Price of oil has collapsed; how will this impact the economy?

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fredflinstone
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Price of oil has collapsed; how will this impact the economy?

Post by fredflinstone »

I know this is good news for drivers, but there undoubtedly will be some disruptions in the economy. I suspect a lot of upstream oil producers -- companies involved in exploration and production -- will go bankrupt. Diamond Offshore Drilling is one example. This is a Houston-based company that employs 2,500 full-time employees. There are many other firms in this industry. I worry that a lot of regular people -- like commercial divers -- will be laid off. If oil prices remain low for a long time, I'm pretty sure the broader economy in cities like Houston will suffer. People who are laid off from their oil-related jobs aren't going to be building new swimming pools and undertaking fancy landscaping projects.

There may also be unforeseen effects in international affairs (for example, in Saudi Arabia).

What other effects do you anticipate?
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Re: Price of oil has collapsed; how will this impact the economy?

Post by wkimdds »

Wti future at $11 now.

I assume oil related industries collapsing first
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Re: Price of oil has collapsed; how will this impact the economy?

Post by ValuationsMatter »

fredflinstone wrote: Mon Apr 20, 2020 7:15 am I know this is good news for drivers, but there undoubtedly will be some disruptions in the economy. I suspect a lot of upstream oil producers -- companies involved in exploration and production -- will go bankrupt. Diamond Offshore Drilling is one example. This is a Houston-based company that employs 2,500 full-time employees. There are many other firms in this industry. I worry that a lot of regular people -- like commercial divers -- will be laid off. If oil prices remain low for a long time, I'm pretty sure the broader economy in cities like Houston will suffer. People who are laid off from their oil-related jobs aren't going to be building new swimming pools and undertaking fancy landscaping projects.

There may also be unforeseen effects in international affairs (for example, in Saudi Arabia).

What other effects do you anticipate?
If it's extended, Russia, Iran, and the middle east countries are going to suffer. The 2nd and 3rd order effects are impossible to guess.
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Re: Price of oil has collapsed; how will this impact the economy?

Post by alpenglow »

Pretty amazing price move. I was feeling like ~$20 was a bottom but what do I know.That's why I do 3 fund and call it a day.

As far as impact, I'm sure this will be put junk bonds under pressure again, since energy is a big component there. Then again, the Fed is buying corporates to hold up the market. I know nothing, especially these days. I'll stick with the 3 fund and watch from the sidelines.
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Re: Price of oil has collapsed; how will this impact the economy?

Post by fredflinstone »

I wonder if some clean energy companies (solar, wind, geothermal, electric cars, and so forth) will be hurt by this. The lower the price of oil, the harder it is for alternative energies to compete. Tesla (TSLA) is down only 2% in pre-market trading, so maybe not that big a deal.
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Re: Price of oil has collapsed; how will this impact the economy?

Post by wkimdds »

fredflinstone wrote: Mon Apr 20, 2020 7:36 am I wonder if some clean energy companies (solar, wind, geothermal, electric cars, and so forth) will be hurt by this. The lower the price of oil, the harder it is for alternative energies to compete. Tesla (TSLA) is down only 2% in pre-market trading, so maybe not that big a deal.


TSLA price is more of frenzy imo. Other gas alternatives will suffer because oil prices are hard to beat now.
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Re: Price of oil has collapsed; how will this impact the economy?

Post by LincolnTunnel »

fredflinstone wrote: Mon Apr 20, 2020 7:36 am I wonder if some clean energy companies (solar, wind, geothermal, electric cars, and so forth) will be hurt by this. The lower the price of oil, the harder it is for alternative energies to compete. Tesla (TSLA) is down only 2% in pre-market trading, so maybe not that big a deal.
I'm no expert, but I don't think people buy Teslas because the price of gas is so high. I think it is more about feeling good about themselves for contributing less to climate change, plus cool self driving tech.

Some industries would also benefit from low oil prices, wouldn't they? I'm thinking travel industries, airlines, cruise lines. These are obviously struggling right now but perhaps this helps to give them a lifeline.
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Re: Price of oil has collapsed; how will this impact the economy?

Post by Valuethinker »

fredflinstone wrote: Mon Apr 20, 2020 7:15 am I know this is good news for drivers, but there undoubtedly will be some disruptions in the economy. I suspect a lot of upstream oil producers -- companies involved in exploration and production -- will go bankrupt. Diamond Offshore Drilling is one example. This is a Houston-based company that employs 2,500 full-time employees. There are many other firms in this industry. I worry that a lot of regular people -- like commercial divers -- will be laid off. If oil prices remain low for a long time, I'm pretty sure the broader economy in cities like Houston will suffer. People who are laid off from their oil-related jobs aren't going to be building new swimming pools and undertaking fancy landscaping projects.

There may also be unforeseen effects in international affairs (for example, in Saudi Arabia).

What other effects do you anticipate?
US economy

- concentrated bad effects around the oil industry & communities dependent upon it (Houston and many smaller centres). Knock on effects on everyone in those areas - retailers, motor vehicle lease & sale, commercial supply etc. Big slashes in payroll, hiring, investment

- diffuse benefits to everyone and every company that uses gasoline or diesel (ie just about everyone) e.g. shipping logistics railroads air freight, benefits to NE home heating market (only place you still find oil heated homes, generally)

Since the US is almost a net oil exporter, the net effect will be slightly negative HOWEVER

- a lot of the people who use gasoline can't use it right now, that's also true of a lot of industries such as cruise liners, airlines etc. So they won't spend the increased real income in a hurry

- the down effect will be felt faster and harder than the upside effect

- cost of bankruptcy in the US is low. Companies will go into Chapter 11 and keep operating

AND

- there are knock on effects on e.g. the financial sector e.g. more bad business and consumer debts. For example something like 20% of junk bonds were energy related - how do markets react as those start to default?

Global economy

- a net positive for consumers, a net negative for producers HOWEVER the cutbacks in spending and investment by producer companies and countries will happen faster than the gain in consumer incomes (due to lower energy prices) spread across all the world's energy consumers

- the financial effect on a number of Emerging Markets will be brutal and may affect their ability to pay their debts - Nigeria, Ghana etc.
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Re: Price of oil has collapsed; how will this impact the economy?

Post by Valuethinker »

fredflinstone wrote: Mon Apr 20, 2020 7:36 am I wonder if some clean energy companies (solar, wind, geothermal, electric cars, and so forth) will be hurt by this. The lower the price of oil, the harder it is for alternative energies to compete. Tesla (TSLA) is down only 2% in pre-market trading, so maybe not that big a deal.
Not directly.

Solar & wind compete with coal and natural gas, not with oil.

What will hurt them is the fall in electricity demand which will also lower market prices in deregulated markets. Texas in particular due to downfall in industrial demand, coupled with the highest wind percentage in the US. It's pretty brutal in Alberta, too, I believe.

Tesla's share price, to me, continues to defy all logic. However the market is right more often than I am on such things, and it values Tesla as a tech stock.

EVs are still cheaper than gasoline powered vehicles to run, even at America's very low gasoline prices. Both because of cheaper fuel & lower drivetrain costs. Note to run, not necessarily to own (Total Cost of Ownership includes purchase price).

In other countries, where taxation is a much bigger part of the cost of petrol & diesel, the reduction in retail prices is much smaller as a percentage. So the attractions of EVs in that regard continue.
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Re: Price of oil has collapsed; how will this impact the economy?

Post by fredflinstone »

Valuethinker wrote: Mon Apr 20, 2020 8:40 am
fredflinstone wrote: Mon Apr 20, 2020 7:15 am I know this is good news for drivers, but there undoubtedly will be some disruptions in the economy. I suspect a lot of upstream oil producers -- companies involved in exploration and production -- will go bankrupt. Diamond Offshore Drilling is one example. This is a Houston-based company that employs 2,500 full-time employees. There are many other firms in this industry. I worry that a lot of regular people -- like commercial divers -- will be laid off. If oil prices remain low for a long time, I'm pretty sure the broader economy in cities like Houston will suffer. People who are laid off from their oil-related jobs aren't going to be building new swimming pools and undertaking fancy landscaping projects.

There may also be unforeseen effects in international affairs (for example, in Saudi Arabia).

What other effects do you anticipate?
US economy

- concentrated bad effects around the oil industry & communities dependent upon it (Houston and many smaller centres). Knock on effects on everyone in those areas - retailers, motor vehicle lease & sale, commercial supply etc. Big slashes in payroll, hiring, investment

- diffuse benefits to everyone and every company that uses gasoline or diesel (ie just about everyone) e.g. shipping logistics railroads air freight, benefits to NE home heating market (only place you still find oil heated homes, generally)

Since the US is almost a net oil exporter, the net effect will be slightly negative HOWEVER

- a lot of the people who use gasoline can't use it right now, that's also true of a lot of industries such as cruise liners, airlines etc. So they won't spend the increased real income in a hurry

- the down effect will be felt faster and harder than the upside effect

- cost of bankruptcy in the US is low. Companies will go into Chapter 11 and keep operating

AND

- there are knock on effects on e.g. the financial sector e.g. more bad business and consumer debts. For example something like 20% of junk bonds were energy related - how do markets react as those start to default?

Global economy

- a net positive for consumers, a net negative for producers HOWEVER the cutbacks in spending and investment by producer companies and countries will happen faster than the gain in consumer incomes (due to lower energy prices) spread across all the world's energy consumers

- the financial effect on a number of Emerging Markets will be brutal and may affect their ability to pay their debts - Nigeria, Ghana etc.
Thank you for the well thought out post.
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Re: Price of oil has collapsed; how will this impact the economy?

Post by skepticalobserver »

Houston, we have a problem
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Re: Price of oil has collapsed; how will this impact the economy?

Post by DonIce »

fredflinstone wrote: Mon Apr 20, 2020 7:36 am I wonder if some clean energy companies (solar, wind, geothermal, electric cars, and so forth) will be hurt by this. The lower the price of oil, the harder it is for alternative energies to compete. Tesla (TSLA) is down only 2% in pre-market trading, so maybe not that big a deal.
In the coastal cities where Tesla vehicles are most popular, the price of gas is almost all fees & taxes & gas station fixed costs (rent, labor, etc), and almost no contribution from the price of a barrel of oil. In Seattle, the price of gas has dropped from $3.80 to $$2.80 (26% drop) while oil dropped from $107 to $10 (91% drop).
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Re: Price of oil has collapsed; how will this impact the economy?

Post by Valuethinker »

fredflinstone wrote: Mon Apr 20, 2020 10:22 am
Valuethinker wrote: Mon Apr 20, 2020 8:40 am
fredflinstone wrote: Mon Apr 20, 2020 7:15 am I know this is good news for drivers, but there undoubtedly will be some disruptions in the economy. I suspect a lot of upstream oil producers -- companies involved in exploration and production -- will go bankrupt. Diamond Offshore Drilling is one example. This is a Houston-based company that employs 2,500 full-time employees. There are many other firms in this industry. I worry that a lot of regular people -- like commercial divers -- will be laid off. If oil prices remain low for a long time, I'm pretty sure the broader economy in cities like Houston will suffer. People who are laid off from their oil-related jobs aren't going to be building new swimming pools and undertaking fancy landscaping projects.

There may also be unforeseen effects in international affairs (for example, in Saudi Arabia).

What other effects do you anticipate?
US economy

- concentrated bad effects around the oil industry & communities dependent upon it (Houston and many smaller centres). Knock on effects on everyone in those areas - retailers, motor vehicle lease & sale, commercial supply etc. Big slashes in payroll, hiring, investment

- diffuse benefits to everyone and every company that uses gasoline or diesel (ie just about everyone) e.g. shipping logistics railroads air freight, benefits to NE home heating market (only place you still find oil heated homes, generally)

Since the US is almost a net oil exporter, the net effect will be slightly negative HOWEVER

- a lot of the people who use gasoline can't use it right now, that's also true of a lot of industries such as cruise liners, airlines etc. So they won't spend the increased real income in a hurry

- the down effect will be felt faster and harder than the upside effect

- cost of bankruptcy in the US is low. Companies will go into Chapter 11 and keep operating

AND

- there are knock on effects on e.g. the financial sector e.g. more bad business and consumer debts. For example something like 20% of junk bonds were energy related - how do markets react as those start to default?

Global economy

- a net positive for consumers, a net negative for producers HOWEVER the cutbacks in spending and investment by producer companies and countries will happen faster than the gain in consumer incomes (due to lower energy prices) spread across all the world's energy consumers

- the financial effect on a number of Emerging Markets will be brutal and may affect their ability to pay their debts - Nigeria, Ghana etc.
Thank you for the well thought out post.
You are welcome

The main thing is that the sensitivity of the US economy to oil prices is much lower than it was in 1973 or 1980. Partly due to offshoring of industry, switches away from using oil to generate electricity or heat buildings, but also simply greater efficiency of the US economy. The amount of oil consumed per $ of GDP has shrunk considerably. So the overall effect on US GDP is muted to some extent compared to the 3 great post war price spikes (1973, 1979-80, 2008 but that was quite brief).

That said, there was a period post 2008 when the biggest job growth was in the fracking sector. So that is now reversing itself quite brutally. The industry restructured for $50-60/ bl oil and now it is having to deal with sub $20/ bl oil.

This level of demand destruction is unprecedented, at least in peacetime. Not even in 1973 or in 1980 I don't think. In absolute terms a far greater fall than then or in 1929-31, in percentage terms at least as bad as 1929-31. That is going to hit producers, their supplier industries, their employees & their communities very hard and right now.

How lasting and deep that damage will be depends on the speed of the return to normal.

Since there is no prospect of being "clear" of Covid-19 - in the sense of not being worried about renewed outbreaks, and of general uncertainty for consumers & businesses - my guess is that the recovery back to where we were will not be fast & sharp, but long and slow. At least for the next 12-18 months and maybe longer.

Much of course depends on whether production cuts by the big oil producing countries can be made to stick - there's a lot of incentive to cheat. And world oil storage is almost beyond full - they are filling supertankers with crude and just mooring them. So that will overhang any recovery.
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Re: Price of oil has collapsed; how will this impact the economy?

Post by Watty »

One thing to watch is what the oil price collapse does to natural gas prices. I would think that if oil wells are shut down then that would also reduce the production of natural gas as a byproduct of the oil.

There may also be some reduction in natural gas demand because of the shutdown but I don't know if that would be enough to offset any lost production.
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Re: Price of oil has collapsed; how will this impact the economy?

Post by WWJBDo »

I think you have it backwards. The current extreme low price of oil is a manifestation of the current and near-term expected demand for oil. So the low price is being influenced by expectations of the economy, not the other way around.
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Re: Price of oil has collapsed; how will this impact the economy?

Post by sjwoo »

I know this is a dumb question, but I must ask it regardless. If USA is a net exporter of oil, then it means we make more than what we use. So why don't we as a nation put a floor of $50 per barrel for all America-extracted oil, use only this oil for all of our needs, and never deal with OPEC again? That way, no domestic oil producer will go out of business since $50 is a viable price for frackers and the like.

I know that means we are regulating oil, but wouldn't it stabilize this incredibly unstable resource once and for all? I mean we could even do a partnership with just Canada and between the two nations, I'd think we could pool/load balance to make this work fairly smoothly.
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Re: Price of oil has collapsed; how will this impact the economy?

Post by fatcoffeedrinker »

WWJBDo wrote: Mon Apr 20, 2020 10:49 am I think you have it backwards. The current extreme low price of oil is a manifestation of the current and near-term expected demand for oil. So the low price is being influenced by expectations of the economy, not the other way around.
Yup, the collapse is for near term futures. Look at August and beyond, and it's $30+/barrel. So at least now, the market views this is a short term demand shock.
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Re: Price of oil has collapsed; how will this impact the economy?

Post by CaptainSaver »

sjwoo wrote: Mon Apr 20, 2020 10:51 am I know this is a dumb question, but I must ask it regardless. If USA is a net exporter of oil, then it means we make more than what we use. So why don't we as a nation put a floor of $50 per barrel for all America-extracted oil, use only this oil for all of our needs, and never deal with OPEC again? That way, no domestic oil producer will go out of business since $50 is a viable price for frackers and the like.

I know that means we are regulating oil, but wouldn't it stabilize this incredibly unstable resource once and for all? I mean we could even do a partnership with just Canada and between the two nations, I'd think we could pool/load balance to make this work fairly smoothly.
This is an idea that I have heard floated recently.

One issue is that oil is actually comprised of various grades, some light and almost like pure gasoline (condensate) and some heavy sludge like material. Refineries combine these to generate end products.

The US currently produces mostly light grade oil. We actually still import a lot of heavy oil from Venezuela because our refineries need it to mix with the lighter product we produce. While I don't think the US or US & Canada alone could be totally self sufficient it is possible the Western Hemisphere could be.

The obstacles are likely perceptions about socialization of an industry under government control (even though in this case it could save many jobs and have other national benefits). I don't mean to say it won't happen, as they say drastic times call for drastic measures.
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Re: Price of oil has collapsed; how will this impact the economy?

Post by Jack FFR1846 »

Oil in general isn't really a nationwide thing. Natural gas that's abundant, especially from fracking is still expensive in the Northeast because of lack of adequate pipelines.

Oil coming into Northeast refineries comes from the middle east. Landed cost is less expensive than getting it from the gulf. So while as a nation, we're exporting more than we're importing, we still buy from foreign sources.

I wonder what's going to happen to tar sands. There was so much effort and gnashing of teeth to connect so that Canadian garbage could be mixed with expensive diluters to push it through the US so we could load it in the gulf and send it to China. I'd think that China demand is lower and the cost to move that sludge is high. Anyone know if this still happens or has Canada scrapped the whole project.

I periodically calculate what a Model 3, Model S and my Crosstrek cost to run. I'm at a point where our electricity hasn't dropped from 20 cents per kWHr and gas has dropped tremendously with my grocery store gas points coming as usual. I'm at a point where a model S would cost more per mile than my Crosstrek but a model 3 could be less. But of course even a lowest cost model 3 is double what I paid for my Crosstrek so I won't be buying one anytime soon....even if they could fix the looks of it.
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Re: Price of oil has collapsed; how will this impact the economy?

Post by DonIce »

sjwoo wrote: Mon Apr 20, 2020 10:51 am I know this is a dumb question, but I must ask it regardless. If USA is a net exporter of oil, then it means we make more than what we use. So why don't we as a nation put a floor of $50 per barrel for all America-extracted oil, use only this oil for all of our needs, and never deal with OPEC again? That way, no domestic oil producer will go out of business since $50 is a viable price for frackers and the like.
So you're saying the government should ban American companies from purchasing $10/barrel oil that is freely available in the global market, and instead force them to purchase $50/barrel oil produced by American producers?

Besides the anti-free market implications of this, if the government did this, US (non-oil) companies would be at a massive disadvantage to their global competitors which have access to cheaper energy.
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Re: Price of oil has collapsed; how will this impact the economy?

Post by wkimdds »

WTI future now at $8
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Re: Price of oil has collapsed; how will this impact the economy?

Post by 3funder »

Microeconomically-speaking, it will result in cheaper gas and a little more :moneybag for me to save/invest 8-). Macroeconomically-speaking, I'm not sure.
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Re: Price of oil has collapsed; how will this impact the economy?

Post by sjwoo »

DonIce wrote: Mon Apr 20, 2020 11:17 am
sjwoo wrote: Mon Apr 20, 2020 10:51 am I know this is a dumb question, but I must ask it regardless. If USA is a net exporter of oil, then it means we make more than what we use. So why don't we as a nation put a floor of $50 per barrel for all America-extracted oil, use only this oil for all of our needs, and never deal with OPEC again? That way, no domestic oil producer will go out of business since $50 is a viable price for frackers and the like.
So you're saying the government should ban American companies from purchasing $10/barrel oil that is freely available in the global market, and instead force them to purchase $50/barrel oil produced by American producers?

Besides the anti-free market implications of this, if the government did this, US (non-oil) companies would be at a massive disadvantage to their global competitors which have access to cheaper energy.
Yes, that's exactly what I'm saying! Remember I already warned you that this was a dumb question. 😁

The way I see it, the $40 premium would be the cost of stability. Because when oil goes to $90 a barrel, American companies would then see a $40 discount. Even Steven!

But of course this means we would be introducing inefficiencies into the market through regulation... But I don't know. Things have been so unstable in OPEC that you could make a case that there is no such thing as an efficient oil market...

But from the other posts here, I can see this is all just a pipe dream. I didn't realize we still need different varieties of oil to make all our machines run. Oh well.
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Re: Price of oil has collapsed; how will this impact the economy?

Post by H-Town »

sjwoo wrote: Mon Apr 20, 2020 11:27 am
DonIce wrote: Mon Apr 20, 2020 11:17 am
sjwoo wrote: Mon Apr 20, 2020 10:51 am I know this is a dumb question, but I must ask it regardless. If USA is a net exporter of oil, then it means we make more than what we use. So why don't we as a nation put a floor of $50 per barrel for all America-extracted oil, use only this oil for all of our needs, and never deal with OPEC again? That way, no domestic oil producer will go out of business since $50 is a viable price for frackers and the like.
So you're saying the government should ban American companies from purchasing $10/barrel oil that is freely available in the global market, and instead force them to purchase $50/barrel oil produced by American producers?

Besides the anti-free market implications of this, if the government did this, US (non-oil) companies would be at a massive disadvantage to their global competitors which have access to cheaper energy.
Yes, that's exactly what I'm saying! Remember I already warned you that this was a dumb question. 😁

The way I see it, the $40 premium would be the cost of stability. Because when oil goes to $90 a barrel, American companies would then see a $40 discount. Even Steven!

But of course this means we would be introducing inefficiencies into the market through regulation... But I don't know. Things have been so unstable in OPEC that you could make a case that there is no such thing as an efficient oil market...

But from the other posts here, I can see this is all just a pipe dream. I didn't realize we still need different varieties of oil to make all our machines run. Oh well.
:mrgreen: :sharebeer

Okay, you said it. Can we go back to the free market now?

If you live in the country where everything is regulated by the government, you will know how would it end up. Trust me.
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Re: Price of oil has collapsed; how will this impact the economy?

Post by McGilicutty »

WTI May contract was below $5 for a moment. What a collapse!
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Re: Price of oil has collapsed; how will this impact the economy?

Post by Stef »

Can WTI go below 0?
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Re: Price of oil has collapsed; how will this impact the economy?

Post by zoralsurgeon »

At 4.66 now.. can easily go to zero based on movements today. This is truly something amazing to watch. I'm sure a lot of money will be made on this (and of course lost).
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Re: Price of oil has collapsed; how will this impact the economy?

Post by nps »

Don't see why it couldn't (or shouldn't) go negative for May
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Re: Price of oil has collapsed; how will this impact the economy?

Post by Rainier »

zoralsurgeon wrote: Mon Apr 20, 2020 12:12 pm At 4.66 now.. can easily go to zero based on movements today. This is truly something amazing to watch. I'm sure a lot of money will be made on this (and of course lost).
Any good primers out there on how to conceptually look at these front month futures and what $0 would mean? When do May futures expire?

So at $0 it means that in May essentially nobody will need to buy any oil (because they can't consume it, process it or store it)?
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Re: Price of oil has collapsed; how will this impact the economy?

Post by DonIce »

Dang, touched a low of $2.99.

I kind of want to take physical delivery of 1000 barrels for $3k haha.
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Re: Price of oil has collapsed; how will this impact the economy?

Post by Rainier »

DonIce wrote: Mon Apr 20, 2020 12:24 pm Dang, touched a low of $2.99.

I kind of want to take physical delivery of 1000 barrels for $3k haha.
Got a swimming pool?

BTW, CME just confirmed that oil futures can go negative.
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Re: Price of oil has collapsed; how will this impact the economy?

Post by nps »

Rainier wrote: Mon Apr 20, 2020 12:19 pm
zoralsurgeon wrote: Mon Apr 20, 2020 12:12 pm At 4.66 now.. can easily go to zero based on movements today. This is truly something amazing to watch. I'm sure a lot of money will be made on this (and of course lost).
Any good primers out there on how to conceptually look at these front month futures and what $0 would mean? When do May futures expire?

So at $0 it means that in May essentially nobody will need to buy any oil (because they can't consume it, process it or store it)?
They expire tomorrow
Last edited by nps on Mon Apr 20, 2020 12:39 pm, edited 1 time in total.
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Re: Price of oil has collapsed; how will this impact the economy?

Post by DonIce »

Rainier wrote: Mon Apr 20, 2020 12:25 pm
DonIce wrote: Mon Apr 20, 2020 12:24 pm Dang, touched a low of $2.99.

I kind of want to take physical delivery of 1000 barrels for $3k haha.
Got a swimming pool?

BTW, CME just confirmed that oil futures can go negative.
Dunno, but I just tried to trade 1 oil futures contract and got an "order rejected" message on etrade.

Interestingly, the bid price is higher than the ask price hah.
Last edited by DonIce on Mon Apr 20, 2020 12:29 pm, edited 1 time in total.
KSActuary
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Re: Price of oil has collapsed; how will this impact the economy?

Post by KSActuary »

Spot price of oil is determined by demand, supply and storage. Coming up on pretty full storage and some people cannot take delivery. Play the game, some times you get the horns. Economy must re-open for their to be any real demand for any energy. Air travel is down 95%. Many older vertical oils will be shut in, if not all ready. Offshore is much difficult to shut in due to maintenance required. Also, landowners can use force majeure to require operator to pump oil or lose their mineral rights.

The energy sector provides a lot of good, high paying jobs which will result in a lot of layoffs as smaller companies go BK. Happened before, will happen again.
HIMcDunnough
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Re: Price of oil has collapsed; how will this impact the economy?

Post by HIMcDunnough »

sjwoo wrote: Mon Apr 20, 2020 10:51 am I know this is a dumb question, but I must ask it regardless. If USA is a net exporter of oil, then it means we make more than what we use. So why don't we as a nation put a floor of $50 per barrel for all America-extracted oil, use only this oil for all of our needs, and never deal with OPEC again? That way, no domestic oil producer will go out of business since $50 is a viable price for frackers and the like.

I know that means we are regulating oil, but wouldn't it stabilize this incredibly unstable resource once and for all? I mean we could even do a partnership with just Canada and between the two nations, I'd think we could pool/load balance to make this work fairly smoothly.
In addition to the other problems noted above, when you're dealing with a finite resource, there's something to be said for buying that resource from others while you keep your own supply safe in the ground. If you think back to college dorm days, it'd be like agreeing to buy $1 cans of beer from your neighbor even though you've got a six-pack in your own fridge--guess who's going to have beer after the stores are closed?
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whodidntante
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Re: Price of oil has collapsed; how will this impact the economy?

Post by whodidntante »

Rainier wrote: Mon Apr 20, 2020 12:25 pm BTW, CME just confirmed that oil futures can go negative.
Indeed they can. You can trade futures at several brokers. I would think at least one of them can't properly deal with negative prices.
KSActuary
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Re: Price of oil has collapsed; how will this impact the economy?

Post by KSActuary »

Except that some of that resource you kept in the ground may never be lifted out of the ground and is worthless.
DonIce
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Re: Price of oil has collapsed; how will this impact the economy?

Post by DonIce »

Oil is now under $1.
KSActuary
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Re: Price of oil has collapsed; how will this impact the economy?

Post by KSActuary »

KSA will deliver oil at $12 per barrel as much as you want. If your lifting costs are more than $12, isn't it better to buy their oil first?
elderwise
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Re: Price of oil has collapsed; how will this impact the economy?

Post by elderwise »

How do these futures work so if I buy contract worth $5000 at 2 per barrel do I need to take delivery or is this just paper trading I just dont get how the physical delivery is handled.

I thought people just buy and then sell for either profit or loss but nobody really takes the delivery ?
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nps
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Re: Price of oil has collapsed; how will this impact the economy?

Post by nps »

elderwise wrote: Mon Apr 20, 2020 12:45 pm How do these futures work so if I buy contract worth $5000 at 2 per barrel do I need to take delivery or is this just paper trading I just dont get how the physical delivery is handled.

I thought people just buy and then sell for either profit or loss but nobody really takes the delivery ?
These contracts are physical delivery. Others are not.
DonIce
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Re: Price of oil has collapsed; how will this impact the economy?

Post by DonIce »

elderwise wrote: Mon Apr 20, 2020 12:45 pm How do these futures work so if I buy contract worth $5000 at 2 per barrel do I need to take delivery or is this just paper trading I just dont get how the physical delivery is handled.

I thought people just buy and then sell for either profit or loss but nobody really takes the delivery ?
Most brokers will automatically sell a retail investor's futures contract before trading stops, to prevent the retail investor from having to take physical delivery. That's even for contracts that specify physical delivery, like oil.

You could maybe call and tell them to let you take physical delivery though...

Physical delivery doesn't mean that the oil shows up on your doorstep. Rather, it means that the barrels of oil already stored in some warehouse get transferred to your ownership, and you are now responsible for paying any storage fees until you sell them. You would also have the option of arranging shipping of those barrels elsewhere, at your cost.
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whodidntante
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Re: Price of oil has collapsed; how will this impact the economy?

Post by whodidntante »

DonIce wrote: Mon Apr 20, 2020 12:53 pm Most brokers will automatically sell a retail investor's futures contract before trading stops, to prevent the retail investor from having to take physical delivery. That's even for contracts that specify physical delivery, like oil.
Yeah. I think stories of retail investors accidentally taking physical delivery are urban legend.

By the way, oil is trading negative now. -3.70 USD
skepticalobserver
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Re: Price of oil has collapsed; how will this impact the economy?

Post by skepticalobserver »

Below Zero? Should I expect the gas station attendant to pay ME to fill up? What will this do to petroleum industry based economies like Texas?
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Re: Price of oil has collapsed; how will this impact the economy?

Post by jebmke »

Money and oil are free now.
When you discover that you are riding a dead horse, the best strategy is to dismount.
skepticalobserver
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Re: Price of oil has collapsed; how will this impact the economy?

Post by skepticalobserver »

A bevy of black swans
runswithscissors
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Re: Price of oil has collapsed; how will this impact the economy?

Post by runswithscissors »

Negative $37 now. Insane.
Random Poster
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Re: Price of oil has collapsed; how will this impact the economy?

Post by Random Poster »

Jack FFR1846 wrote: Mon Apr 20, 2020 11:11 am I wonder what's going to happen to tar sands. There was so much effort and gnashing of teeth to connect so that Canadian garbage could be mixed with expensive diluters to push it through the US so we could load it in the gulf and send it to China. I'd think that China demand is lower and the cost to move that sludge is high. Anyone know if this still happens or has Canada scrapped the whole project.
Canadian oil is price-negative at this point. The only thing keeping the lights on in the Canadian oil and gas business is the natural gas going through the pipelines to the utilities in the Northeast.

I am not aware of any oil sands project that is currently profitable or, for that matter, has been for several years now.
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Re: Price of oil has collapsed; how will this impact the economy?

Post by Corsair »

S&P is down only -1%, economy is fine.
All posts are my own opinions and are not financial advice.
dukeblue219
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Re: Price of oil has collapsed; how will this impact the economy?

Post by dukeblue219 »

Corsair wrote: Mon Apr 20, 2020 1:44 pm S&P is down only -1%, economy is fine.
Weird as hell though.

I always wonder if there's an unanticipated side effect though. Some derivative that is based on oil and turns into an infinite return with negative numbers or whatever. Or essentially a Y2K bug that breaks someone's computers. Hard to predict with a financial market this complex.
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