heat output.
Title: Re: Oil at $23
Post by: magnet18 on April 22, 2020, 11:23:57 AM
If I were to take a stab at how to design an effective crude burning heating system, I would probably start with a concept similar to the whispererlite international camping stoves that heat the fuel before burning it. The other reasonably starting point would probably be the old used motor oil shop stoves that would use corn cobs or other low quality fuel to hold the fire and then drip heated oil onto the pile to improve the heat output.

One of those used motor oil stoves might work actually, i think the biggest issues would be smoke collection and filtering the input sludge. I remember texas crude having actual chunks of junk in it but I may be remembering wrong.  Also the EPA and the angry neighbors.  Used motor oil probably burns "clean" by comparison to crude.
Title: Re: Oil at $23
Post by: Alternatepriorities on April 22, 2020, 11:27:48 AM
If I were to take a stab at how to design an effective crude burning heating system, I would probably start with a concept similar to the whispererlite international camping stoves that heat the fuel before burning it. The other reasonably starting point would probably be the old used motor oil shop stoves that would use corn cobs or other low quality fuel to hold the fire and then drip heated oil onto the pile to improve the heat output.

One of those used motor oil stoves might work actually, i think the biggest issues would be smoke collection and filtering the input sludge. I remember texas crude having actual chunks of junk in it but I may be remembering wrong. Also the EPA and the angry neighbors.  Used motor oil probably burns "clean" by comparison to crude.

No doubt! This is purely a thought experiment. Personally I prefer to heat with renewable wood and only use the natural gas when I'm not home.
Title: Re: Oil at $23
Post by: magnet18 on April 22, 2020, 01:07:45 PM
If I were to take a stab at how to design an effective crude burning heating system, I would probably start with a concept similar to the whispererlite international camping stoves that heat the fuel before burning it. The other reasonably starting point would probably be the old used motor oil shop stoves that would use corn cobs or other low quality fuel to hold the fire and then drip heated oil onto the pile to improve the heat output.

One of those used motor oil stoves might work actually, i think the biggest issues would be smoke collection and filtering the input sludge. I remember texas crude having actual chunks of junk in it but I may be remembering wrong. Also the EPA and the angry neighbors.  Used motor oil probably burns "clean" by comparison to crude.

No doubt! This is purely a thought experiment. Personally I prefer to heat with renewable wood and only use the natural gas when I'm not home.

I was 100% electric this year, got by with 3 space heaters and a broken furnace I never got around to fixing, lol

if only my locale was sunny enough for a solar array to make sense ..

I have a woodstove as well, absolutely love it!
Title: Re: Oil at $23
Post by: frugalnacho on April 22, 2020, 01:15:17 PM
I don't specifically know what drove the oil prices negative. However, I am not sure speculation is involved. :-)..

Negative prices used to happen all the time in the electricity markets when I was last involved in them. Plain vanilla market supply and demand drives that - not speculation. It is incredibly expensive to shut down nuclear plants, very expensive to do so with coal plants, so on and so forth till you get to the gas powered peakers that can be turned up or down quickly.

In this setup, sometimes it is less expensive for a nuclear power plant to pay someone else to take electricity off their hands than to try and shut the plant down. In fact, the plants are required to submit detailed bids to ISO's ahead of time showing the price points at which they plan to operate, with negative prices very much a planned feature of many non-gas-powered plants. No speculation is involved here.

I bet that if you picked up the wholesale prices of all the 8700 electricity pricing nodes on PJM on 4 consecutive Sunday 12AM-3AM hours, you will find a few negative prices in there. i.e. it used to be very common and prevalent when I last looked.

Any commodity that requires storage can have similar mechanics play out. No place to store or very expensive storage + expensive to discontinue operations => sometimes negative prices.

No speculation is required.

Again, my work no longer involves commodity markets. So I don't "know" what is going on beyond just the headlines. But the above is just my educated guess.

Why could excess electricity not simply be "dumped" rather than paying someone to take it away? I understand why you can't simply "dump" crude oil and it must be physically stored somewhere, but why couldn't excess electricity be used for something useful, or failing that, just discharged into the environment?
Title: Re: Oil at $23
Post by: maizefolk on April 22, 2020, 01:31:36 PM
Why could excess electricity not simply be "dumped" rather than paying someone to take it away? I understand why you can't simply "dump" crude oil and it must be physically stored somewhere, but why couldn't excess electricity be used for something useful, or failing that, just discharged into the environment?

Dumping excess electricity requires building special infrastructure. For example use banks of resistors which could be attached to the grid to burn off the excess and make money when the price turns negative. So far the price hasn't been negative frequently enough for it to make sense to spend money building specialized equipment to burn electricity to make money when one can get paid to use up excess.

Otherwise having more power supply connected to the grid than demand will increase voltage and potentially mess up the frequency of alternating current and start to damage devices connected to the grid. The price going negative is an incentive both for producers who are able to do so to take generating capacity offline, and for large industrial consumers who CAN use electricity for productive purposes to use as much of it as possible to avoid damaging the grid itself and grid connected machines and electronics.
Title: Re: Oil at $23
Post by: ctuser1 on April 22, 2020, 01:34:09 PM
I don't specifically know what drove the oil prices negative. However, I am not sure speculation is involved. :-)..

Negative prices used to happen all the time in the electricity markets when I was last involved in them. Plain vanilla market supply and demand drives that - not speculation. It is incredibly expensive to shut down nuclear plants, very expensive to do so with coal plants, so on and so forth till you get to the gas powered peakers that can be turned up or down quickly.

In this setup, sometimes it is less expensive for a nuclear power plant to pay someone else to take electricity off their hands than to try and shut the plant down. In fact, the plants are required to submit detailed bids to ISO's ahead of time showing the price points at which they plan to operate, with negative prices very much a planned feature of many non-gas-powered plants. No speculation is involved here.

I bet that if you picked up the wholesale prices of all the 8700 electricity pricing nodes on PJM on 4 consecutive Sunday 12AM-3AM hours, you will find a few negative prices in there. i.e. it used to be very common and prevalent when I last looked.

Any commodity that requires storage can have similar mechanics play out. No place to store or very expensive storage + expensive to discontinue operations => sometimes negative prices.

No speculation is required.

Again, my work no longer involves commodity markets. So I don't "know" what is going on beyond just the headlines. But the above is just my educated guess.

Why could excess electricity not simply be "dumped" rather than paying someone to take it away? I understand why you can't simply "dump" crude oil and it must be physically stored somewhere, but why couldn't excess electricity be used for something useful, or failing that, just discharged into the environment?

I don't know for sure, but can speculate.

I think there must be some physical/technological constraints. How would you "dump" the electricity? Some giant resistor load? producing heat? That does not sound very feasible/cheap/easy at the massive quantities we are talking about here. Also think of the capex spending for such a massive energy sink, all the safety issues/concerns - and it does not sound particularly feasible. Utilities are also regulated entities that need to get approval for all capex. They don't exactly operate like a private enterprise. They *can't* look to "maximize profits" - because their profit margin is capped by regulation. So I doubt they would be motivated to do this, or would be allowed by regulators if they were - "social benefit" is maximized by allowing occasional negative prices instead of spending money building unproductive energy sinks.

Besides the physical/business reasons, I think the main problem is that the clearing price is not available ahead of time. The ISO's first mandate is grid stability, they do whatever they can, turn whatever "peakers" they need to, shut down whatever generator they have to, in order to prevent blackouts/blowouts/brownouts. It is only after the fact that they communicate to the market participants at what price did the spot electricity markets cleared. So I don't see how you would plan ahead of time and "know" which hour's electricity will actually clear at a negative price, and plan for engaging the sink.

All utility companies would have a couple of math/physics PhDs running fabulously complicated "stacking models" (each utility has a different name for it) that attempts to predict how the electricity prices will clear. But, as far as I knew (years ago, when I dealt with commodities markets), none of these models are accurate enough to allow for reliable planning off them.

<Cross posted with maizeman, who, as always, posted a simple and accurate response.>
Title: Re: Oil at $23
Post by: kenmoremmm on April 22, 2020, 01:51:56 PM
i know jack about electricity, but isn't there always "extra" capacity in the system? otherwise, we'd have brownouts all the time.
Title: Re: Oil at $23
Post by: ChpBstrd on April 22, 2020, 02:01:24 PM
Electricity can be dumped into the ground with no environmental issues. All the electricity that goes though your house passes through your devices and then goes into a metal stake in the ground.
Title: Re: Oil at $23
Post by: frugalnacho on April 22, 2020, 02:04:16 PM
Why could excess electricity not simply be "dumped" rather than paying someone to take it away? I understand why you can't simply "dump" crude oil and it must be physically stored somewhere, but why couldn't excess electricity be used for something useful, or failing that, just discharged into the environment?

Dumping excess electricity requires building special infrastructure. For example use banks of resistors which could be attached to the grid to burn off the excess and make money when the price turns negative. So far the price hasn't been negative frequently enough for it to make sense to spend money building specialized equipment to burn electricity to make money when one can get paid to use up excess.

Otherwise having more power supply connected to the grid than demand will increase voltage and potentially mess up the frequency of alternating current and start to damage devices connected to the grid. The price going negative is an incentive both for producers who are able to do so to take generating capacity offline, and for large industrial consumers who CAN use electricity for productive purposes to use as much of it as possible to avoid damaging the grid itself and grid connected machines and electronics.

Why can't it just go into the ground?
Title: Re: Oil at $23
Post by: magnet18 on April 22, 2020, 02:05:36 PM

Electrical engineer here, +1 maizeman nailed it

i know jack about electricity, but isn't there always "extra" capacity in the system? otherwise, we'd have brownouts all the time.

There is a margin things can operate in.

Some systems, like a gas generator, can have surplus and run without any load on them without it causing problems.

But for other systems, if you have so little being drawn that there is no load on the turbine of a nuclear reactor or a windmill, what happens is it just starts spinning faster and faster until it fails catastrophically.  There are some good YouTube videos of windmills flying apart spectacularly.

Turbine based systems are supplemented by things like gas generators, but if you get to the point where all the gas generators are off, you need to either throttle down the reactor, dump power into specially designed power sinks, or sell it at a loss.  Selling it at a loss is most economical, because this happens infrequently, and nobody likes moving the control rods on a nuclear reactor more than necessary.
Title: Re: Oil at $23
Post by: magnet18 on April 22, 2020, 02:08:00 PM
Electricity can be dumped into the ground with no environmental issues. All the electricity that goes though your house passes through your devices and then goes into a metal stake in the ground.

Sorry, i initially said you're not correct

That is not *usually* correct

As much as possible goes back on the other phase of the 220 input or on the neutral line

And by the time it gets to the ground rod it has expended it's energy in your appliances

The energy is actually expensed in your appliances

If you opened your breaker box and hooked your power to that ground stake, things would melt and the power company would knock on your door
Title: Re: Oil at $23
Post by: magnet18 on April 22, 2020, 02:20:37 PM
Why could excess electricity not simply be "dumped" rather than paying someone to take it away? I understand why you can't simply "dump" crude oil and it must be physically stored somewhere, but why couldn't excess electricity be used for something useful, or failing that, just discharged into the environment?

Dumping excess electricity requires building special infrastructure. For example use banks of resistors which could be attached to the grid to burn off the excess and make money when the price turns negative. So far the price hasn't been negative frequently enough for it to make sense to spend money building specialized equipment to burn electricity to make money when one can get paid to use up excess.

Otherwise having more power supply connected to the grid than demand will increase voltage and potentially mess up the frequency of alternating current and start to damage devices connected to the grid. The price going negative is an incentive both for producers who are able to do so to take generating capacity offline, and for large industrial consumers who CAN use electricity for productive purposes to use as much of it as possible to avoid damaging the grid itself and grid connected machines and electronics.

Why can't it just go into the ground?

You would make a nice patch of ground that gets cooked to a crisp until it's no longer conductive, then you have the same problem you started with
Title: Re: Oil at $23
Post by: frugalnacho on April 22, 2020, 02:52:19 PM
Why could excess electricity not simply be "dumped" rather than paying someone to take it away? I understand why you can't simply "dump" crude oil and it must be physically stored somewhere, but why couldn't excess electricity be used for something useful, or failing that, just discharged into the environment?

Dumping excess electricity requires building special infrastructure. For example use banks of resistors which could be attached to the grid to burn off the excess and make money when the price turns negative. So far the price hasn't been negative frequently enough for it to make sense to spend money building specialized equipment to burn electricity to make money when one can get paid to use up excess.

Otherwise having more power supply connected to the grid than demand will increase voltage and potentially mess up the frequency of alternating current and start to damage devices connected to the grid. The price going negative is an incentive both for producers who are able to do so to take generating capacity offline, and for large industrial consumers who CAN use electricity for productive purposes to use as much of it as possible to avoid damaging the grid itself and grid connected machines and electronics.

Why can't it just go into the ground?

The more i think about how electricity works, this wouldn't work and you'd need to disperse electrical energy somehow, like maizeman said.
Title: Re: Oil at $23
Post by: ctuser1 on April 22, 2020, 03:13:08 PM
@ctuser1

Electricity markets are very different than Oil or milk markets.  I don't follow those markets outside of ERCOT (Texas) but I do know that in my state, negative (spot) electricity rates have always been driven by a perverse market incentive.  The renewable producers, especially west Texas wind producers receive generous tax credits for their production.  It makes financial sense for them to sell surplus electricity at a loss so long as the loss does not exceed the size of the tax credit.  To my knowledge, that scenario has never played out.  Neither have I ever seen futures prices turn negative.  Only spot and only during night time hours when demand is low and wind power sometimes exceeds base load needs.

That is an interesting thing to learn.

For some reason I never worked with a big renewable energy producer. That's probably the reason I never encountered this specific driver.

Title: Re: Oil at $23
Post by: Alternatepriorities on April 22, 2020, 04:50:20 PM
Electricity can be dumped into the ground with no environmental issues. All the electricity that goes though your house passes through your devices and then goes into a metal stake in the ground.

Sorry, i initially said you're not correct

That is not *usually* correct

As much as possible goes back on the other phase of the 220 input or on the neutral line

And by the time it gets to the ground rod it has expended it's energy in your appliances

The energy is actually expensed in your appliances

If you opened your breaker box and hooked your power to that ground stake, things would melt and the power company would knock on your door

Thanks for that visual. I did actually laugh. Fortunately only my wife can hear med.

Reminds me of long chats with a former manager who worked in power distribution for a while. If one wanted to kill a couple hours, just ask about the grid rebooting process for NM. I learned a lot from him. He was also the first manager I met who was actually good with his money. He was a Mustachian before I earned my first paycheck but liked his work.
Title: Re: Oil at $23
Post by: markbike528CBX on April 22, 2020, 05:00:53 PM
Re turning nuclear reactors down or off:

Boiling Water Reactors (BWR) run best near 100% power. While you can reduce power +20%, at ~ 60% power you might get close to the instability regions (sort of chugging).

 Pressurized Water Reactors(PWR) don't have the same issues as BWRs.  As far as I know, no US PWR changes power to match the external load.  French PWRs do, probably since they represent ~75% of French electricity.  Also ?all? Naval reactors are PWRs* and change power at the Captain's demand, subject to Naval Reactors rules.

*Exceptions: 1st Seawolf core, Soviet Alukas.

Shutting a reactor down can be very quck( seconds) for emergencies, but doing it right, in a controlled manner takes days. Startup also takes days.  As I recall, the heat up max rate is 80F an hour. So from 100F to 600F over 6 hours in a hurry (hurry is a bad word in nuclear-speak).
Title: Re: Oil at $23
Post by: markbike528CBX on April 22, 2020, 05:13:29 PM
Electricity can be dumped into the ground with no environmental issues. All the electricity that goes though your house passes through your devices and then goes into a metal stake in the ground.

Sorry, i initially said you're not correct

That is not *usually* correct

As much as possible goes back on the other phase of the 220 input or on the neutral line

And by the time it gets to the ground rod it has expended it's energy in your appliances

The energy is actually expensed in your appliances

If you opened your breaker box and hooked your power to that ground stake, things would melt and the power company would knock on your door

Thanks for that visual. I did actually laugh. Fortunately only my wife can hear med.

Reminds me of long chats with a former manager who worked in power distribution for a while. If one wanted to kill a couple hours, just ask about the grid rebooting process for NM. I learned a lot from him. He was also the first manager I met who was actually good with his money. He was a Mustachian before I earned my first paycheck but liked his work.

You could use that power for good:-)
https://www.sciencedirect.com/science/article/abs/pii/0191815X88900514
In situ vitrification demonstration for the stabilization of buried wastes at the Oak Ridge National Laboratory
This assumes the ground would melt before your wires.
Title: Re: Oil at $23
Post by: Alternatepriorities on April 22, 2020, 05:53:27 PM
Electricity can be dumped into the ground with no environmental issues. All the electricity that goes though your house passes through your devices and then goes into a metal stake in the ground.

Sorry, i initially said you're not correct

That is not *usually* correct

As much as possible goes back on the other phase of the 220 input or on the neutral line

And by the time it gets to the ground rod it has expended it's energy in your appliances

The energy is actually expensed in your appliances

If you opened your breaker box and hooked your power to that ground stake, things would melt and the power company would knock on your door

Thanks for that visual. I did actually laugh. Fortunately only my wife can hear med.

Reminds me of long chats with a former manager who worked in power distribution for a while. If one wanted to kill a couple hours, just ask about the grid rebooting process for NM. I learned a lot from him. He was also the first manager I met who was actually good with his money. He was a Mustachian before I earned my first paycheck but liked his work.

You could use that power for good:-)
https://www.sciencedirect.com/science/article/abs/pii/0191815X88900514
In situ vitrification demonstration for the stabilization of buried wastes at the Oak Ridge National Laboratory
This assumes the ground would melt before your wires.

That's an awesome random piece of knowledge.
Title: Re: Oil at $23
Post by: Travis on April 22, 2020, 08:04:52 PM

Electrical engineer here, +1 maizeman nailed it

i know jack about electricity, but isn't there always "extra" capacity in the system? otherwise, we'd have brownouts all the time.

There is a margin things can operate in.

Some systems, like a gas generator, can have surplus and run without any load on them without it causing problems.

But for other systems, if you have so little being drawn that there is no load on the turbine of a nuclear reactor or a windmill, what happens is it just starts spinning faster and faster until it fails catastrophically.  There are some good YouTube videos of windmills flying apart spectacularly.

Turbine based systems are supplemented by things like gas generators, but if you get to the point where all the gas generators are off, you need to either throttle down the reactor, dump power into specially designed power sinks, or sell it at a loss.  Selling it at a loss is most economical, because this happens infrequently, and nobody likes moving the control rods on a nuclear reactor more than necessary.

Been a while since I saw a wet-stacked diesel generator.  It's almost entertaining to watch it sputter and choke after you warned the operator.  I suppose watching a billion dollar nuke do the same - not so much.
Title: Re: Oil at $23
Post by: ctuser1 on April 23, 2020, 06:33:13 AM
i know jack about electricity, but isn't there always "extra" capacity in the system? otherwise, we'd have brownouts all the time.

There is a whole lot of active work going on 24/7 X 365 to make sure you don't have brownouts.

If you ever visited an ISO control room, the vibe won't likely be too different from the air traffic control rooms. They need to react fast to any mismatches to the system that can't be remedied by the automated controllers. (At least that is how it appeared to me 10+ years ago. Who knows if the technology/process has changed now).

Unlike what the Zombie movies show you - your electric grid won't survive for more than a day or two after the human grid controllers are turned into zombies. The mechanics of how to run the grid is hidden from almost everyone (thanks to the socialist provisions of the Title II regulations that just work), but is NOT automatic.
Title: Re: Oil at $23
Post by: TomTX on April 24, 2020, 06:31:16 AM
https://www.reuters.com/article/us-global-oil-opec/opec-russia-approve-biggest-ever-oil-cut-to-support-prices-amid-coronavirus-pandemic-idUSKCN21U0J6

This will put the price back up, but US shale oil still won't be profitable.

Cutting production 10M BBL/day isn't a solution when demand is down 25M BBL/day. It fill storage more slowly, doesn't solve the issue.
Title: Re: Oil at $23
Post by: TomTX on April 24, 2020, 07:16:30 PM
"virtue signal"

Where's the giant rolleyes emoticon?