One corner of U.S. oil market has already seen negative prices(bloomberg.com)
bloomberg.com
One corner of U.S. oil market has already seen negative prices
https://www.bloomberg.com/news/articles/2020-03-27/one-corner-of-u-s-oil-market-has-already-seen-negative-prices
10 comments
Never let the truth get it the way of a sensational headline...
People freeze to death every winter because they can't afford fuel. I have no idea what your analogy is supposed to mean.
I don't normally complain about downvotes, mainly because I don't care, but in this case I'm simply disgusted that people are so ignorant and lazy that they'd downvote a statement of fact regarding fuel poverty.
Try checking the accuracy of statements before downvoting, and get out of your pampered, spoilt little lives once in a while and see how normal people actually live.
EDIT: Note, I'm not talking about valuearb here. They had the good sense to ask about it.
Try checking the accuracy of statements before downvoting, and get out of your pampered, spoilt little lives once in a while and see how normal people actually live.
EDIT: Note, I'm not talking about valuearb here. They had the good sense to ask about it.
Where?
In the UK around 3,000 people die per year because they can't afford fuel costs.
https://www.independent.co.uk/news/business/news/cold-weathe...
https://www.independent.co.uk/news/business/news/cold-weathe...
How? The cost to heat a home is a tiny fraction of the cost of owning a home.
Because percentages don't matter when you're poor. And, of course, a poor person will probably be renting, not owning, a home.
If you've only got $30 left to cover food and electricity (and your heating is all electric), you basically choose between food or heating.
Google seems determined to give me UK stats, instead of US ones. Perhaps in the US you become homeless before you have to make that choice?
If you've only got $30 left to cover food and electricity (and your heating is all electric), you basically choose between food or heating.
Google seems determined to give me UK stats, instead of US ones. Perhaps in the US you become homeless before you have to make that choice?
How did you pay your mortgage or rent if you only have $30 left for heat?
Imagine you get paid 250 a week. Your rent is 200 a week. You have 20 you need to pay for travel. That leaves you 30. If you don't pay rent you become homeless and then you will lose your job.
Do you understand?
Do you understand?
So you are saying you only have to increase your income about 5% to have enough money for heat?
Because you're living on little income which leaves little after the rent is paid.
A couple decades ago, we owned an 18th century house in the northeastern US, with some 19th century additions. The mortgage and taxes totaled ~$2.5K per month, and oil heating cost peaked at $500 per month in the winter. It had an historic designation, and insulating it properly would have been impossibly expensive.
Tar sands oil is now trading at $6.6/barrel.
This is going to be a disaster for the Canadian petro-provinces. While much of this price collapse has been driven by OPEC, the COVID-depressed gasoline demand is here to stay for at least a few months.
This is going to be a disaster for the Canadian petro-provinces. While much of this price collapse has been driven by OPEC, the COVID-depressed gasoline demand is here to stay for at least a few months.
> This is going to be a disaster for the Canadian petro-provinces.
If the pitch stays in the ground it'll be good for the environment which ultimately is good for people too. Just on longer time horizons.
If the pitch stays in the ground it'll be good for the environment which ultimately is good for people too. Just on longer time horizons.
And it likely forces some form of UBI for the oil industry evaporating.
This is only fair to Alberta, considering how much they’ve contributed to Canada’s GDP over the last two decades.
This is only fair to Alberta, considering how much they’ve contributed to Canada’s GDP over the last two decades.
> This is only fair to Alberta, considering how much they’ve contributed to Canada’s GDP over the last two decades.
Is contributing to GDP something you get "credit" for? Or put another way, does someone living in Toronto get any benefit from this increase in GDP?
Is contributing to GDP something you get "credit" for? Or put another way, does someone living in Toronto get any benefit from this increase in GDP?
>> does someone living in Toronto get any benefit from this increase in GDP?
As someone living in Alberta your comment answers a question we ask each other frequently: Do people outside of Alberta understand the benefit they've enjoyed from energy revenues over the past 20 years?
Your comment suggests NO, but I'm not sure where you are located.
Canada has a massive transfer payment process from "Have" provinces to "Have Not". This is not something as academic as "overall GDP increase" but is BILLIONS of actual dollars that Alberta has contributed during all the good times that were then redistributed to other Canadians, just like people living in Toronto. Not to over-emphasize the point, but I'm talking cold hard cash literally taxed from one province and given to the others, with the Federal government taking their vig during the transfer.
If you're not Canadian it's unlikely you are aware of the direct positive impact this has had on the entire nation. If you are Canadian and unaware of the relative value of transfer payments... well, this accounts for a huge amount of the alienation the Western prairie provinces are feeling.
This is an issue outside of the debate around where our energy comes from. The reality is a huge part of the entire country's expenditures has been financed by oil and gas revenues for a large part of the past 20 years.
As someone living in Alberta your comment answers a question we ask each other frequently: Do people outside of Alberta understand the benefit they've enjoyed from energy revenues over the past 20 years?
Your comment suggests NO, but I'm not sure where you are located.
Canada has a massive transfer payment process from "Have" provinces to "Have Not". This is not something as academic as "overall GDP increase" but is BILLIONS of actual dollars that Alberta has contributed during all the good times that were then redistributed to other Canadians, just like people living in Toronto. Not to over-emphasize the point, but I'm talking cold hard cash literally taxed from one province and given to the others, with the Federal government taking their vig during the transfer.
If you're not Canadian it's unlikely you are aware of the direct positive impact this has had on the entire nation. If you are Canadian and unaware of the relative value of transfer payments... well, this accounts for a huge amount of the alienation the Western prairie provinces are feeling.
This is an issue outside of the debate around where our energy comes from. The reality is a huge part of the entire country's expenditures has been financed by oil and gas revenues for a large part of the past 20 years.
Albertans overrate this. Equalization took about 4.4% of Alberta’s provincial revenues in 2017-2018. And Alberta is tiny within Canada: 11.7% of population roughly.
So this is....not that big an amount? 4.4% of a fairly small budget relative to the total country.
Further, Alberta has had a large net inflow of young, productive workers from the rest of Canada. If there was no oil, these workers would mostly go work and be productive elsewhere, increasing local tax revenues.
Alberta did contribute wealth to the rest of the country. But Albertans tend to both overestimate this contribution and also ignore that they benefit from young workers trained and educated by provincial budgets elsewhere.
Source for equalization percent: https://en.m.wikipedia.org/wiki/Equalization_payments_in_Can...
(Alberta is not the only province to pay into equalization)
So this is....not that big an amount? 4.4% of a fairly small budget relative to the total country.
Further, Alberta has had a large net inflow of young, productive workers from the rest of Canada. If there was no oil, these workers would mostly go work and be productive elsewhere, increasing local tax revenues.
Alberta did contribute wealth to the rest of the country. But Albertans tend to both overestimate this contribution and also ignore that they benefit from young workers trained and educated by provincial budgets elsewhere.
Source for equalization percent: https://en.m.wikipedia.org/wiki/Equalization_payments_in_Can...
(Alberta is not the only province to pay into equalization)
> If there was no oil, these workers would mostly go work and be productive elsewhere, increasing local tax revenues.
Can you provide examples of equivalent work at the same pay level these young workers would engage in if not for O&G?
Can you provide examples of equivalent work at the same pay level these young workers would engage in if not for O&G?
It wouldn’t be the same pay. But, they would be working, and providing taxes and local spending in their communities.
The maritime provinces have a very high average age in part because many workers left for alberta. This cuts the tax base.
That was my point. The workers do get a higher wage in Alberta, but most of this benefit is spend within Alberta or taxed there. Good for workers, good for Alberta....but not obviously a win for the rest of Canada.
And again, Alberta didn’t have to pay for 18 years of schooling and child health care for these workers: that was paid by the home province.
The maritime provinces have a very high average age in part because many workers left for alberta. This cuts the tax base.
That was my point. The workers do get a higher wage in Alberta, but most of this benefit is spend within Alberta or taxed there. Good for workers, good for Alberta....but not obviously a win for the rest of Canada.
And again, Alberta didn’t have to pay for 18 years of schooling and child health care for these workers: that was paid by the home province.
Majority of equalization goes directly to Quebec, very little goes to the maritimes.
Per-capita, more goes to the maritimes.
I don't know if out of work oil workers will move out of Alberta, but Alberta is famously full of Newfoundlanders who have left that high-unemployment province. (NL's fishing industry, once its primary employer, has been moribund for a few decades.)
Obviously, a COVID-19-triggered recession would not create an employment boom to replace oil jobs.
(FTR: I support the immediate shutdown of the tar sands, but we need a job replacement/retraining strategy...)
Obviously, a COVID-19-triggered recession would not create an employment boom to replace oil jobs.
(FTR: I support the immediate shutdown of the tar sands, but we need a job replacement/retraining strategy...)
Alberta is the only province to pay into equalization every single year since they started it (except the very first year where they weren't allowed to). They've never got one equalization payment. Quebec gets billions every year. Why exactly?
To be completely fair, it's not "Alberta" transferring that money, it's money paid in tax to the federal government being transferred to have not provinces. It's not an additional tax placed upon us, it just happens that the math works out because we've been lucky to be earning more on average, which I think only makes sense as a Albertan and a Canadian.
Always have wondered, what makes Quebec a have not province?
Short answer: much lower salaries.
The average Albertan's salary is (still) much higher than that of workers from other provinces. Thus, each Albertan pays (on average) more federal income tax than workers from other provinces. Whether a province is "have" or "have not" is based on comparing the average federal income tax collected from that province compared with the national average.
The equalization payments is the income tax that gets partially redistributed - it is not a transfer from Alberta to other provinces.
For a given salary, the average income tax (combined provincial and federal) paid by someone in Quebec (or any other province) is much higher than that paid by someone in Alberta. Add to that the provincial sales tax (not paid by Albertans) ... and you get a situation where people outside of Alberta see Albertans as spoiled rich whiners as they: 1) earn a higher salary and 2) pay less taxes.
Meanwhile, Albertans (with their lower unemployment - still today) see "their" money wasted to these undeserving lazy Easterners ("lazy" = collecting money from EI). Politicians of all stripes contribute to fanning the flames. And, in spite of all this, we are generally considered to be a nice bunch, eh?
The average Albertan's salary is (still) much higher than that of workers from other provinces. Thus, each Albertan pays (on average) more federal income tax than workers from other provinces. Whether a province is "have" or "have not" is based on comparing the average federal income tax collected from that province compared with the national average.
The equalization payments is the income tax that gets partially redistributed - it is not a transfer from Alberta to other provinces.
For a given salary, the average income tax (combined provincial and federal) paid by someone in Quebec (or any other province) is much higher than that paid by someone in Alberta. Add to that the provincial sales tax (not paid by Albertans) ... and you get a situation where people outside of Alberta see Albertans as spoiled rich whiners as they: 1) earn a higher salary and 2) pay less taxes.
Meanwhile, Albertans (with their lower unemployment - still today) see "their" money wasted to these undeserving lazy Easterners ("lazy" = collecting money from EI). Politicians of all stripes contribute to fanning the flames. And, in spite of all this, we are generally considered to be a nice bunch, eh?
>For a given salary, the average income tax (combined provincial and federal) paid by someone in Quebec (or any other province) is much higher than that paid by someone in Alberta. Add to that the provincial sales tax (not paid by Albertans) ... and you get a situation where people outside of Alberta see Albertans as spoiled rich whiners as they: 1) earn a higher salary and 2) pay less taxes.
People in Quebec also get way more services for that. Like under $10 a day daycare.
People in Quebec also get way more services for that. Like under $10 a day daycare.
This is reflected in the Canadian dollar which has been behaving like a petrodollar. Alberta is in for some hard times, I think its GDP will be about eventually become equivalent to that of the slightly more populous Alabama, provided the exchange rate holds and Alberta GDP makes the anticipated drop.
I think most Canadians recognize Alberta as a have province from the perspective of transfer payments, but that may change quickly if oil prices stay at this level for long making Albertans net recipients of transfer payments. I'm less sure that most Albertans realize just how badly managed benefits from oil resources have been used in the province. I'm talking Alberta Heritage Savings Trust Fund compared to Norway (Government Pension Fund), or even Alaska (Alaska Permanent Fund). It's bad even when you consider the high price of oil sand extraction, never mind the higher clean-up costs.
I think most Canadians recognize Alberta as a have province from the perspective of transfer payments, but that may change quickly if oil prices stay at this level for long making Albertans net recipients of transfer payments. I'm less sure that most Albertans realize just how badly managed benefits from oil resources have been used in the province. I'm talking Alberta Heritage Savings Trust Fund compared to Norway (Government Pension Fund), or even Alaska (Alaska Permanent Fund). It's bad even when you consider the high price of oil sand extraction, never mind the higher clean-up costs.
As a BCer, can I just mention that BC is doing just fine supporting the Canadian economy with a balanced approach to conservation and natural resource extraction?
Alberta is certainly contributing to the Canadian economy, but the heavy reliance on fossil fuels to do so isn't a long term approach to take and the province seems highly reluctant to pivot to better industries.
Alberta is certainly contributing to the Canadian economy, but the heavy reliance on fossil fuels to do so isn't a long term approach to take and the province seems highly reluctant to pivot to better industries.
BC has the biggest coal export terminal in NA. It's biggest export is coal. BC's clean image is bullshit.
True. BC only exists due to rampant resource exploitation. We are certainly more diversified than Alberta, but should definitely do better. Alberta built their whole economy on garbage quality oil and didn't prepare for the inevitable. Adapt or die. It sure makes the "prosperity" cheques look premature.
Fun fact, Albertan politicians wanted to nuke the tarsands[0] in the 1950's and the plan got way further down the road than it ought to have. They thought it would liquefy the oil and they could just pump it out.
If there will be a silver lining to this pandemic, it will be people realizing how precarious their ongoing existence is. Maybe people will be more willing to drop the entitlement, accept reality and do what needs doing.
[0] https://en.m.wikipedia.org/wiki/Project_Oilsand
Fun fact, Albertan politicians wanted to nuke the tarsands[0] in the 1950's and the plan got way further down the road than it ought to have. They thought it would liquefy the oil and they could just pump it out.
If there will be a silver lining to this pandemic, it will be people realizing how precarious their ongoing existence is. Maybe people will be more willing to drop the entitlement, accept reality and do what needs doing.
[0] https://en.m.wikipedia.org/wiki/Project_Oilsand
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The subject of transfer payments has been discussed below. I want to mention two more ways energy industry in Alberta has contributed to well-being elsewhere.
1. Even ignoring equalization payments, federal corporate taxes from oil and gas companies and federal income taxes from high salaries they paid their employees have contributed more to federal revenues, which gets spent across the nation, not just in the province it is collected in.
2. For the past few decades, oil prices and the value of Canadian dollar have moved in tandem. It makes sense when you consider that even though oil is not a huge part of Canada's GDP, it is a huge part of its exports. At its peak, high oil prices brought the value of Canadian dollar above US dollar a few years ago (I think it got as high as 1 CAD = 1.3 USD at one point). The current crash sank Canadian dollar to less than 70 cents US. Anyone earning a salary in Canadian dollars enjoyed the higher purchasing power (for imported goods, vacations, and cross-border shopping) in the good times.
1. Even ignoring equalization payments, federal corporate taxes from oil and gas companies and federal income taxes from high salaries they paid their employees have contributed more to federal revenues, which gets spent across the nation, not just in the province it is collected in.
2. For the past few decades, oil prices and the value of Canadian dollar have moved in tandem. It makes sense when you consider that even though oil is not a huge part of Canada's GDP, it is a huge part of its exports. At its peak, high oil prices brought the value of Canadian dollar above US dollar a few years ago (I think it got as high as 1 CAD = 1.3 USD at one point). The current crash sank Canadian dollar to less than 70 cents US. Anyone earning a salary in Canadian dollars enjoyed the higher purchasing power (for imported goods, vacations, and cross-border shopping) in the good times.
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More than the west gets from Toronto.
Sure, transfer payments go both ways. Unless Wexit has a surprise win!
Ironically lower energy prices contributes more to Canada’s GDP.
Alberta was already in bad shape before this, with huge sections of Calgary downtown empty, 20% unemployment in rural areas. Now add an oil price collapse and coronavirus shutdown of large parts of the service sector. Very hard times for Alberta ahead.
In the oil bust in the first half of the 1980's people would sell their homes for a dollar just to get away from the mortgage because it was completely underwater. I fear we may see those days again in Calgary. I was born there during those days, which I don't remember, but I do recall the stories people told of it while I was growing up.
In the oil bust in the first half of the 1980's people would sell their homes for a dollar just to get away from the mortgage because it was completely underwater. I fear we may see those days again in Calgary. I was born there during those days, which I don't remember, but I do recall the stories people told of it while I was growing up.
> people would sell their homes for a dollar just to get away from the mortgage
That's not how mortgages work in the USA — or any other country I've heard of! Usually, the way a mortgage works, is that you owe the lender the money, and the house is the collateral asset. Divesting yourself of the asset usually requires you to pay off the balance of the mortgage on sale.
That's not how mortgages work in the USA — or any other country I've heard of! Usually, the way a mortgage works, is that you owe the lender the money, and the house is the collateral asset. Divesting yourself of the asset usually requires you to pay off the balance of the mortgage on sale.
Not in non recourse states. (https://homeguides.sfgate.com/happens-give-keys-back-mortgag...)
That's walking away from a mortgage. The GP said "people would sell their homes for a dollar just to get away from the mortgage". The sale of the asset doesn't let you discharge the mortgage in a non-recourse state: you give the house to the lender in lieu of paying the loan. (And declare bankruptcy!)
I'm not certain, but I gather in this case the person who bought the house for a dollar would also take over the mortgage. Canadains are weird around home ownership, our markets don't behave like other developed countries'
With the economics of the tar sands, the entire province has been doing the equivalent of margin trading, to make ends meet, for the past two decades. Tiny swings in price either bring a moderate windfall, or utter ruin.
It's not a great way to run your economy.
It's not a great way to run your economy.
Yea it's bad, Alberta has been trying and failing to diversify their economy for 50 years: https://business.financialpost.com/commodities/energy/after-...
Isn't this what the primary futures markets are for? As an oil producer, you lock in a price for the oil that you know you're going to produce in 3 or 6 or 12 months. Let a financier in some big city take on the risk that the price might be higher or lower, where they can hedge it against other investments.
>the entire province has been doing the equivalent of margin trading, to make ends meet, for the past two decades. Tiny swings in price either bring a big windfall, or utter ruin.
>It's not a great way to run your economy.
Sure, but what other way do they have to run their economy? Without monumental government effort to keep prices stable grain (and grain derived products) isn't much better.
>It's not a great way to run your economy.
Sure, but what other way do they have to run their economy? Without monumental government effort to keep prices stable grain (and grain derived products) isn't much better.
Bit of a dead horse here, but they could have done a sovereign wealth fund, Norway-style. Would have helped with the secession plans too, back when those were being taken seriously.
Armchair quarterbacking I know, but the trouble seems to be that when Alberta has any money at all, oil is the most profitable thing to invest in so that's where the money goes. Investing in uncorrelated assets would level out some of those crazy swings.
Then again, most Albertans I worked with kind of liked the crazy swings. As I'm a bluenoser that was during a boom time of course, so I've no idea how they feel about it during the lows.
Armchair quarterbacking I know, but the trouble seems to be that when Alberta has any money at all, oil is the most profitable thing to invest in so that's where the money goes. Investing in uncorrelated assets would level out some of those crazy swings.
Then again, most Albertans I worked with kind of liked the crazy swings. As I'm a bluenoser that was during a boom time of course, so I've no idea how they feel about it during the lows.
Alberta used to be a cattle province[1][2], before the petro-firms trampled all over farmer rights, and imported a million people to work the tar sands/support the people who worked the tar sands.
Just because you've destroyed the ring, you can't really go back to the Shire, but Alberta's choices in the 21st century are either a return to agriculture, and mass emigration, or a transition to exporting professional services.
[1] Ironically, while the price of oil plummets, the spot price for beef is up 20% since the start of this crisis... Although, the price of beef futures is dropping a bit.
[2] Edit: I'm aware that agriculture employs a small number of people (1.5-2% of the population, but so does oil extraction - only 0.3% of the population directly works in the tar sands - everyone else supports them.) Like any other industry, it has a large supporting industry of suppliers, truckers, etc. It's not nearly as lucrative as oil, but it's a living.
Just because you've destroyed the ring, you can't really go back to the Shire, but Alberta's choices in the 21st century are either a return to agriculture, and mass emigration, or a transition to exporting professional services.
[1] Ironically, while the price of oil plummets, the spot price for beef is up 20% since the start of this crisis... Although, the price of beef futures is dropping a bit.
[2] Edit: I'm aware that agriculture employs a small number of people (1.5-2% of the population, but so does oil extraction - only 0.3% of the population directly works in the tar sands - everyone else supports them.) Like any other industry, it has a large supporting industry of suppliers, truckers, etc. It's not nearly as lucrative as oil, but it's a living.
Agriculture employs about 1.5% of the population of Canada according to the world bank. It's heavily automated and while crucial, it will never be able to employ a large fraction of the population. You can't wind the clock back to the 1900s without undoing all the gains made in the last century.
Alberta needs to look to Norway and Dubai for how you diversify away from oil in earnest.
Alberta needs to look to Norway and Dubai for how you diversify away from oil in earnest.
I don't know about Dubai but here in Norway we really are not making as much effort to diversify from oil as we should. A lot of companies are still heavily, in many cases totally, dependent on the oil business.
Norway does have one advantage over some other producer countries though in that a lot of the oil business here is on the service side and has customers all over the world so it is less dependent on Norway's own oil producers.
Of course this comes with its own risks, oil demand, currency fluctuations, embargoes, etc.
Another difference is that Norway was already a sophisticated mixed economy before the oil came along and the state had the foresight to keep the bulk of the oil revenue out of the internal economy so that while it contributed, and still contributes, a substantial fraction of GDP it has relatively little effect on inflation in the country.
On the subject of agriculture, that is also quite different from Canada. Norway has relatively little arable land, most of the country is granite upland so farms tend to be small, at least in comparison to prairie what producers, very often family run. We can't grow much wheat because the climate is not congenial so most of the local corn production is rye and barley. The state supports farmers here partly to maintain a degree of self sufficiency in food but also to prevent depopulation of the inner and northern areas; farmers and their families create a demand for schools, mechanics, doctors, dentists, shops, etc. I doubt that any of that will translate into Canadian conditions. And the current right wing government has been reducing the degree of self sufficiency in recent years.
Norway does have one advantage over some other producer countries though in that a lot of the oil business here is on the service side and has customers all over the world so it is less dependent on Norway's own oil producers.
Of course this comes with its own risks, oil demand, currency fluctuations, embargoes, etc.
Another difference is that Norway was already a sophisticated mixed economy before the oil came along and the state had the foresight to keep the bulk of the oil revenue out of the internal economy so that while it contributed, and still contributes, a substantial fraction of GDP it has relatively little effect on inflation in the country.
On the subject of agriculture, that is also quite different from Canada. Norway has relatively little arable land, most of the country is granite upland so farms tend to be small, at least in comparison to prairie what producers, very often family run. We can't grow much wheat because the climate is not congenial so most of the local corn production is rye and barley. The state supports farmers here partly to maintain a degree of self sufficiency in food but also to prevent depopulation of the inner and northern areas; farmers and their families create a demand for schools, mechanics, doctors, dentists, shops, etc. I doubt that any of that will translate into Canadian conditions. And the current right wing government has been reducing the degree of self sufficiency in recent years.
While it's not realistic, I guarantee that if you initiated the homestead act again in the US, people would do it. Free land and basically full autonomy? I'm 100% certain there is a sizeable chunk of those types in the US and Canada that would make that trade. The reason the homestead act died was cause businesses lobbied the government to get rid of it so as not to give lower income types a choice. They had to work in their factories to survive.
Most of the land you could do that with is agriculturally unproductive. Which is why it's federal land to begin with. Some of it is natural parks, and I don't want to see that turned to agriculture. I really don't think it's that simple at all.
> While much of this price collapse has been driven by OPEC, the COVID-depressed gasoline demand is here to stay for at least a few months.
This is why OPEC is doing this. They're trying to put American and Canadian firms out of business. They saw the COVID opportunity, and they seized it.
This is why OPEC is doing this. They're trying to put American and Canadian firms out of business. They saw the COVID opportunity, and they seized it.
It was actually motivated by competition from Russia.
Temporary until Saudi Arabia folds.
Even if you think the Kingdom of Saud will explode tomorrow, whatever despot/warlord/theocracy/hippy commune that will arise to replace it will keep pumping that oil out of the sand.
Waiting for Saudi oil to go away is magical thinking.
Waiting for Saudi oil to go away is magical thinking.
Don't say that too loud. Trump might get ideas that'll make the 8 years under Bush jr look like a playground spat.
This is wishful thinking
Well thinking that oil will go back up might be but Saudi did this this exact same thing before.
Careful now, calling it "tar sands" instead of "oil sands" is a big no-no in Canada. They don't want the world to know just how dirty it really is.
What we should be doing is any time OPEC does this kind of price war, we expand the Strategic Petroleum Reserve. "Keep it in the ground" while also building an increasingly secure rainy day energy stockpile.
To be blunt, the SPR is superfluous now. It made sense when we were largely dependent on imported oil as we would have a buffer during a supply disruption. Now that the US is producing so much oil, and seemingly has almost unlimited amounts sitting in shale plays across the country, the SPR is much less useful.
It appears that purchasing oil right now for the SPR was portrayed as a "bailout for big oil" so it was left out of the recent legislation.
The defense department has plenty of money. Maybe they should reallocate some of that budget to purchasing oil for storage. Having plenty of oil is definitely part of national defense.
In fairness, now that I check Wikipedia, it appears that the SPR is 80% full, and furthermore the average price paid was about $28/barrel.
Right now WTI is $25ish and Brent is almost $28, so adding more to it probably isn't particularly vital at this moment, either in terms of increasing energy independence or in taking advantage of cheap prices.
Right now WTI is $25ish and Brent is almost $28, so adding more to it probably isn't particularly vital at this moment, either in terms of increasing energy independence or in taking advantage of cheap prices.
What's the volume being traded at that price? I'll bid -$10 to buy your house, doesn't mean that's what your house is worth.
You might want to avoid paying hefty municipal taxes or another impending viability, at which point paying less than taxes might sound like a cheaper alternative to get rid of the house.
Same with these oil producers. There might be too much crude sitting on trucks going to an already-full storage facility, and they need to clear space in order to empty trucks, even if production upstream has already shut down.
Same with these oil producers. There might be too much crude sitting on trucks going to an already-full storage facility, and they need to clear space in order to empty trucks, even if production upstream has already shut down.
If someone accepts your -$10 bid the house will totally be worth that by definition. Remember the $1 houses from Detroit a decade ago. They weren't even worth $1 due to the tax liability that came with them, and they didn't sell for that reason.
My grandfather bought a $1,000 house years ago, not in the Detroit area, but a similarly blighted area.
Immediately after purchasing it, the city started fining and hounding him to get it cleaned up and up to code.
He went in to court at one point and asked the judge why he was getting all these notices when it was already the nicest house on the block.
The judge's answer was something to the effect of "oh, well they can't afford to fix it up."
Immediately after purchasing it, the city started fining and hounding him to get it cleaned up and up to code.
He went in to court at one point and asked the judge why he was getting all these notices when it was already the nicest house on the block.
The judge's answer was something to the effect of "oh, well they can't afford to fix it up."
Price is not equal to value. Occasionally prices get silly for irrational reasons.
Exactly- did anybody accept the negative bid? The article only mentions the bid itself, which makes me think not.
It's funny that we're technically cheering on a cartel (OPEC) to artificially raise prices for a commodity that the world depends on.
Ok maybe not so funny, but it's a conversation worth having, isn't it? Doesn't it imply something severe about free market innefficiencies?
Ok maybe not so funny, but it's a conversation worth having, isn't it? Doesn't it imply something severe about free market innefficiencies?
On of the classic ways that oligopoly and monopoly power can be abused is by engaging in temporary price wars to drive any smaller competitors so that prices can later be jacked up and monopoly profits reeled in.
That's what's happening here.
That's what's happening here.
If we ignore the regressive effects of (eventual) high energy prices (which are significant! a LOT of people are helped by low gas prices. Popular protest understandably occur when governments eliminate deep fuel subsidies)...
...then the long-term monopoly rents being much higher in terms of total revenue is actually good for the environment and maybe good for humanity in absence of something more rational like a carbon tax.
It can act like a Carbon Tax, but with the revenue going to Saudi Arabia or Russia (etc). In other words, non-ideal... But does maybe help electric cars in the very long-term (ignoring the near-term damage to existing electric car makers, and assuming we wouldn't be instituting a carbon tax anyway).
Much better would be a local carbon tax with revenues redistributed to counteract any regressive impact while also funding transition to alternatives.
...then the long-term monopoly rents being much higher in terms of total revenue is actually good for the environment and maybe good for humanity in absence of something more rational like a carbon tax.
It can act like a Carbon Tax, but with the revenue going to Saudi Arabia or Russia (etc). In other words, non-ideal... But does maybe help electric cars in the very long-term (ignoring the near-term damage to existing electric car makers, and assuming we wouldn't be instituting a carbon tax anyway).
Much better would be a local carbon tax with revenues redistributed to counteract any regressive impact while also funding transition to alternatives.
Oh no, I don't think so in this case. Putin and SA are the primary belligerents, in which case they may have other geopolitical motivations for playing this game.
Let the peak oil hysteria from the 80s and 90s be a reminder to everyone here how fallible common beliefs are among the population.
Peak oil theory is sound economics. We now have sufficient proven and suspected reserves that we expect that demand will tail off before supply does, so we expect that we won't have a supply crunch. But it could have possibly gone that way if the Earth had fewer extractable reserves or if humans had been less innovative in finding new methods of extraction. It really just comes down to whether demand or supply tails off first.
> we expect that demand will tail off before supply does
While I agree with your "sound economics" conclusion, I think that tapering demand was not part of the "peak oil" modeling.
The underlying assumptions involve no particular shift to the oil demand curve, whereas with improvements to other energy technologies (renewable energy, but also natural gas) we find that oil demanded per unit output at a fixed oil price appears to decrease with time. (The covid-related demand shock is of course not helping to bolster this curve.)
While I agree with your "sound economics" conclusion, I think that tapering demand was not part of the "peak oil" modeling.
The underlying assumptions involve no particular shift to the oil demand curve, whereas with improvements to other energy technologies (renewable energy, but also natural gas) we find that oil demanded per unit output at a fixed oil price appears to decrease with time. (The covid-related demand shock is of course not helping to bolster this curve.)
> Peak oil theory is sound economics.
Why is oil special? Why not peak iron, aluminum, concrete, NaCl, or any or the myriad other things we consume? All of them are in finite quantities, not only oil. Earth has a finite mass after all.
Why is oil special? Why not peak iron, aluminum, concrete, NaCl, or any or the myriad other things we consume? All of them are in finite quantities, not only oil. Earth has a finite mass after all.
Iron, aluminum, and salt are extremely common and very much renewable. Concrete is looking like it might be sand limited, and of limited renewability; there's already concern over our long-term ability to make concrete. Oil, on the other hand, we literally burn & convert into C02, and other fun stuff. Once we use it, it's pretty much gone.
We can make sand (and do so) by crushing rock. So concrete is renewable too in that sense, or at least not sand limited, but the cost would likely go up.
> Once we use it, it's pretty much gone.
Oil is as renewable as any other renewable resource. It's made from plants.
We're only at risk of running out of cheap crude mined from the earth with a positive net energy return at a low price. We aren't ever at risk of not being able to have oil.
It's an open question whether our access to cheap fossil fuel will outlast our demand for it.
Oil is as renewable as any other renewable resource. It's made from plants.
We're only at risk of running out of cheap crude mined from the earth with a positive net energy return at a low price. We aren't ever at risk of not being able to have oil.
It's an open question whether our access to cheap fossil fuel will outlast our demand for it.
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Yes, the problem is the energy that could be used to produce oil would be much more efficiently used by applying it directly to what the oil was going to be used for.
Not always. Oil has many uses outside of energy production.
It's also important to distinguish between energy production and energy transfer. Petrol products are very useful for energy transfer even if they aren't energy producing.
Batteries and fuel cells are other examples of useful net-negative energy transfer systems.
It's also important to distinguish between energy production and energy transfer. Petrol products are very useful for energy transfer even if they aren't energy producing.
Batteries and fuel cells are other examples of useful net-negative energy transfer systems.
> We're only at risk of running out of cheap crude mined from the earth with a positive net energy return at a low price. We aren't ever at risk of not being able to have oil.
A: Our business is running out of money we can no longer get any loans at any interest rate.
B: False. You're not running out of money or access to loans. You can still get loans as long as you're willing to put down more collateral in cash upfront than the amount you're borrowing.
I think see why you used a throwaway for this insight.
A: Our business is running out of money we can no longer get any loans at any interest rate.
B: False. You're not running out of money or access to loans. You can still get loans as long as you're willing to put down more collateral in cash upfront than the amount you're borrowing.
I think see why you used a throwaway for this insight.
You're mistakenly assuming that our only use for oil is energy production.
Oil has many uses besides as an energy source. Even in transportation, oil is still useful as an energy transfer system even if it isn't an energy source.
Net-loss energy systems are very useful. Fuel cells and batteries fall into this category. The latter has already begun to function as a replacement good for oil in the automotive industry.
Oil has many uses besides as an energy source. Even in transportation, oil is still useful as an energy transfer system even if it isn't an energy source.
Net-loss energy systems are very useful. Fuel cells and batteries fall into this category. The latter has already begun to function as a replacement good for oil in the automotive industry.
While yes we can use oil for other purposes, the vast majority of use of oil is for net positive energy use. If oil were net negative the majority of it's demand would disappear.
Well sure, because it's cheap and available! The point here is that when price points change replacement good emerge causing us to never actually run out of the good in question.
This process of substitution is a cornerstone of cornucopian theory, as described by the famous Simon-Ehrlich wager.
It's not clear demand would evaporate, by the way. Right now we produce oil at a variety of price points - from cheap light crude at a few dollars per bbl to shale oil at ranges from $30-90/bbl. Most folks expect electric cars to undercut oil at higher price points. It's certainly possible we might some day develop technology to obsolete even oil at light crude extraction prices. But it's also possible that we would opt to produce petrol products in a net-negative energy process because petrol is just so damned convenient for energy transportation.
In a sense we already have, as Fischer-Tropsch can produce at around $40/bbl. We see it used today in special cases such as on aircraft carriers to work around logistical complexity. Producing jet fuel from seawater is very handy, if costly in terms of energy consumption.
Oil and oil products are very much renewable. The price points relative to substitution tech will change over time and some day we likely will decide that oil just isn't attractive anymore. Above, I suggested this might happen before we run out of light sweet crude (mostly from Saudi).
I think this is a very reasonable thing to wonder.
This process of substitution is a cornerstone of cornucopian theory, as described by the famous Simon-Ehrlich wager.
It's not clear demand would evaporate, by the way. Right now we produce oil at a variety of price points - from cheap light crude at a few dollars per bbl to shale oil at ranges from $30-90/bbl. Most folks expect electric cars to undercut oil at higher price points. It's certainly possible we might some day develop technology to obsolete even oil at light crude extraction prices. But it's also possible that we would opt to produce petrol products in a net-negative energy process because petrol is just so damned convenient for energy transportation.
In a sense we already have, as Fischer-Tropsch can produce at around $40/bbl. We see it used today in special cases such as on aircraft carriers to work around logistical complexity. Producing jet fuel from seawater is very handy, if costly in terms of energy consumption.
Oil and oil products are very much renewable. The price points relative to substitution tech will change over time and some day we likely will decide that oil just isn't attractive anymore. Above, I suggested this might happen before we run out of light sweet crude (mostly from Saudi).
I think this is a very reasonable thing to wonder.
Those plants require petroleum-based fertilizers to produce at industrial scale.
No, they do not.
We use fossil fuels in fertilizer production because it is cheap. It is not the only alternative, nor are fertilizers required to operate at scale in the first place. Fertilizer increases yield but has nothing to do with our ability to scale an operation.
We use fossil fuels in fertilizer production because it is cheap. It is not the only alternative, nor are fertilizers required to operate at scale in the first place. Fertilizer increases yield but has nothing to do with our ability to scale an operation.
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Because after we use iron, aluminum, and NaCl, they are still iron, aluminum, and NaCl. our using them doesn't prevent future generations from using them.
Peak concrete is also sound economics, it just gets less air time because there are more alternatives and fewer affected industries.
Peak concrete is also sound economics, it just gets less air time because there are more alternatives and fewer affected industries.
You can't re-use oil products that have been combusted.
Go to the wikipedia page for any of the elements. Look up what percentage of the earth's crust is that element. Multiply by 2.77x10^22 kg.
Haha, ISTR something on HN within the last year about "peak sand"[0]. All physical substances are vulnerable to this silliness: we're nowhere near "peak peak".
[0] https://news.ycombinator.com/item?id=20363875
[0] https://news.ycombinator.com/item?id=20363875
No. There is enough oil on the planet for another 500 years. There is no shortage.
>There is enough oil on the planet for another 500 years
Math please?
And remember when people talk about peak oil, they mean oil that is cheap enough to be of economic use.
Math please?
And remember when people talk about peak oil, they mean oil that is cheap enough to be of economic use.
Okay, well it would still be nice if we could tell ahead of time which pronouncements of "sound economics" are valid and which are total bunk. Even at the time that Peakists and oil investors (were these really different groups?) were most noisome, lots of more sober people could see the bunk.
It's basic supply and demand, which is microencomics, formally known as the non-bunk part of economics. Macroeconomics is where the bunk lives, so it's quite easy to tell - only slightly joking.
I don't think anyone on either side really knew with oil how things would go. Hindsight is 20-20, and one of the two camps was going to win with 100% certainty. It's not fully decided yet mind you, peak oil could still happen if people keep increasing demand for it instead of weaning away from fossil fuels. But I don't think that scenario is likely at all.
I don't think anyone on either side really knew with oil how things would go. Hindsight is 20-20, and one of the two camps was going to win with 100% certainty. It's not fully decided yet mind you, peak oil could still happen if people keep increasing demand for it instead of weaning away from fossil fuels. But I don't think that scenario is likely at all.
I don't recall any of the original Peakist manifestos including your very reasonable caveats about hindsight and uncertainty?
Really though, this is why I sort of stopped worrying about peak oil about a day after I was first exposed to the idea. It was a very absolutist disastrous sea-change phase-transition sort of scenario, and those are relatively rare in real life. (Well, at some level they are very common: everyone is conceived at some time and dies at another. These details disappear in aggregate.) It's much more common for equilibria that have been stable over decades to continue that stability, even if at slightly different locations. Lots of things are more expensive in our modern times than they used to be; somehow society has survived.
Really though, this is why I sort of stopped worrying about peak oil about a day after I was first exposed to the idea. It was a very absolutist disastrous sea-change phase-transition sort of scenario, and those are relatively rare in real life. (Well, at some level they are very common: everyone is conceived at some time and dies at another. These details disappear in aggregate.) It's much more common for equilibria that have been stable over decades to continue that stability, even if at slightly different locations. Lots of things are more expensive in our modern times than they used to be; somehow society has survived.
It became a moot argument due to the rise of renewable energy and concern about global climate change. I really doubt that is going to change for many decades.
This statement of yours shows a deep misunderstanding of the relationship between price and availability as it pertains to oil: less availability only implies higher price in a very local way and for very short time spans.
Oil is too vital to the global economy, it's not competing against any other energy source at its scale and mode of usage, and it's availability conditions enough of all economic activity, that availability conditions affordability for all economic actors.
There is therefore no correlation between availability (production volumes) and prices for oil.
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Article is stuck behind paywall for me
Works for me in Firefox reader mode.
Always worth a shot, although some sites actually will go to the extent of not loading the full content past a leader paragraph unless you log in. Which I can at least respect, then I move on, but if you serve me the content then don't expect me to not read it even if it requires altering javascript or removing ads.
Always worth a shot, although some sites actually will go to the extent of not loading the full content past a leader paragraph unless you log in. Which I can at least respect, then I move on, but if you serve me the content then don't expect me to not read it even if it requires altering javascript or removing ads.
just ban bloomberg.com cookies in site settings
good suggestion, but the result is that they just think it is 'Private Mode' and ban reading past top section on that basis
I've been able to read bloomberg articles in private mode windows in Safari.
nope, i've been reading bloomberg for years and never had a problem. just ban all *.bloomberg.com cookies, and not the other domains
try adding a period after the .com
Thanks! Why does this work?
I believe this messes up the redirect to the paywall but is still a valid URL for the browser
So if you want to read it, perhaps it's time to consider paying?
(Alternatively, private browsing mode might work.)
(Alternatively, private browsing mode might work.)
Paying providers directly either means micropayments or committing to reading enough of that specific news source to get a non-micropayment-sized amount of value from it. No one has really cracked micropayments in a way that has caught on, yet, and the model of depending on a single source for a majority of news has gone the way of print newspapers.
Bloomberg, NYT, WashPo, the Economist, and other such places need to figure out how to provide value commensurate with the money they charge, or else figure out how to exist in a world where one of "their" readers still visits dozens or hundreds of other such outlets a month.
> Try 3 months for -$105- $6. Cancel anytime.
The 105 is just a joke, and even $2 a month is very high, considering there'd be similar payments to 20+ other such outlets.
Bloomberg, NYT, WashPo, the Economist, and other such places need to figure out how to provide value commensurate with the money they charge, or else figure out how to exist in a world where one of "their" readers still visits dozens or hundreds of other such outlets a month.
> Try 3 months for -$105- $6. Cancel anytime.
The 105 is just a joke, and even $2 a month is very high, considering there'd be similar payments to 20+ other such outlets.
exactly. The subscription model only makes sense for loyal readers- which I am not.
More to the point, it's better to post links that are viewable by the full audience, where possible.
I'd actually be happy to pay substantially for a sufficiently broad spectrum of news from multiple providers
However, $100-$500 to each one that I want to read >5 articles per month is not sustainable.
We need one of two models:
Pay maybe $0.20/article, refundable if I don't finish, don't like it (obviously limiting the number of Refund hits/month to prevent abuse)
Pay once for a selection of feeds, say $100/quarter, and pick your favorite 5 out of 50, get unlimited reads from that batch and 10/month from the rest.
I'd happily sign up for either, but no one publication provides sufficient breadth to support at the demanded price level.
However, $100-$500 to each one that I want to read >5 articles per month is not sustainable.
We need one of two models:
Pay maybe $0.20/article, refundable if I don't finish, don't like it (obviously limiting the number of Refund hits/month to prevent abuse)
Pay once for a selection of feeds, say $100/quarter, and pick your favorite 5 out of 50, get unlimited reads from that batch and 10/month from the rest.
I'd happily sign up for either, but no one publication provides sufficient breadth to support at the demanded price level.
Isn't this the Apple News model?
Seems so, tho coverage wasn't great when I first looked - worth another look now, do they have Bloomberg, WaPo, FTimes, & other top tiers yet?
The US has an oil industry that is completely unreasonable. The whole idea of US oil production is that the price needs to be high enough to support the costs of shale extraction. But their own existence forces the prices down by oversupply. It is an economic time bomb.
This logic worked at least for a while, because traditionally the established oil giant countries (Russia, Saudi Arabia, Venezuela, etc.) used their oil to prop up massive social spending, and they needed some minimum oil price to balance their budgets.
Saudi Arabia is looking at deficits that are a double-digit percentage of GDP. Russia's budget outlook is not looking hot either. We'll see how long they play chicken with their financial reserves, because those could disappear faster than they think.
Saudi Arabia is looking at deficits that are a double-digit percentage of GDP. Russia's budget outlook is not looking hot either. We'll see how long they play chicken with their financial reserves, because those could disappear faster than they think.
They have built their reserves in Gold and other currencies, that's why they don't care too much about USD reserves. Interestingly, the concerted US effort to sanction the Russian economy has made it possible for them to reduce the USD dependencies.
Even gold can disappear quickly if a run starts on your currency.
Gold is very volatile though. Treasuries at least pay interest.
Their financial reserves will disappear way faster if they keep it in dollars. Maybe not so much when they switch to gold. We'll see.
Its insurance against OPEC raising prices. Without the shale oil industry, OPEC will just raise prices. With the shale oil industry, OPEC lowers prices to try to wring them out of business.
Gotta think big picture and geo-political issues. In isolation, its a negative (especially with such low prices right now). But in the great scheme of oil-independence from OPEC / other oil producing companies, there's a benefit.
Gotta think big picture and geo-political issues. In isolation, its a negative (especially with such low prices right now). But in the great scheme of oil-independence from OPEC / other oil producing companies, there's a benefit.
Hopefully in 5 years EVs will become the insurance against OPEC and the BP forecasts of yesteryears will never materialize
OPEC countries also pump themselves dry sooner while the patient sit on their expensive reserves.
There is no benefit when prices crash and the US has to bail out these companies. It would be much smarter to reduce dependence on oil with investments in clean energy, instead of making the economy dependent on that same polluting industry.
> There is no benefit when prices crash
Prices are crashing because OPEC wants to harm the shale oil industry.
Look, we can either make oil or rely upon foreign oil. Those are the two choices (or some combination of the two).
The more oil the US makes, the more we are harmed by low prices. The less oil the US makes, the more we are harmed by high prices. Obviously balance is the key, but notice that opponent (OPEC) is intelligent and has a large degree of choice in the matter. Whatever the US does, OPEC will adapt and push our weak point.
And yes, I recognize that moving off of oil entirely is a 3rd, independent solution. But that can be done independently of our production of oil. For now, we're a grossly oil-consuming nation, so we have to make due with the present reality of our country.
Prices are crashing because OPEC wants to harm the shale oil industry.
Look, we can either make oil or rely upon foreign oil. Those are the two choices (or some combination of the two).
The more oil the US makes, the more we are harmed by low prices. The less oil the US makes, the more we are harmed by high prices. Obviously balance is the key, but notice that opponent (OPEC) is intelligent and has a large degree of choice in the matter. Whatever the US does, OPEC will adapt and push our weak point.
And yes, I recognize that moving off of oil entirely is a 3rd, independent solution. But that can be done independently of our production of oil. For now, we're a grossly oil-consuming nation, so we have to make due with the present reality of our country.
> But that can be done independently of our production of oil.
If you are an oil producer, and a large part of your economy depends on oil production, there is little incentive for cuts on oil usage. This is exactly the pattern we see in the modern US economy.
If you are an oil producer, and a large part of your economy depends on oil production, there is little incentive for cuts on oil usage. This is exactly the pattern we see in the modern US economy.
The existence of the US oil industry is not unreasonable. The US needs their own oil supply for military security - without domestic production the US would be subject to Russian and OPEC extortion (which the Russians and OPEC are pointing out at the moment).
Does the US government subsidize them at all? I wish we would pivot faster to renewable energy, but in the meantime we should also ensure we are not reliant only on authoritarian states for energy.
Yes, oil industry in the US is heavily subsidized. They pay less taxes than any other industry and receive free land and other government incentives for oil and gas exploration.
This is something "everybody knows", that it is "heavily subsidized" but I'm not aware of what rules and regulations are written to favor and apply only to the industry. Maybe you could summarize a bit?
The easiest to spot is the favorable tax treatment. The oil industry has a sweet deal that slashes taxes on oil investment. The provisions are complex and written to facilitate big investments in this industry [1].
1: https://www.energyfunders.com/blog/oil-investing-benefits/
1: https://www.energyfunders.com/blog/oil-investing-benefits/
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This is not oil for energy; reading too much into this is like seeing the price for firewood skyrocket and expecting people to freeze to death this winter.