Crude Oil Flow from Saudi Arabia to U.S. Falls to Zero
oilprice.com
oilprice.com
This is fantastic news. For the earth’s sake, let’s hope the lack of demand for oil continues forever.
https://www.npr.org/2020/09/15/913052498/oil-demand-has-coll...
That said, it's also a continuation of the long-term trend of the US replacing imported oil with domestic fracking, so it's not saving the Earth as much as you might think.
Oil sands were long considered unusable, but when oil prices got high enough, it was profitable to start mining them turning Venezuela into an oil rich country. Once they started working, they found more efficient ways to extract the oil, so they could complete up to a point as prices stabilized and later dropped.
We see the same thing with fracking. As oil prices increase, it becomes profitable. As they get better at it, the minimum profitable price decreases.
Today, subsidized or not, you'll see fracking continue as it's much more efficient than it once was.
The only thing that might be right (price fortune telling) isn't the problem you think it is.
Oil prices have decreased over the last 30+ years, with steady increases in overall production until covid.
I'm paying the same numerical dollar amount for gas that I did 20 years ago, for a product that's only increased in quality and regulatory costs (ethanol, refining requirements, safe production costs, etc).
Fracking technology improving is exactly why it exists and has until recently, boomed.
Wells drilled with 1950s technology (which was still the same basic drill, inject, penetrate & pressure as today) are all of a sudden profitable again, because you can re-fracture, and squeeze more from extant wells.
That's improved technology, efficiency, and economics.
>Pushing water through hard rock is expensive and technology isn't magic
Not magic, chemistry. Thats why they let the chemical reactions create pressure. The pumping is to get the figurative vinegar and baking soda down the hole to start the the science fair volcano.
As to markets, if anything public markets are irrationally dumping profitable oil and infrastructure due to somewhat successful intimidation tactics by the environmental movement.
For instance, Shell is selling or shutting down almost all of its smaller US refineries because they're not "green ready." They're giving away profits on a political calculation, not a financial/economical one.
Its funny because besides being the scapegoat for every failure of the fossil fuel/nuke industry, these environmental groups seem to lose every other battle they care about.
These groups have been calling for putting principles over profits for years.
When they finally start doing it, it's not fair to also point to lower profits as a reason the industry might be in decline, when it's at least partially result of voluntary behavior done for appeasement.
But fracking isn't a long term investment activity. If it's actively being done, it's because it's profitable, short term and real time.
The profits just get shifted elsewhere and to other companies.
A) Yes, some big companies (oil and finance) see some oil as risky and potentially a losing investment for them long term. (I disagree, but wrt the industry, not specific listed companies.)
Yes, they're taking a loss (at least on paper) for some of these investments. But I'm saying it's largely by choice, both by voluntary "offset" investments, and operational decisions. That's the (financially) delusional part.
As I said, we're seeing the bigger companies sell off infrastructure it can't market as being green. [1] Here's Shell's refinery sell-off, and attempt to rebrand the remaining refineries as "low-carbon chemical parks."
As travel picks up again, someone is going to pick these smaller refineries up for cheap. At least a couple of them specialize in jet fuel, which, post-covid, will be in sufficient demand for the foreseeable future. The buyers will make money. Shell and Shell's investors will show it as a loss.
Same goes for fracking. If Shell (or whoever) is, for example, voluntarily buying carbon offsets or similar for fracked wells, they may show it as a losing investment. The buyer might pick it up, drop the voluntary offset purchases, and make it financially viable.
B) Another thing done is shifting costs:
A company buys (mandatory) wetland property for mitigation credits for a pipeline project, that's deemed profitable, as-is. They also have a fracking well that's profitable. The division that owns the well will then buy carbon-offset credits from the division that bought the wetlands. Where you once had two profitable projects, you now have one profitable project, one project that shows a loss, and a chunk of revenue written off for capital expenditure, another chunk written off for buying green offset credits, and a huge net savings overall due to carbon credit deductions and reducing taxable revenue on paper.
Now the company might internally think those optional credits are a required cost of doing business, for branding and politics. But that doesn't mean the fracking itself isn't profitable.
Or that a different company wouldn't show it on paper as such.
This is the type of stuff that gets confusing when you start looking at the financial analysis stuff that you refer to.
[1]https://www.icis.com/explore/resources/news/2020/10/29/10569...
That’s terrible news for the environment.
Under Biden, with the house and the senate under control, and with calls to eliminate the filibuster, there’s a chance the US will take action soon.
If the Senate does not eliminate the filibuster, then assume they’re planning for 4 more years of big oil.
I hope we have protests that dwarf BLM if the filibuster is left in place.
Narrator:
“Barring something like a war, US tight oil is essentially done for the time being” is the vibe I’m getting at the moment, and IIRC predates COVID by a year or so.
And of course, if one believes in climate change, it should never having been allowed to proceed.
To make matters even worse, AFAIK USA's tight oil industry, taken in aggregate, has never been profitable so far, and at this point it doesn't seem like it will ever be. So this is yet another an example of bad investing, a financial bubble yet to pop, propped up by Wall Street money, which itself comes from the relief money that went up to prop up the "too big to fail" banks after the previous financial bubble popped.
However, there are drop in replacements for everything oil does outside of arguably aviation.
Pumping gas is a big deal.
It gave us private cars and suburbs and endless roads and parking lots that would not exist if we had to rely on coal.
Nonetheless, the modern industrialized economy was built on the back of shipping that was only initially possible via petroleum fuels.
Before electricity we had air pressure tools, and before that rotating shaft power from water wheels. I bring that up because IMO people overestimate how much and how quickly things have changed.
Transistors theory and gate logic haven't fundamentally changed in decades, but would you say computing hasn't quickly changed?
Alternatively, we can bombard lead with protons to make gold, or generate net energy via fusion reactions, but alchemy nor fusion are currently economically impactful on the global market, except maybe as a line item for research.
People underestimate the importance of efficiency and economics when looking at things in a purely technological perspective.
The world was largely built on older technology, you still see 3.5 inch floppies all over the manufacturering sector. So sure modern CPU’s are fast and cheap, but they changed the world much less than you might think.
Today’s wealth was mostly built on yesterday’s technology and infrastructure.
While somewhat true, the "drop in" replacements are often more expensive, or less reliable, or less desirable/usable than their petro counterparts.
Sometimes the replacements are all 3
But its existence prevents OPEC from strangling the US economy too much, until we can transition to other energy sources.
Not sure I'm understanding correctly this. Are you trying to say the cost of fracking is too high, and the US oil production will go down rapidly? I don't think that's the case. The cost of fracking is not constant, it keeps going down due to technological progress. See for example [1]. Also interest rates have come down lately (because Covid and such), and they'll very likely stay down for a while. This stimulates industrial activity, and Oil and Gas Exploration and Production (E&P) is just such an activity. More precisely, lower interest rates means E&P companies have an easier time rolling over their loans, and also their funding cost is lower. That funding cost is a component of the "cost of fracking".
To be honest though, there is no such thing as "cost of fracking". Some analysts talk about this, but if you try to get into details you'll see it's a bit of finger in the air. Here's [2] a handbook put together by the OCC (bank regulator) that explains how the lending in this space is done and risk-managed. There's no such thing as "cost of fracking", and you'd think the oil producers bankers and their regulators would know a bit about this topic.
[1] https://www.reuters.com/article/us-usa-oil-electric-fracturi...
[2]https://www.occ.treas.gov/publications-and-resources/publica...
https://www.washingtonpost.com/world/2019/09/16/who-buys-sau...
EDIT : Right, I have forgotten that even though OPEC is 'only' 44% of production, Middle East (and especially Saudi Arabia) is a much larger share of exports :
https://en.wikipedia.org/wiki/List_of_countries_by_oil_expor...
And Saudi Arabia is USA's ally, unlike Russia and Iran. (And this doesn't leave a lot of oil where to import from, once you exclude USA, Middle East and Russia...)
Despite all the talk the US actually does import oil from Russia: https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=M...
If Russia provides a tiny fraction of 1% of us oil, it could be very special edge cases that don't affect the economy much at all.
Side note, HN comment guidelines state each comment should enrich discussion. This comment you made is very low effort and snarky.
Not always. We were taught if someone steal $1 or $10000 they will be called thief.
In Sushi may be proportions mattered. But there are cases it doesn't matter. Like drinking 10ml or 1 litre both can kill you. And you cannot go to doctor and said 10 liter is very small quantity ignore it.
And in this case "Crude Oil Flow from Saudi Arabia to U.S. Falls to Zero " Saying Zero might be misleading to many people. It may not to many people.
But masscomm isn't technical writing. To the people who already don't understand, it's more misleading to pretend the amount is meaningfully more than zero, than to call a negligible amount "zero."
48% of oil imports in 2019 were from Canada, making canada the largest exporter of oil to the US, and the third largest oil exporter on the planet. Any serious discussion of international oil trade should at least mention the country.
https://www.nrcan.gc.ca/science-data/data-analysis/energy-da...
Not to mention that Canada's too heavy tar sand oil is being mixed with USA's too light tight oil, forming in this way a single system.
Lots of the US imports from Canada end up being re-exported, or as you said blended/refined and re-sold.
Ships need to keep moving, for those who do they can suffer not so much.
Lots of ships have also stopped moving so some people are getting a zero who never had this happen.
That could put downward presure on prices just to get a little movement going again.
I had assumed that the US patrolled the Persian gulf* to maintain price stability (as a commodity, a disruption of supplies there would affect prices globally).
* Since the 80s or so at least. I don't know if the US was or was not importing Arabian crude before then.
By comparison, Mexico was 7% in 2019, which made it the second large source.
https://www.eia.gov/energyexplained/oil-and-petroleum-produc...
This props up the market for dollars, decreasing the effects of dilution (inflation, in currency contexts) when the money supply is expanded
And they can try to switch to Yuan or whatever, won’t change Fact they need to accept dollars to sell anything to US, and they need dollars to buy anything from the US, and they need to do both.