So you've definitely got a huge demand-side crisis, and coupled with whatever Saudi Arabia and Russia are trying to do (fighting between themselves or fighting between themselves in order to bring down the US shale companies, I'm never quite sure) that means that the only way is down.
This is the key. They are cooperating to destroy US efforts at self-sufficiency.
On the bright side, the canals of Venice are clear (you can see the fish) for the first time in recent history.
This is completely shocking to me.
I remember complaining about gas when it went above $2 and my grandfather sat me down and related several stories about the 1970's oil crash, Jimmy Carter saying we needed to be energy independent, and other fascinating stories about OPEC.
To honestly see a day where OPEC and the Russians see the US oil production as a threat is pretty incredible when you think about it.
That's simply impossible. Best they can do, is bankrupt the current owners of fracking oil wells. But the equipment and sites / wells remain, and will be taken over by new owners, which will remain pumping oil as soon as price reaches sufficient levels (or until the US needs it for "national security").
The new owners may be Saudi...
This is naive. The real target is Iran, the Saudis would never do this without US approval.
I've stopped using subway last week, and can still run errands by bicycle, i.e., don't need a car. But I also mostly WFH so it's easy, of course.
But really, it doesn't matter. What was happening at Saudi pumps last week was a speculative event, the size of the petroleum market for the next few months has absolutely nothing to do with OPEC decisions, it's about quarantine restrictions on travel all over the world.
Saudi might continue pumping, but as others are pointing out when the tankers and storage facilities fill up, they'll stop. Because there's nothing else to do.
It doesn't help that unlike oil electricity is produced in a just in time fashion, we produce it the same second we want to use it, not days or months before hand. I.e. there is nearly no buffer capacity in the supply chain.
Does the same apply to oil? Can we not just turn the pumps off and leave it in the ground with what basically amounts to flipping a switch?
The big issue is that if lots of oil companies go bankrupt (many US fracking ones are highly leveraged and must sell oil at a certain price in order to survive) and people get other types of jobs, you can't ramp up the creation of new wells very easily. Oil from fracking takes a lot more effort and wells than the old style wells.
Can one? I don't know enough about oil wells to know if that's a simple thing to do. It could very well do permanent damage to the well, in excess of selling negatively for a few months.
https://www.ytdreturn.com/vglt/
Edit: rephrase to clarify what I'm confused about
“The risk in the current environment is that sustained illiquidity of the UST market … could cause leveraged UST investors to reduce their Treasury positions on a large scale. This would essentially result in a Treasury ‘supply shock’ as these funds reduce their positions & force dealers to sell those positions in a very illiquid market. Significant position reduction from one large leveraged UST investor would likely lead to a cascading effect whereby U.S. Treasury yields rise sharply and force liquidations from other similar investors. This would worsen conditions for dealers to intermediate risk in the U.S. Treasury market, exacerbate the rise in U.S. Treasury yields, and further cheapen Treasuries.”
That would explain why all assets are going down.
To be clear: the price you pay to buy a bond is going up while the price you pay to buy a share of stock is going down. It is exactly how you expected, you were just looking at the wrong number.
Bitcoin crashed as well and gold isn't overperforming either. So rather than having a huge transfer of assets from stocks to bonds/gold/bitcoin like we've seen during past periods of market volatility, I think we are seeing falling prices across all the forementioned asset groups.
The one open question for me is Real Estate (I work for a small commercial real estate developer). REITs are down 20%. My contacts in the Broker community have told me individual property sales transactions have dried up due to an inability to do property showings combined with no interest from buyers or sellers to make big moves until things shake out. RE moves slow so we haven't yet seen how this dynamic will impact sales prices.
Interesting! If so, maybe we could see an end to the financial markets' seemingly insatiable demand for Treasurys?
On another note, the federal funds rate is at zero but bank stocks are cratering anyway, possibly because Trump announced there will be no foreclosures/evictions through April. So landlords and homeowners have no incentive to pay their mortgages for a couple months, which will definitely hurt banks.
The President mentioned something about wanting to backstop money market funds, so that may be part of what you are seeing.
Usually when there is a reason to reduce capacity on a rig (mostly due to weather) it's normal to just stand-by (sometimes for weeks) until they can continue with the job. When I worked offshore it was never possible to say when I get back home, e.g. the job was estimated to last 10 days but could end in 4 months. And once we were done we were almost always flown to a new destination (so they would try to keep us out there as long as possible). While places like the North Sea regulations would be strict (28 days offshore would be max before you have to go back to shore), in the Golf of Mexico, or in Asia we would never have such rules. I know people who spent months locked in the compression chambers (sat system) or until the project was over. And none of us dared to say we want to go home (it would be career ending).
[1] Oceaneering, McDermott, ...
I'm not sure why anyone would have signed such a contract, which is why I called it weird, but it does seem plausible.
I suppose that works unless the companies become insolvent?