Oil plunges below zero for first time with May contract ending

Not really. Almost all contracts are cash settled.

Good call! Now it’s about $5.30, and has dipped as low as $4.04. (Insert joke about “energy market not found”.)

Edit: wow. Just wow. Below $1 a barrel and kissed $0.01 at one point! That’s gotta be a record.

It would seem like a prudent thing to do because it can then be used to restart the economy later and make a decent profit to pay off things like all these Covid checks.

Imagine a surgeon being able to control a robotic surgery tool from the comforts of his/her home, where you have to have extremely low-latency or guaranteed low-latency networks. Or imagine mecheng offices running simulation jobs in the cloud or an on-premises instead of each having a workstation, and being able to cluster that compute together. All these have been possible to some degree with existing technology, but now we have a paradigm shift and market acceptance that unlocks new business possibilities.

Even if they all declared bankruptcy, their infrastructure would still be there. I'd imagine someone would buy it and bring it back online if/when prices recover.

This not factoring in the structural changes to demand like electrification, and who knows what kind of energy transition stimulus money could be deployed in the coming quarters to kick start things back.

I am thinking it is of ever increasing likelihood that the “most oil consumed in a day ever” in human history could actually behind us.

It just happened to coincide with the pandemic. Though I'd guess by now the pandemic adds fuel to the non-fire.

Also, this could catalyze a shift to people doing more things remotely. But will that reduce oil consumption significantly? Don't forget about induced demand.

Right now, I can head down the freeway in what used to be rush hour without any traffic. If that persists for any length of time, people will start buy McMansions on former farmland until the freeways get packed back up again. They will perhaps order their products that will be produced with petroleum in China, and shipped on container ships, and trucked to Amazon facilities, and then delivered in gas-burning vans.

I think as long as the economy keeps growing oil consumption will keep growing, until something cheaper than oil comes along (either through technological breakthrough or subsidy).

That's right. Negative thirty seven dollars. Today: -54.67, -299.23%.

https://www.marketwatch.com/investing/future/crude%20oil%20-...

Is the deal here that someone said to someone with an oil well "brah, I'll pay you X to pick up N barrels of oil on the day that is Y", but the buyer doesn't actually have any place to store it, instead planned to sell the oil to others later? And Y-day is approaching fast and nobody wants the oil, so the middleman has to take a loss by trying to pay someone to pick up the oil, to avoid penalty fees from the oil well company I presume (as they'd have to shut down if they run out of storage I imagine).

Same as negative electricity spot prices, really. Hard to stop and restart a nuclear power plant.

I think it's more that when something consistently has a negative price we reframe it as a positive one. Garbage has a "negative price", but we normally call it a landfill fee. Some kinds of grad school have "negative tuition" but we call it a stipend.

It's things switching signs that breaks this way of talking.

The price knows where it is because where it isn't.

They could always just burn the oil.

I guess the biggest danger they would face is if they have to stop "paying off" their population, and this leads to an "arab spring" type of situation. But it seems even in that case they would unfortunately have the will and resources to use Syria-style brutal tactics to contain any uprising.

Now not sure how long this will last, since the current price war is directly affecting the US producers. Time will tell.

[1] https://www.vox.com/2016/1/6/10719728/us-saudi-arabia-allies

Beyond a few articles in 2017, I haven't seen much of an update on that, anybody know if it was all just bluster, or are real things happening that would soften this blow coming?

Either side could likely stop this with the consequence only being loss of face.

They probably aren't making enough right now to pay for all of their commitments, but they definitely aren't losing money and they can likely borrow in the short term.

In that sense, it doesn't matter one bit what the House of Saud does, the machine they built will keep going long after its gone.

Dunno how you would handle this situation on HN (same thing happens with other volatile assets).

If Tankers are $150K+ vs. usual $20-40K for any prolonged period of time...

Fracking has made the US an oil exporter. As others mentioned, fracking has made the US the world's lowest cost producer.

In the longer term, the bankruptcies and capex cuts going on every day in the space--a lagging supply constrictor. Should be fuel to propel WTI to 80s when people start flying and driving again.

Guess it depends where you dwell online.

Anyway, OPEC+ did cut production, a little bit. The market is saying it's not enough, at least in the near term.

I wish this was true.

* citation needed (I'm also a software dev)

On topic: I did actually study economics, but that doesn't help much in answering your question. As often: it's very hard to predict. Probably the current price of the future contracts are artificially low because it's more expensive to take delivery. So they are much more affected than the real prices. the real prices will fluctuate, but probably less than the future prices.

Prices could stay low, but there's a higher probability that they'll return closer to the mean after the calamities and short-term effects subside.

It should, because among the factors that contributed to this pricing is the ongoing price war between major oil producers.

Shale oil has a much higher cost of extraction, achieving sustainability at ~$50/barrel. Those businesses are out of the game for now and unlikely to come back anytime soon.

Meanwhile those who are poised to survive this war of attrition will be the ones dictating the prices - at least until shale producers recover.

But in principle sure: storage filling up means that production needs to be halted because there's nowhere to put the oil. Production being halted means that facilities are going to be shut down, workers laid off or furloughed, and equipment mothballed. Some of those processes, as with all industry, are going to be expensive to start back up.

So if the industry doesn't (or can't, if it actually runs out of liquidity) have the agility to get things moving fast enough during the recovery, we might see a price shock in the other direction.

Or we might not. Certainly no one here is going to be expert enough to make a good prediction. But the principle is sound.

Now we've knocked off some 35m bpd of demand, and have millions of bpd of voluntary and involuntary shutdown, some of which will not return. This is a gigantic variation compared to any other crash in history.

So why won't prices necessarily skyrocket if demand returns? First you have a huge amount of stored oil to work through. Second you have potentially fast response shale to quickly increase production again.

But, shale only increased 1m bpd per year even during good times, so it can only make up for so much supply destruction. Secondly, this time shale companies may be mortally wounded. Even if they get taken over in bankruptcy you can have a lot of displaced workers and service companies.

So it really depends on how long the downturn lasts. If there is a quick rebound, like if a cure to covid-19 is found, then it shouldn't be too bad. But if this drags out through 2020, I think even $100 oil will start to look cheap in a few years.

LOL, no, the opposite.

Oil is not being used much because demand has been halted, while supply has been ramped up because some countries are filling in their budget holes as fast as possible.

We pretend that these are controversial political problems, but the way the world was before was the market manipulation.

You may be familiar with the story of De Beers, how diamonds had no demand so De Beers created a demand with their story, and also constricted supply so that prices of diamonds would go up. The same happens with oil in the OPEC+ nations. They fundamentally exist to collude on oil prices to keep them high by limiting the supply of oil well under their capacity to extract it.

This "balance", or lack thereof, exists at any oil price. Oil has crashed FROM 23 cents before. Its all about the quantity that exists and the demand for it.

This is a doozy of a way to start a comment.

In the days before fracking, there would be a ~10 year delay between additional investment and additional production output. With fracking, it's more like weeks, not years, before production adjusts. That's why the oil price seems to have a price ceiling these days--any time prices go up, producers increase fracking and production. Overproduction is slightly different--fracked wells continue producing for about 12-18 months after fracking stops, so overproduction still occurs. But underproduction will be compensated for very quickly.

Being a software developer doesn't make you intelligent. Way too many devs have kind of a god complex just because they can tell a finite state machine what to do. This is especially ridiculous because a large portion of devs are writing glorified CRUD web apps in some opinionated web framework.

There are many different layers to intelligence. Social intelligence is often dismissed but still very important to society.

I've seen smart software developers abandoning their reason and logic in other areas of life. Being smart in one area doesn't necessarily mean you're smart in another, even when the skills are transferable! It varies on a person by person basis (I also met smart software devs who used that knowledge to be smart in other fields).

If you want to know how things like this can happen from a neuroscience point of view, read up on Damasio and his somatic marker hypothesis. It's a related/similar phenomenon.

I need a break, seriously.

It really doesn't. Not even a little bit. The only thing it says is that someone acquired a somewhat difficult skill.

I've met many engineers who were were great at writing software but completely clueless otherwise.

Skill and Intelligence are very different things in my view.

It's still probably <10% by volume, but maybe your .0000001% was hyperbole.

In most commodities contracts taking/making physical delivery by physical players is rare. The physical delivery option is there to make sure that the underlying commodity market and the futures market converge; and you don't need someone to actually deliver to make that happen. The threat of delivery/taking delivery is usually enough.

[1]You can get that info from the CFTC here: https://www.cftc.gov/MarketReports/CommitmentsofTraders/inde..., namely in this report: https://www.cftc.gov/dea/options/deanymelof.htm . Look for "CRUDE OIL, LIGHT SWEET".

Additionally, if SA stops pumping, then Russia gets all their revenue (even if it is lower per barrel). It is a great big game of chicken.

This is a temporary and largely self-inflicted shock, demand will return and prices will go back up. As much as I like renewables, with the latest oil prices I've snapped up oil/natural gas producer stock at a hell of a discount for the last few weeks.

For the record, I've also invested in renewable energy companies. Both ought to do well over the next 10 years IMO.

Basically everything has a price floor below which it's not economical.

The real risk to oil right now is that the combination of low demand and low prices make it unusually attractive for governments to implement a carbon tax, which would also provide funding for the sort of stimulus they're looking for right now, without having constituents upset over high gas prices. The "carbon tax + dividend" thing does exactly that. And would have a meaningful effect even if it was only done by e.g. US blue states and western Europe (which represent a disproportionate amount of world oil consumption).

In which case the demand for oil would never recover.

Frankly, we need to get to the next generation of nuclear because renewables will not be enough.

https://en.wikipedia.org/wiki/TI-class_supertanker store about three million barrels.

https://adventuresincapitalism.com/2020/03/19/crude-contango...

Shutting off oil fields probably isn't as simple as turning a tap. It's likely a complicated process that could potentially harm a site's future production. There might be problems or it might take months to get things operating again...