Government Bailout of Oil Industry

[surrept33 + 609]

33 minutes ago, cbrasher1 said:

gm and fiat/chrysler, no sure about ford though

Ford did not accept TARP funds, but got loans later on.

[Douglas Buckland + 6,308]

2 hours ago, garycoates said:

Tariff imported crude or petroleum products to keep oil out that us intended to scuttle the industry that are not from Canada or Mexico that we have trade deals with.   Simple you protect the domestic production market and still export to net importers.

we don't need Saudi Crude or anyone else's ... low oil prices don't help the domestic market when it creates unemployment and destroys domestic small and mid size businesses.

But playing the Devil’s Advocate, the domestic market in the US did not give a fat rat’s ass when they were pumping like crazy into an already saturated market and many overseas, Americans included, lost their jobs.

You may want to climb down off of your pedestal, there is enough blame to go around.

[Boat + 1,324]

If you believe in the American narrative for decades you believe in Capitalism. Many of you oil boys/Trump are ready to throw billions at industry/like China to help them in a tough market. For shame. If a few hundred billionaires lose a few bucks there will be others to pick up the pieces and make more billions off the carnage. 
The idea US producers are to blame for producing oil when just until recently they were net importers is silly. What about all those countries that export the lions share of FF. Shouldn’t supplying your own energy as a country be a goal for any country? 
There is no socialism in true Capitalism. There is simply competition between producers. Sanctions and quotas should rule if it is determined a government goes to far in capturing market share for a particular industry. The answer is not joining them in a socialist solution and creating a bigger problem by giving them money. 
Lasty if a huge hole in your economy happens because of an emergency and spending hundreds of billions makes more sense, spend it on efficiency of buildings and bridges. If you want to help business, maybe tax breaks for education to fill jobs that are in short supply. Think in terms of expenditures that last for decades and make your country more competitive. 
 

[Douglas Buckland + 6,308]

On 3/10/2020 at 7:40 PM, El Nikko said:

https://oilprice.com/Energy/Oil-Prices/Trump-Prepares-Aid-Package-To-Relieve-US-Oil-Producers.html

The worst thing that Trump could do is bail these guys out!!! They did it to themselves and never, ever made any cuts or anything else to dry up the glut and get the price up. They deserve to fail!

[Dan Clemmensen + 1,011]

In my opinion the basic problem is that OPEC+ is a cartel. This so seriously distorts the underlying economics that free-market theory cannot be applied. The problem is that OPEC+ deliberately creates "shocks": short-term arbitrary price swings that do not reflect the underlying costs of production. The US economy is under attack from Saudi Arabia and Russia, so we (unfortunately) need a government response rather than a pure economic response. The problem is to pick the response that is most effective with the least economic side effects. I now think that a countervailing tariff on oil imports is needed. The tariff should be constructed to smooth out the shocks to give the economy time to react. It should raise the effective price of imported oil to a point that is still painful or fatal to marginal shale operators but that permits the industry as a whole to survive, and it should have an automatic taper to lower this price over time.

[George8944 + 128]

First, let's stop calling these government bailouts.  They are TAX PAYER BAILOUTS.

Second, its just more interference in free markets.  Companies that go bankrupt usually have their assets bought by stronger parties and most of the employees get new bosses.   Exxon and  Chevron, despite their week balance sheets still have enough credit to buy the shale oil patch at fire sale prices.

Taxpayers should not prop up poorly run businesses.

[wrs + 893]

1 hour ago, George8944 said:

First, let's stop calling these government bailouts.  They are TAX PAYER BAILOUTS.

Second, its just more interference in free markets.  Companies that go bankrupt usually have their assets bought by stronger parties and most of the employees get new bosses.   Exxon and  Chevron, despite their week balance sheets still have enough credit to buy the shale oil patch at fire sale prices.

Taxpayers should not prop up poorly run businesses.

Oh absolutely but that would mean no subsidies for alternative energy.  It would mean a lot fewer defense projects and plenty of other govt free money handouts in the form of "foreign aid" and etc, etc, etc.  LOL!  Let me say something about taxes, I pay a lot of them and I expect some measure of protection for my business as a result.  If I don't get it, why should I pay taxes?

Edited March 11, 2020 by wrs

[surrept33 + 609]

1 hour ago, Dan Clemmensen said:

In my opinion the basic problem is that OPEC+ is a cartel. This so seriously distorts the underlying economics that free-market theory cannot be applied. The problem is that OPEC+ deliberately creates "shocks": short-term arbitrary price swings that do not reflect the underlying costs of production. The US economy is under attack from Saudi Arabia and Russia, so we (unfortunately) need a government response rather than a pure economic response. The problem is to pick the response that is most effective with the least economic side effects. I now think that a countervailing tariff on oil imports is needed. The tariff should be constructed to smooth out the shocks to give the economy time to react. It should raise the effective price of imported oil to a point that is still painful or fatal to marginal shale operators but that permits the industry as a whole to survive, and it should have an automatic taper to lower this price over time.

 

I think making sure that the noncompetitive parts of the domestic shale industry get selected out as part of this wave is important. Not only because perhaps other companies may have a better chance of increasing the competitiveness of exploiting those resources, but because the financial sector might be strengthened as a result of it.

I just don't know what effects tariffs (and with what type of structuring) would have to buoy the shale industry as a whole.

To me, government backed loans might be a better form of stimulus might there probably some intrinsic value of domestic energy security.

Edited March 11, 2020 by surrept33

[surrept33 + 609]

Oil industry push for Trump bailout draws political headwinds

https://www.politico.com/news/2020/03/11/oil-bailout-trump-125949

 

 

[Dan Clemmensen + 1,011]

3 hours ago, surrept33 said:

 

I think making sure that the noncompetitive parts of the domestic shale industry get selected out as part of this wave is important. Not only because perhaps other companies may have a better chance of increasing the competitiveness of exploiting those resources, but because the financial sector might be strengthened as a result of it.

I just don't know what effects tariffs (and with what type of structuring) would have to buoy the shale industry as a whole.

To me, government backed loans might be a better form of stimulus might there probably some intrinsic value of domestic energy security.

Loan guarantees are a use of tax money and will increase the deficit, affecting everybody. Tariffs are a hidden tax that affects oil (and by extension gasoline) consumers and decreases the deficit. But those consumers are already accustomed to the prices at $50/bbl, so driving the price up to (say) $40/bbl will not hurt them in the short term or mid term. Allowing the Saudis and Russians to shock the market and kill off US shale will hurt these consumers in the mid to long term. Therefore, to me, a countervailing tariff is the least bad government intervention. Government-backed loans are a lot harder to target to only the strong players and would therefore require a larger bureaucracy and take more time to put into place.

Edited March 11, 2020 by Dan Clemmensen
correct spelling errors

[George8944 + 128]

5 hours ago, wrs said:

I expect some measure of protection for my business

Sorry,  protecting your business is not a Constitutional right, nor is it something I think tax payers should have to burden.    All rewards have their risks.

[footeab@yahoo.com + 2,192]

On 3/10/2020 at 11:39 AM, Dan Clemmensen said:

A basic uninformed question: Given that the US strategic oil reserve currently has about 200 billion bbl of eumpty capacity,

🤣

Sorry, it just hit me as funny.  I know you meant million, but I needed the laugh today.  Thanks!

[Dan Clemmensen + 1,011]

57 minutes ago, footeab@yahoo.com said:

🤣

Sorry, it just hit me as funny.  I know you meant million, but I needed the laugh today.  Thanks!

Would you believe its a typo? (it was actually a think-o).

[cbrasher1 + 272]

13 hours ago, Douglas Buckland said:

The worst thing that Trump could do is bail these guys out!!! They did it to themselves and never, ever made any cuts or anything else to dry up the glut and get the price up. They deserve to fail!

coming from an oilfield guy that's pretty harsh.  i am not supporting or screaming for a bailout, but really it is fine with you because companies can't show restraint we should all be jobless? in a sense that is what you are saying.  was this your take as well with what should of happened to gm??

[Douglas Buckland + 6,308]

14 minutes ago, cbrasher1 said:

coming from an oilfield guy that's pretty harsh.  i am not supporting or screaming for a bailout, but really it is fine with you because companies can't show restraint we should all be jobless? in a sense that is what you are saying.  was this your take as well with what should of happened to gm??

Are you suggesting that we, the American people, bail out each and every industry which is uncompetitive and is failing?

I essentially lost my job, in a large part, due to the crazy business practices of the US shale oil industry. Did they give a damn when I was forcebly retired? No. Do I really care if they don’t get a bailout an go out of business? No. Why would I?

A little common sense on their part and we’d all still have a job. I suffered for their nonsense, now it SHOULD be their turn.

[cbrasher1 + 272]

3 minutes ago, Douglas Buckland said:

Are you suggesting that we, the American people, bail out each and every industry which is uncompetitive and is failing?

I essentially lost my job, in a large part, due to the crazy business practices of the US shale oil industry. Did they give a damn when I was forcebly retired? No. Do I really care if they don’t get a bailout an go out of business? No. Why would I?

A little common sense on their part and we’d all still have a job. I suffered for their nonsense, now it SHOULD be their turn.

as you can see above I said i was not for a bailout....I just find it very vindictive that because of past practices you are rooting for their failure essentially rooting for those of us still out here to end in your fate as well....I asked if your current mindset was the same with gm, did you support that bailout of an automobile maker?

[Douglas Buckland + 6,308]

I am not for ANYBODY in the oilfield losing their jobs. Times were perilous before this price war, but there was hope of a recovery.

I do not condone bailing ANY industry out. If we are going to claim that we are a free market, then industries or companies must also be free to fail.

Granted, this price war between Saudi and Russia has all of the earmarks of a strategy to diminish or get rid of the US shale oil business. If this is the case, then it is government sponsored industrial warfare and the US government should respond accordingly.

That said, keep in mind that Russia and Saudi opening the taps and producing without restraint, IS EXACTLY WHAT THE SHALE OIL PLAYERS HAVE BEEN DOING FOR YEARS! Fair is fair....isn’t it?

Any bail out proposed should NOT award the shale oil industry for their extremely poor, short sided, business model and management styles. They are reaping what they sowed. The bailout should only address the effect of the present situation being a result of governmental backed strategy aimed directly at a US industry.

How this is accomplished is beyond me. Perhaps tariffs placed on foreign oil only until Russia or Saudi blinks and the price of oil recovers....only to the point it was just prior to the price war! Anything else is a hand out.

I have no wish for you, or anyone else still employed in the oil and gas arena, in the US, to lose your job - it sucks. That said, the American oil industry has shown no remorse or sympathy for those overseas, American or otherwise, who have been put out of work by the shale oil industry...

[wrs + 893]

13 hours ago, George8944 said:

Sorry,  protecting your business is not a Constitutional right, nor is it something I think tax payers should have to burden.    All rewards have their risks.

Oh sorry but that horse left the barn when the govt used my money to bail out banks and GM in 2008.  Now the govt is planning to bail out airlines and cruise lines.  Again, not asking for a bailout but instead, protection either in the form of sanctions on KSA and Russian oil imports or a tariff.  Neither of those is a bailout.

Edited March 12, 2020 by wrs

[surrept33 + 609]

2 hours ago, wrs said:

Oh sorry but that horse left the barn when the govt used my money to bail out banks and GM in 2008.  Now the govt is planning to bail out airlines and cruise lines.  Again, not asking for a bailout but instead, protection either in the form of sanctions on KSA and Russian oil imports or a tariff.  Neither of those is a bailout.

Well, despite the bailout, GM itself did go through a much needed bankruptcy.

One of the problems with a tariff is that it would make US exports (for any oil using industries) less competitive if suddenly other countries, like Asia, are getting oil at discount compared to US industries. That usually gets passed up the entire supply chain.

It's unclear if the price war is "dumping" in the classical sense since most of these countries are still selling it above marginal costs of production.

[wrs + 893]

9 minutes ago, surrept33 said:

Well, despite the bailout, GM itself did go through a much needed bankruptcy.

One of the problems with a tariff is that it would make US exports (for any oil using industries) less competitive if suddenly other countries, like Asia, are getting oil at discount compared to US industries. That usually gets passed up the entire supply chain.

It's unclear if the price war is "dumping" in the classical sense since most of these countries are still selling it above marginal costs of production.

Sorry but marginal costs of production don't apply to state sponsored entities and what KSA needs to maintain it's budget is the cost of production.  RIght now they are short $50/bbl on that.  They are the high price producer.  The marginal price of production for US LTO is only about $25-30/bbl.  Those are lifting and distribution costs.  

US oil is at breakeven here for many producers.  No new production will occur at these levels because the time to pay out is infinite if you are operating at break-even.  Loans may be defaulted in some cases.  So production in the US will decline but as soon as prices rise again, production will too.

Finally, WTI is discounted to Brent and so US consumers and business have been getting cheaper energy than the rest of the world for several years now.  It's the basis for the booming US economy.

Edited March 12, 2020 by wrs

[surrept33 + 609]

10 minutes ago, wrs said:

Sorry but marginal costs of production don't apply to state sponsored entities and what KSA needs to maintain it's budget is the cost of production.  RIght now they are short $50/bbl on that.  They are the high price producer.  The marginal price of production for US LTO is only about $25-30/bbl.  Those are lifting and distribution costs.  

US oil is at breakeven here for many producers.  No new production will occur at these levels because the time to pay out is infinite if you are operating at break-even.  Loans may be defaulted in some cases.  So production in the US will decline but as soon as prices rise again, production will too.

Finally, WTI is discounted to Brent and so US consumers and business have been getting cheaper energy than the rest of the world for several years now.  It's the basis for the booming US economy.

Yes, but:

a) Saudi Arabia appears to be implementing austerity and large budget cuts, which should make that $80+/barrel number plummet, Russia did similar things after 2014.

b) from a practical sense, balancing their current account is probably more important in the short and medium term, and even then, KSA has low external debt and lots of foreign reserves

c) it looks like the WTI/Brent spread is getting narrower

see:

https://www.reuters.com/article/us-saudi-economy-budget/saudi-arabia-asked-state-agencies-to-implement-big-budget-cuts-sources-idUSKBN20Y0QA

 

 

[Dan Clemmensen + 1,011]

Another dumb set of questions from an outsider (me): The US exports light sweet crude and imports heavy sour crude. Is this correct? Our big refineries are tuned to make a profit by cracking this heavy sour stuff, and we export a lot of the output. Is this correct? So the question is: If the Saudis turn on the taps, which kind of oil will they produce? If it's mostly light sweet, then a US countervailing tariff does not help, unless there is a way to reconfigure those refineries to consume our own oil. Is this correct?

Edited March 12, 2020 by Dan Clemmensen
correct spelling errors

[George8944 + 128]

9 hours ago, Dan Clemmensen said:

unless there is a way to reconfigure those refineries to consume our own oil

I’m definitely not an expert here, so take this for what it is.  On the surface our refineries can be tweaked.  The problem is a bit more complex.  You are playing with two parameters: density and sulphur content.  We can handle sweet and sour,  but density impacts how much of what product is available in the raw crude.  US refineries are designed and optimized to produce more gasoline than diesel. (Europe is optimized for diesel.)  A heavier crude yields more diesel and less gasoline which is not good for our markets.

[zextaz + 20]

it would be cheaper for Russia and opec to buy USA asset at current valuation a lot of stocks like OVV that have a 250,000=500,000 production a day are trading at 0,45 earning OVV as per example was a 30-50$ stock 2019-2020 now trading at 2$ the entire float worth 500 million $ and cEO get paid 30 million$ ???????? they could just buy them out for 1 billion fire the CEO and all employee and IDLE the business to 0 and take 500,000 barrel a day out of the market

[zextaz + 20]

in 5-10 days of losses Saudi and Russia lost in this war they could have taken down OVV on stock market and bring out 250,000=500,000 barrel a day just by offering stock buyout and fire all employee and the CEO that make 30 millions$ a year on a 400 million stock float buisness