Price Collapses to under $10 per Barrel

Saudis pushing oil into Louisiana refineries as storage capacity in the US fills, and there is no demand. Some customers may demand to BE PAID to take more domestic oil in these conditions.

Consumers benefit from cheap oil, of course. But ...

this will wreak further havoc on many states' budgets and drive down wages in the oil patch across many states. That will further affect state budgets (not to mention household budgets). We'll also probably see a slowing of the conversion away from fossil fuels toward renewables.

This might be a great environment in which to levy an oil import tax of, say, $10 per barrel. No one would notice, since that would just push the domestic price up to what it was, oh, a couple of days ago, and much lower than it was a couple of months ago.

The Saudis are trying to put a nail in domestic output and bankrupt part of the sector so that it doesn't return when the economy improves. Not sure they'll succeed in achieving that goal, but that's their intent.

The US remains a large consumer, so the oil tariff would likely force a decrease in the world price of oil. That fall would partially offset our import tariff, i.e. US consumers would pay only part of the tariff, and foreign nations would pay the rest.

Conservative curmudgeon Charles Krauthammer usually reserved one column per year advocating just that. Here, I found one ...


Pump the Oil: Raise the Tax

Oklahoma will get hit hard. A lot of state revenue is related to the oil industry.

Texas crude now below $3 per barrel. Largest one-day drop in history.

Now trading in negative territory.

-$37.63 per barrel

Wars have been fought over less than this.

Better call in Jared.

This lady says "No big deal".

Is she correct?

Yeah, these are future delivery contracts. I suspect the number of producers who will actually sign a contract to deliver oil in May for a negative price is zero. The point is, no one is buying domestic oil for May delivery.

The spot price (today) for Brent Crude (North Sea) is still very positive. I think it's over $20, actually.

This will hit my employer on all fronts--less money from a state that depends on oil, less money from investments that likely count on oil, less money from donors who made their fortunes in oil, less money from grants made by oil companies to professors in some of our biggest STEM departments like petroleum engineering and energy.

(Yeah, I have second thoughts about research on energy being paid for by oil companies, too, but you know it happens.)

There will be follow-on effects all the way down to the ability of students to pay tuition. Perhaps their parents' jobs depend on the oil industry. Perhaps they have a scholarship from their tribe, which depends on oil revenues.

I get the impression, too, that many people of apparently modest means whose families have been in Oklahoma for a long time draw monthly checks because they've inherited oil rights on family land. They might have trouble covering college tuition right now, too.

It's not going to be pretty.

Just curious, did any one see this "negative oil futures" thing coming when states started imposing travel restrictions?

quote:

Originally posted by Piano*Dad:
I suspect the number of producers who will actually sign a contract to deliver oil in May for a negative price is zero. The point is, no one is buying domestic oil for May delivery.

The question becomes how much someone is willing to pay to get the oil off of the boats rather then anchor them offshore for the foreseeable future.

I know nothing about oil. Is there a problem with just leaving it in the ground?

Once you've started a well, do you have to keep it pumping? Or can you shut it down for a couple months or a year and be able to restart it?

I know gasoline has a short shelf life. Does crude oil? Can you store it for a long time? Indefinitely? I understand there's also the problem of it outgassing -- there was something in the news a while back about the volatile gasses in rail tank cars.

North Dakota and Alaska are also going to get hit hard, as well as one country whose economy and global influence was said to be predicated on oil remaining over $100 a barrel.

Crude oil is indeed storable. Above ground storage isn't free, however. The US government maintains a strategic petroleum reserve in the salt domes under Louisiana. It can contain over 700m barrels indefinitely.

Strategic Petroleum Reserve

I believe most wells can simply be capped for later. But that is not free. There are costs.

This turmoil is heck on Venezuela, Iran, and the Sovi... Russia. As well as N. Dakota, Pennsylvania, Texas, Alaska, New Mexico ...

Too much oil? Then get rid of that damn pipeline that NEVER should have been built through our mid section.

I wonder how much of the previously normal demand was jet fuel.

quote:

Just curious, did any one see this "negative oil futures" thing coming when states started imposing travel restrictions?

It has to do with more than Covid-19. The Saudis and Russians were engaged in a price war, and the Saudis also wanted to knock US fracking output down by driving out higher cost rigs and discouraging future oil development on "risky" high-cost land.