I'm a software developer, which translates to being somehow smart, but I'm not that into economics: Will this have a rubber band effect? E.g., the price will skyrocket in the next 2 - 5 years, because of this?
* 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.
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.
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.
> 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.
The role of a software developer is to refine ideas of business people, codify them, satisfy stakeholders, and otherwise serve and protect business interests. It's not just writing code - you have to make decisions large and small that can have significant impacts on your company and customers. In any CRUD app, this quickly reaches a very high level of complexity which requires a high degree of engineering and social ability to manage.
It's easy to diminish any profession (oh you just use numpy, oh you just go golfing with executives, oh you just type in symptoms and prescribe pills that have been marketed to you for years, oh you just use formulas discovered by other people). Let's not do that, because one might start to look foolish quite quickly.
I wish this was true.
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.
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.
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.
This is a doozy of a way to start a comment.
I need a break, seriously.
Pretty sure that'll be a topic of conversation on HN for decades to come.
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.
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 live in Texas and had worked for a company that developed a software product for management of things like oil leases. The big issue is not the inability to re-open oil wells, it's not that hard. It's the people.
When you shut in production you lay people off. Eventually they go elsewhere. This is a big problem in oil boom/bust cycles. Getting trained operators that don't mess up the equipment or cause environmental disasters is one of the bigger problems.
Also, once shut in, the operators that survive the downturn will want to open later, than earlier. They can profit more by waiting.
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.
LOL, no, the opposite.