By on April 20, 2020

While OPEC member states and other oil-producing counties have signed a pact to stem the flow of crude by 10 million barrels a day and hopefully rein in the current price-crashing glut, the situation remains bleak for oil producers around the world. On Monday, May futures for West Texas Intermediate (WTI) dropped to the floor, with prices hitting $5 per barrel.

That number shifted into the negative* as the above paragraph was being written. We’re guessing that’s because the end of the May contract forces physical receipts at a time when storage capacities are basically nonexistent. June WTI prices are still riding just below $23 per barrel.

Meanwhile, Brent Crude is hovering around $26 bbl as the OPEC Basket hangs onto $17.73 bbl on a 4-day delay. The assumption is that both will come down, though perhaps not as dramatically as WTI did. 

(*WTI crude futures hit negative 40 dollars a barrel by publication time – Ed.)

It’s no secret that the global coronavirus pandemic has sent oil futures reeling backwards. Extended government-imposed shutdowns have stifled industrial and shipping operations while doing the same for personal transportation. This obliterated the planet’s need for oil. Oversupplied to a point where the industry wasn’t even sure it would even have a place to store all the black gold, futures began suffering and OPEC did the unthinkable by agreeing to curtail production. Bloomberg framed the situation at the start of the week, just as WTI prices started boring their way toward the center of the earth:

On Monday, a technical oddity exacerbated the price plunge as traders fled the May futures contract ahead of its expiration tomorrow, driving it down as much as 78 [percent] to the lowest level since futures began trading in New York in 1983. The following month’s contract fell 11 [percent] to $22.22 a barrel. CME group said it’s possible that May WTI contract could trade negative.

“There is little to prevent the physical market from the further acute downside path over the near term,” said Michael Tran, managing director of global energy strategy at RBC Capital Markets. “Refiners are rejecting barrels at a historic pace and with U.S. storage levels sprinting to the brim, market forces will inflict further pain until either we hit rock bottom, or COVID clears, whichever comes first, but it looks like the former.”

We’re now reaching a point where some oil producers may actually be forced to pay to offload product. Some corners of the U.S. market had already begun doing so on a limited basis prior to Monday. Production cutbacks have continued to offset this globally, but most analysts are shrugging today, assuming the drop in WTI futures will probably be echoed by similarly sharp declines in Brent and OPEC Basket later this month.

“The background psychology right now is just massively bearish,” Michael Lynch, president of Strategic Energy & Economic Research Inc said in a interview. “People are concerned that we are going to see so much build up of inventory that it’s going to be very difficult to fix in the near term and there is going to be a lot distressed cargoes on the market. People are trying to get rid of the oil and there are no buyers.”

[Image: Maksim Safaniuk/Shutterstock]

 

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53 Comments on “Your Opinion Is Now Worth More Than a Barrel of Oil...”


  • avatar

    Well that cut in productions (less then a week ago I think) didn’t really do much. Having a price was right before a recession may have longer lasting effects then they hoped.

    • 0 avatar
      Lorenzo

      Regardless of how low crude oil prices go, our opinions will always be worth less. I have it on good authority that nobody’s opinion is worth more than two cents!

  • avatar
    volvo

    The negative prices are for future contracts in May. The actual price of a barrel of oil is not negative at this time but probably somewhere at $10-20.

    Also it is my understanding that a small part of the initially proposed $2T stimulus package was earmarked to buy crude to top off the national petroleum emergency reserve but that funding was removed from the bill by congress before it was sent to the president.

    Maybe this can be reconsidered and some of the excess needing storage can now be purchased at current low prices and held by the federal government in reserve.

    • 0 avatar
      forward_look

      I don’t think Congress understands “buy low, sell high”.

      • 0 avatar
        Lie2me

        Congress is not a business, it’s a government… or something like that

        I paid .99 a gal yesterday, ohboy

        • 0 avatar
          Art Vandelay

          So if Congress isn’t going to fill it up now, then when. Yes, a business would do it now, because it is cheap. Congress will wait for 100 a barrel I suppose. You care less when it is someone else’s money I suppose.

          But hey, got that Kennedy Center funding though!

    • 0 avatar
      Lorenzo

      Oil producers hedge their bets extensively, with most hedging the majority of future production quite a few months in advance at $35-$45 per barrel. It will take an extended depression in price before it gets critical for most producers.

      The Permian Basin is in the best shape, with cost of production running $6-$7 per barrel at the wellhead. Other, larger costs are not included, but they can hold out about as long as the Saudi’s, who have a simliar wellhead cost. At the current price, demand will come roaring back, once people return to work around the globe.

      • 0 avatar

        I’m not sure roaring back is the right term. You will have a number of business that will never recover from this or come back much smaller. I think even best case you won’t see demand back up to February levels until the end of the year but I’m guessing longer.

        I would think this would put a crunch on offshore oil and the oil sands in Canada, as I recall their cost is fairly high, something like anything below 30/barrel is a loss.

        • 0 avatar
          Arthur Dailey

          True that oil/tar sands petroleum is quite expensive to extract.

          The current PM’s father provided a solution to this. To create a program (the NEP) that would ensure that all extrusion, refining, delivery and retail would be undertaken by one organization, controlled by the federal government, named PetroCanada.

          Alberta would then be guaranteed a specific amount of sales at a set price (ensuring a profit). Similar to the Dairy Board and others.

          Free trade Albertans lobbied hard against this. Stating that it was unfair to sell ‘their oil’ to the rest of Canada for prices less than they could get on the international spot market. The phrase was ‘let those eastern bast*rds freeze in the dark’.

          Well that attitude has left them exposed to the vagaries of the market and repeated booms and busts. And each time there is a bust they then ask for bailouts from the federal government.

          • 0 avatar
            Tele Vision

            @ Arthur Daily

            I live in Alberta and have done for most of my life. Look up ‘Transfer Payments’, you Ontarioist. To quote Ralph Klein, “Eastern bums and creeps!”, indeed. The current Child-In-Charge is a disaster. Thanks for voting for him. You helped wreck the country. Good work.

          • 0 avatar
            thelaine

            Tele Vision,

            Socialists only care about power. Everything else can be rationalized away, including and especially your Individual liberty./autonomy/freedom/prosperity/self-determination. Everything within the state, nothing outside the state. That is the goal. It is the dirty little fantasy of every insecure petty tyrant with an inferiority complex and a burning desire to rule over others.

            Canada is most secure when the current PM is overseas playing dress-up.

          • 0 avatar
            -Nate

            “I paid .99 a gal yesterday, ohboy”

            How I envy you .

            -Nate

  • avatar
    SCE to AUX

    Great – this makes my EV even cheaper to run… if I needed to actually drive it.

  • avatar
    Master Baiter

    TTAC posts are also now worth more than a barrel of oil for May delivery.

  • avatar
    cprescott

    Buy oil low and sell the witch Pelosi for a premium to some arab as a pseudo camel.

  • avatar
    sirwired

    And here’s what happens if you have a futures contract for some bulk good (like oil), and fail to successfully sell it to somebody who wants it:

    https://thedailywtf.com/articles/Special-Delivery

    • 0 avatar
      ToolGuy

      I heard a story about a Kodak executive who had his fingers in a lot of investment pies (his personal account) – forgot to clear a futures trade for some commodity and got a phone call requesting “which siding” the train cars should be left on (for physical delivery).

  • avatar
    JMII

    The word unprecedented is about the only way to sum up this whole situation. I haven’t put gas in my daily driver in 2 months!

    • 0 avatar
      ajla

      March 13 was last time I went somewhere that wasn’t a grocery store, deli, or pizza place. I’m on pace for about 40 miles total between March 13 and May 1.

      It seems unlikely I’m going to break 5,000 miles this year.

      • 0 avatar
        JimC2

        I try to exercise each car often enough that it doesn’t sit for more than a couple weeks- even if that’s to just start it up and drive it for five minutes (with the air conditioner blasting).

      • 0 avatar
        sgeffe

        Today was a month since I went into the office physically.; been working from home since, and getting more done without the distractions! Also a month since I last gassed-up. 82 miles on the car, at least half of which was an Easter Sunday freeway trip of 30 miles just to give the car a run.

        Other than that, trips to get dinner, couple trips to the drugstore, and one car wash.

        Interesting times!

    • 0 avatar
      dal20402

      About two grocery store runs per week, usually in the Highlander. It’s covered about 100 miles since March 13. The Bolt? Five miles.

  • avatar
    justVUEit

    I’m still waiting for my local price of gas to come down, as well as the price of propane. Heck, if I still had oil heat I’d probably lay in next winter’s supply at the depressed prices. My local gas station is still over $2/gallon and a 20 lb. cylinder of propane is still north of $20. I might not be able to drive anywhere, but I sure can do a lot of grilling with cheap propane.

  • avatar
    JimC2

    Glad we have some experts on here (I mean people who legitimately understand this; I’m not being sarcastic in the least here).

    If you “buy” a barrel of oil today and you have somewhere to physically put it when May 15th rolls around, then the present owner of that oil will literally pay you a few bucks to agree to take it off their hands because they don’t have anywhere to put it either… and it’s looking like there is going to be a shortage of storage capacity in the very near future.

    I wonder if anyone is going to try burning it. Not like when you see the little flare of the light fractions getting burned off (because it’s uneconomical to do anything else), not like old Saddam did in 1991, but sort of a combination of the two. I mean it’s almost like an industry doomsday if they have to shutdown production on a global scale only to later start it all back up again. You can’t just dump it either. The only place you can put it back in the ground is in each country’s strategic petroleum reserve, but the system for doing that is only a small part of normal worldwide production.

    I already tried to do my part- my cars’ tanks are full and I have 10 gallons in my jerry cans in my garage. I don’t really have a need for any other kinds of oil though.

    2020 is getting weirder and weirder almost by the hour.

    • 0 avatar
      Lou_BC

      I’ve been driving more than normal due to the lower price of fuel but now that I have my motorcycle on the road, my consumption will drop off.

    • 0 avatar
      Lie2me

      Can’t they give it away to Oil-fired power plants? At least it won’t go to waste

      • 0 avatar
        sirwired

        Due to the fact that oil is usually a pretty expensive way of generating electricity (vs. the other means avail. in the US), there’s really not that much oil-burning capacity available. And it being the spring doesn’t help; neither much A/C nor heat is needed at the moment, and there’s a lot of idled industrial and commercial usage right now to boot.

  • avatar
    ToolGuy

    Now is a good time to reflect on the incredible energy density of fossil fuels. There is some huge number of man-hours of potential work in a barrel of oil vs. doing things the old way.

  • avatar
    Arthur Dailey

    We have 4 vehicles in our household and have not purchased any gas since the 3rd week of March.

  • avatar
    ScarecrowRepair

    All products have momentum — people buy for delivery later. Because oil delivery involves huge ships bopping slowly around the world, there’s a lot of momentum.

    Then there’s that Saudi-Russia price war, with the Saudis buying up space on a lot of tankers to just sit still in harbors until the price comes back up.

    So those people with excess oil literally have no place to store it.

  • avatar
    Lorenzo

    The April 15 US crude oil inventory supply jumped to 19.25 million barrels, up over 4 million barrels from the previous week’s 15.18 million barrels. The next report is due Wednesday, April 22. The optimistic forecast is for 16.13 million barrels, a draw-down of existing stock. There’s still 11 M barrels of capacity.

  • avatar
    Hummer

    Fuel taxes have never been more visible in the cost of gas, it’s time to lower them across the country. We are paying more in taxes than we are for the fuel we are purchasing.

    • 0 avatar
      JimZ

      sure, as long as you pick up some tools and get to work on those roads you still don’t feel you have to pay for.

      f***, we already cut income taxes significantly, and just passed a huge spending bill.

      funny how people like you complain about “entitlements” but don’t hesitate to demand stuff you think is important without considering how to pay for it.

      “We are paying more in taxes than we are for the fuel we are purchasing.”

      so what? taxes have always been levied per gallon. Suck it up, princess.

      • 0 avatar
        Hummer

        I have no idea what your whining about, the vast majority of the time our roads get repaved before it’s needed. We waste so much building new roads that aren’t needed and replacing roads already in good shape. It’s quite clear that they have more money than they need in my state, or that they are not spending it in the right places that DO need it.

        Taxes in this country have been out of control, it is beyond ridiculous that consumers should pay more taxes for the product than the product cost to get to them.

        I only demand to be left alone without government interference, again, I have no idea what you think I am demanding.

    • 0 avatar
      sirwired

      The fuel tax goes to the cost of roads, which don’t get any cheaper just because gas prices have gone down.

      • 0 avatar
        volvo

        Actually not so much in California. Fuel tax and “transportation” bond monies go 59% to transportation infrastructure such as rail, buses, ferries, bike lanes, traffic calming, road repair, etc. The remainder used elsewhere.

        To quote one authority “It’s extremely complicated,” said Asha Agrawal, the director of the National Transportation Finance Center at San Jose’s Mineta Transportation Institute.

        You can google various analyses but one done in 2018 said

        59% – Transportation in every guise (road maintenance, mass transit, etc.)
        22% – Law enforcement
        7% – Law enforcement general fund.
        7% – Debt service.
        remainder to miscellaneous uses.
        Complicated because the legislature can divert fuel taxes to the General fund when needed.

        • 0 avatar
          Hummer

          Realistically buses, rail, and bike lanes should not be receiving any fuel tax money. Buses and Rails should be paid for by those that use such services and bike lanes should be the responsibility of local government when deemed necessary.

          It’s rather infuriating to think that people pay taxes for roads and not even half of it goes directly to road building. I can’t speak for California roads but as I said above, our roads are in very good shape.

          • 0 avatar
            forward_look

            … except the ones that fell into the ocean.

          • 0 avatar
            volvo

            Actually the roads in California are in pretty good shape but that is due to the large amount of federal money that flowed from the 2010-2017 infrastructure funding.
            So thanks to the other 49 states for our road repairs.

          • 0 avatar
            Hummer

            “ … except the ones that fell into the ocean.”

            Well they were in exceptional shape before being washed away, but I can’t help that the government can’t get it through their head to just leave them as 4×4 roads. No one has any issues driving alongside the beach, stop rebuilding the darn roads and just keep washouts filled in.
            Not that it matters since the entirety of North NC 12 south of the Oregon Inlet is essentially becoming one very long bridge…

    • 0 avatar
      Zipster

      Don’t argue with Hummer; he has a “masters in the STEM field” and he knows of what he speaks.

  • avatar
    Jeff S

    How did we get in a discussion of taxes when the article is about the falling price of crude? Seems every article someone has to bring in a discussion of politics. Agree that the Government needs to be filling the National Oil Reserves now.

  • avatar
    Zipster

    Pelosi a witch? I don’t think so, but you are obviously more comfortable with a psychopath. Psychologists say that people like you are attached to him because you share similar characteristics.

    • 0 avatar
      Art Vandelay

      Pssst….What if I told you they could both be huge A-Holes that care not one iota about you or your interests.

      • 0 avatar
        -Nate

        You’d be correct Art .

        Funny how the raise of a barrel of oil by $1 raises the gasoline price in a day but months of dropping crude prices yeild little if any retail sales prices .

        My worthless opinion is : the little guy, the one you drive by every morning wearing ten year old clothes waiting for the bus, is going to be hurt very badly by all this .

        -Nate

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