Government Bailout of Oil Industry

[Victor Edwards 0]

As one of hundreds of millions of consumers, a few of us taken together are the most productive job producers in the nation. When do we as consumers get recognition of our job production? Do we get some subsidies? Do we get favored treatment for our earnings? If about 4 consumers produce jobs at a rate higher than any industry, does that make us a favored "industry?" Why not?

[George8944 + 128]

On 3/13/2020 at 10:25 PM, Wombat said:

Is ur sister-in-law in US with ur brother, or is he here in Qld with her? If it the latter, I hope u get chance to visit Qld urself. Much more than just the Great Barrier Reef to see

My sister-in-law lives in the States,  with much of her family still in Queensland.  I know all of them and my wife and I have been invited down south many times.  Eventually, we will make it.   I prefer cold weather so I'm more likely to visit and stay in Alaska with my daughter or explore the Yukon of Canada or Lapland above Finland.   

[ronwagn + 6,290]

19 hours ago, notsonice said:

The Saudis are tying us the boats, the game is on

Supertanker Prices Spike By Nearly 678% On Oil Market War And Storage Plays

in International Shipping News 14/03/2020

 

Despite a sobering week for the global crude oil market as the coronavirus or Covid-19 outbreak strangles the global economy, shipping rates for supertankers or very large crude carriers (VLCCs) – capable of shifting 2 million barrels – have gone through roof.

At 15:26 EDT on Thursday (March 12), the Brent front-month crude contract was down 7.60% or $2.72 to $33.07 per barrel while the West Texas Intermediate was down 4.73% or $1.56 to $31.42 per barrel. Both benchmarks are on average over 50% below their January peak, but oil shippers are seeing a remarkable reversal from having to contend with serious headwinds as recently as the first week of February.

Sources in Texas and Louisiana say lease rates for VLCCs are jumping on a “near daily basis”, while shipping brokerage contacts in Singapore and Rotterdam say the scramble is on for a slice of a finite global fleet.

General Images of Refineries and Tankers Off Jurong Island
File photo of a row of VLCCs (very large crude carriers) berthed at a storage terminal on Jurong … [+] BLOOMBERG NEWS

One source told your correspondent, the VLCC lease rate stateside is currently at $42,000 per day, up from $30,000 on March 6 (the day of the collapse of OPEC+ talks) and $16,000 on February 1, an uptick of 162.5%. “In our neck of the woods, much of the call on available VLCCs from fleets happen to be down to contango plays.”

A contango market structure implies expectations that the futures price will be higher than the spot price, encouraging traders to store oil for a finite period hoping to sell it for higher prices further down the line.

Many players big and small are looking to “do a Gunvor”, a famous contango play by the world’s largest independent oil trader under its former co-founder Gennady Timchenko. The Russian billionaire’s call back in 2008-09 resulted in a storage management master-class from Gunvor that yielded it over $600 million in profits.

As the oil price first spiked to $144 per barrel then plummeted to $37, and subsequently doubled when the financial crisis showed signs of receding, the company raked in handsomely via lock-ins taken in December 2008 with a six month forward sale.

However, the most lucrative plays for VLCC fleets are in Asia right now with a “barrage of calls” on the global fleet spot market by Saudi Arabia, says one trading contact in Singapore.

Saudi Arabian shipping company Bahri has tentatively chartered 19 VLCCs from the spot market to move Aramco cargoes with Riyadh pledging to pump 12.3 million barrels per day (bpd) from April 1; an increment of 3 million bpd on the restrained levels seen prior to the collapse of OPEC+.

What’s staggering in terms of Saudi ambition is that Bahri, one of the world’s largest tanker companies, already has 42 VLCCs of its own, according to a spokesperson. Shipping sources say such a “crazy call from a single major entity” has created its own spike, let alone any contango plays being conjured up by traders.

Brokerages say VLCC rates on the lucrative Middle East to China route jumped to a ballpark figure of $175,000 per day on Thursday (March 12), up from an average rate ex-Singapore of $22,500 per day recorded on February 3; an uptick of nearly 678% on the month. This is likely to go up as the United Arab Emirates and Kuwait ramp up their production unshackled by OPEC restrictions, with shipbrokers reporting inquiries from Abu Dhabi National Oil Company and Kuwait Petroleum Corporation.

Data aggregators point to 35 VLCCs booked for dispatches to Asia from the Middle East this week alone. While the jump in VLCC rates is much more pronounced for cargoes heading from the Middle East to Asia, much of the volume would also be heading stateside.

A third of the tankers leased from the spot market by Bahri are set to take cargoes of Arab light to the U.S., sources suggest, but both Aramco and the shipping company declined comment. None of this appears to be deterring determined traders.

Trading arms of oil majors Shell and Total, as well as traders Trafigura and Vitol have made inquiries on floating storage “though not all were for VLCCs,” says a Houston-based contact. Additionally, Trafigura which is the biggest U.S. crude exporter handling about 600,000 bpd, is also looking to up its game of competing U.S. light sweet crude dispatches to Asia and Europe.

In February, it formed a joint venture with refiner Phillips 66 to build a major deepwater port in Texas – the Bluewater Texas Terminal located east of the entrance to Corpus Christi port – capable of handling VLCCs, ditching its own competing project. The company intends to “help the Permian region produce and export more crude oil, grow the U.S. economy and support Texan jobs.”

Meanwhile, Louisiana Offshore Oil Port (LOOP) has already been handling VLCCs since February 2018, and more U.S. facilities, with 75 feet of depth required to handle supertankers in laden condition, are being planned.

With oil prices down ~50% since their January peak, it is hard to predict where this is going both in terms of the Saudis and others flooding the market, or pure contango plays. Be that as it may, the beleaguered shipping industry is primed to rake it in while volume is king.
Source: Forbes

It actually seems like the shipping costs create a great advantage for the American oil industry to be able to sell to Americans, Mexicans, and Canadian. 

[El Nikko + 2,145]

On 3/14/2020 at 1:28 AM, Ward Smith said:

Whoops. The "pits" are salt domes. Add water and you get…brine, and the dome collapses. But other than that not a bad idea. 

BTW, back in my roughneck days I worked on the very first SPR site. 

Yeh I forgot to reply to your original post about the SPR,it was very interesting and I had no idea, are they really like caverns?

[Ward Smith + 6,615]

12 hours ago, El Nikko said:

Yeh I forgot to reply to your original post about the SPR,it was very interesting and I had no idea, are they really like caverns?

I'm not aware if anyone ever mined into them. I'd guess it could look like caverns. My understanding is the offshore Brazil salt domes are similar, but God filled those SPR's the old fashioned way.

Drilling was funky, had to use reverse circulation and minimize fluids for obvious reasons. 

Apologies to @Wombat I found This article and they do indeed inject water. I'm thinking that's why they're having integrity issues. It was hammered home on us so much to minimize water and mud that was what I remembered. It made perfect sense to me at the time, but things change. Apparently they went for cheap and easy and figured when they screwed up these perfect formations they'd find an unlimited supply of replacements. 

Edited March 15, 2020 by Ward Smith
Added link and apology

[Dan Clemmensen + 1,011]

I'm confused (my usual state). There is a projected oversupply of 800 million bbl of oil in 2020. But what does that mean? For any other physical product, it would mean an inventory build equal to the supply minus the demand. Does the world have the capacity to place an additional 800 million bbl of oil into inventory?  If not, producers will be forced by the laws of physics rather than the laws of economics to quit producing oil, right?

[ceo_energemsier + 1,818]

(Bloomberg) -- President Donald Trump ordered U.S. energy officials to purchase “large amounts” of oil to fill up the nation’s emergency reserve after the biggest price crash in a generation.

Replenishing the Strategic Petroleum Reserve -- as proposed by some oil lobbyists earlier this week in light of the collapse in prices -- would enable the government to take as much as 77 million barrels off the world market.

Oil prices jumped late Friday after Trump’s announcement, paring their worst weekly performance since 2008. Still, the purchases are unlikely to offset the supply boost major producers such as Russia and Saudi Arabia have promised in the coming month.

Within hours of Trump’s announcement, Energy Secretary Dan Brouillette was setting the purchases in motion. Brouillette issued a memo directing Assistant Secretary for Fossil Energy Steven Winberg “to immediately initiate the process of purchasing American-made crude oil for storage in the U.S. Strategic Petroleum Reserve as expeditiously as possible.”

Energy Department spokeswoman Shaylyn Hynes said the agency is working to develop a solicitation for the purchase of oil, which will be issued as soon as possible.

The U.S. stockpile, set up after the Arab oil embargo in the 1970s, has previously been tapped in response to emergencies, such as Hurricane Katrina. The reserve has a storage capacity of 713.5 million barrels, with some 635 million barrels now buried in underground salt caverns along the U.S. Gulf Coast.

‘Tidal Wave’

“While filling the SPR will not materially offset the tidal wave of new supply hitting the global oil market, it makes total sense from a national security and budgetary perspective,” said Bob McNally, founder of consultant Rapidan Energy Group.

“Better to buy low and before an emergency than the other way around,” said McNally, who oversaw the last major fill-up of the reserve as a top oil official at the White House during the George W. Bush administration.

The reserve can be filled at a rate of 225,000 barrels a day for most storage sites, the Energy Department said in 2016.

In recent years, Congress has used the stockpile as a piggy bank for government programs, and Trump had previously approved reducing it by half, something that critics opposed even as the shale revolution allowed the U.S. to reduce its reliance on imports.

If the government filled the reserve to capacity at today’s prices, the purchase would cost about $2.6 billion and could generate about 430,000 barrels-a-day of demand over approximately six months.

“We’re going to fill it right up to the top -- saving the American taxpayer billions and billions of dollars, helping our oil industry,” Trump said on Friday.

Currently the government expects oil supply to exceed demand by about 970,000 barrels a day this year. Yet one of the world’s biggest oil traders, Trafigura Group, now expects oil demand to contract by as much as 10 million barrels a day due to the coronavirus outbreak.

‘Right Price’

The U.S. has so far spent about $25.7 billion building the SPR, including $5 billion for facilities and almost the rest for crude. The average cost of the oil has been $29.70 a barrel.

Trump said the move to purchase now “puts us in a position that’s very strong, and we’re buying it at the right price.”

Crude prices plunged over 20% this week in the worst weekly slump since 2008 after major producers embarked on a war for market share by boosting output just as the coronavirus slams demand.

The price crash has put pressure on American shale drillers, several of which have cut capital spending and dividends to bolster their balance sheets.

”The president’s directive to the U.S. Department of Energy to restock the Strategic Petroleum Reserve can help alleviate the oversupply disruptions in the marketplace,” said Anne Bradbury, CEO of the American Exploration and Production Council.

Earlier this week, the administration suspended a planned sale of 12 million barrels of oil from the reserve, citing market conditions. Any further delay of that sale beyond Oct. 1 would require action from Congress.

[Boat + 1,323]

I think N America should set the price of oil at $55 and block all imports outside the Continent or make some kind of arrangement for “other” imported oil. Maybe price fixing for food stuffs and other essentials would protect the consumer and the producer while the virus disrupts the market. Time to act outside the box a bit.

[Wombat + 1,028]

On 3/15/2020 at 12:52 PM, George8944 said:

My sister-in-law lives in the States,  with much of her family still in Queensland.  I know all of them and my wife and I have been invited down south many times.  Eventually, we will make it.   I prefer cold weather so I'm more likely to visit and stay in Alaska with my daughter or explore the Yukon of Canada or Lapland above Finland.   

Fair enough. Winter in QLD gets quite cold too. No snow, but it gets close to zero at night and a crisp 20 degrees Celsius during the day. July/August is the best time 4u to visit if like it cool

[canadas canadas + 136]

It is better for the U.S. government to buy local produced U.S. crude oil at this time in order to support the U.S. domestic crude oil production industry rather than to buy any imported crude oil from other countries.

Edited March 17, 2020 by canadas canadas

[SERWIN + 749]

So if what I understand is true, Trump bought up a LOT of that cheap oil that SA dumped into the market, but it really is too late with the COVID19 slowing everything down anyway. MBS's attempt to hurt the Soviet market has done worldwide damage to the entire oil industry. So his little temper tantrum has cost the world again, so maybe we need a little temper tantrum of our own. If I was Trump, every friggin' scrap of military equipment and every person in the military would be packing up right now, and I would be telling that self entitled little prick to have a good time with Iran... I am sure Putin would be happy to allow Iran to have their way with them as well right now. Hmmmm, I know that until very recently that the ME was needed by us to keep up the flow of oil, but times have changed, and those little self entitled pricks don't get it yet, do they? Crap hole country with only one thing to offer, and we don't need it now like we used to. Maybe it is time to teach those self serving jerks a permanent lesson...

My wording was incorrect, I meant that we are buying oil from America that is cheap due to SA dumping all that oil into the market. My apologies y'all...

Edited March 17, 2020 by SERWIN

[SERWIN + 749]

Funniest thing about it though, we pull out and both us and the Russians just sit back and watch the dominoes fall, would be a great show, considering all the crap they have pulled on us the last 50 years. 

[SERWIN + 749]

13 hours ago, Boat said:

I think N America should set the price of oil at $55 and block all imports outside the Continent or make some kind of arrangement for “other” imported oil. Maybe price fixing for food stuffs and other essentials would protect the consumer and the producer while the virus disrupts the market. Time to act outside the box a bit.

It may be time we took the next step and fixed the price of oil in the US, but them again that is a form of Socialism. What would the ramifications be on our economy in the long term? A lot of jobs would be saved short term though... We have now seen what globalization has done for us(or to us I should say), so maybe it is time to start pulling in resources and mfg back home, because it is blatantly obvious that globalization has some major drawbacks that need to be addressed.

[canadas canadas + 136]

4 hours ago, SERWIN said:

It may be time we took the next step and fixed the price of oil in the US, but them again that is a form of Socialism. What would the ramifications be on our economy in the long term? A lot of jobs would be saved short term though... We have now seen what globalization has done for us(or to us I should say), so maybe it is time to start pulling in resources and mfg back home, because it is blatantly obvious that globalization has some major drawbacks that need to be addressed.

Neoliberalism is about government bailouts of companies,  It's like socializing losses and privatizing gains.  Socialism for the rich and capitalism for the poor.  The government has money available for whatever it wants.  It just depends on what the want is.  

[Guillaume Albasini + 851]

It's called "lemon socialism"

https://en.m.wikipedia.org/wiki/Lemon_socialism

[SERWIN + 749]

35 minutes ago, canadas canadas said:

Neoliberalism is about government bailouts of companies,  It's like socializing losses and privatizing gains.  Socialism for the rich and capitalism for the poor.  The government has money available for whatever it wants.  It just depends on what the want is.  

We are already doing that, justified with the idea that if they go out of business the rest of the country will fail as well. I say we should let'em fall. 2008 bailouts of GM, Citicorp, and so so many others....

[SERWIN + 749]

37 minutes ago, canadas canadas said:

Neoliberalism is about government bailouts of companies,  It's like socializing losses and privatizing gains.  Socialism for the rich and capitalism for the poor.  The government has money available for whatever it wants.  It just depends on what the want is.  

And my question is this, publicly traded companies managed SO POORLY that we had to bail them out, yet no one on trial for such pathetic mismanagement of the companies money, they all walked away free, most with bonuses to boot. I personally think that these bonuses should be made illegal, the only way a CEO and the upper management in a corporation should be allowed to get any bonus is the shareholders have a vote on the issue every year. 

[Bob D + 562]

No bailouts what so ever.  We should offer long term loans/credit support to companies in strategic industries.  I'll let you define 'strategic' but oil&gas, aerospace, military, food, medical local/regional banking are on my list.  Wall Street - I have such disdain I'm clouded as to my opinion.

[Andrew Neopalimy + 14]

“Isms” is the last century. Today it is necessary to create new ambivalent synthesized models of national (sovereign) states with a planned economy and an authoritarian centralized administrative control apparatus that who will quickly and flexibly respond to current and future challenges etc. depending on the historical moment. 

Edited March 17, 2020 by Andrew Neopalimy

[Dan Clemmensen + 1,011]

12 hours ago, SERWIN said:

It may be time we took the next step and fixed the price of oil in the US, but them again that is a form of Socialism. What would the ramifications be on our economy in the long term? A lot of jobs would be saved short term though... We have now seen what globalization has done for us(or to us I should say), so maybe it is time to start pulling in resources and mfg back home, because it is blatantly obvious that globalization has some major drawbacks that need to be addressed.

Set the oil price at a painfully low but survivable number like $40/bbl, by setting a countervailing tariff. For reasons I do not understand, tariffs are not "socialism" or "bailouts" to most people. The US government needs to intervene because we are fighting the Saudi and Russian governments, not a free market, so  classical free-market economics does not apply. a tariff on imported oil is a hidden tax on consumers of gasoline, but we know the consumers can tolerate $40/bbl oil. The weakest sahle producers will f\probably fail at $40/bbl, but the market will balance at a level that keeps the US a net exporter, and the OPEC and the Russians can go screw themselves.

 

[Boat + 1,323]

On 3/14/2020 at 10:52 PM, ronwagn said:

It actually seems like the shipping costs create a great advantage for the American oil industry to be able to sell to Americans, Mexicans, and Canadian. 

The US uses very little oil from the rest of the world. The US also has very cheap nat gas to refine oil. The costs disadvantage comes from fracking which is a higher cost than conventional drilling.

[Boat + 1,323]

8 hours ago, SERWIN said:

We are already doing that, justified with the idea that if they go out of business the rest of the country will fail as well. I say we should let'em fall. 2008 bailouts of GM, Citicorp, and so so many others....

You need to google those bailouts. The vast majority of the money was paid back with interest. The same type of action may be needed for many industries. With this virus the isolation period may be just a few months. While disruptive, not a long term problem. 
They describe actions like that “filling the economic hole” until the economy can restart.

[Boat + 1,323]

One of Obama’s success stories is little mentioned. He loaned Elon Musk 400 million to support the electric car. That money was paid back with interest. Around 20 million. The result? Jobs and a new company that will provide cleaner transportation. Trucks, semis and a cheaper car for the masses on the way. It will be interesting to see in 10 years the impact of that 400 million.

[Ward Smith + 6,615]

2 hours ago, Dan Clemmensen said:

Set the oil price at a painfully low but survivable number like $40/bbl, by setting a countervailing tariff. For reasons I do not understand, tariffs are not "socialism" or "bailouts" to most people. The US government needs to intervene because we are fighting the Saudi and Russian governments, not a free market, so  classical free-market economics does not apply. a tariff on imported oil is a hidden tax on consumers of gasoline, but we know the consumers can tolerate $40/bbl oil. The weakest sahle producers will f\probably fail at $40/bbl, but the market will balance at a level that keeps the US a net exporter, and the OPEC and the Russians can go screw themselves.

Many years ago, Canada created their oilsands Industry by a very simple mechanism. They established a floor for the price of oil, which IIRC was also $40/bbl. The nascent Industry just needed stable pricing for a period of time to get their processes figured out. The Canadian government had to buy some oil to establish that floor, but they made every dime back with profit once the industry really began producing once the training wheels weren't needed anymore. I'm going to say they bought less than 200k bbls at that price, because producers just didn't have much output in the beginning and eventually the market was far higher than $40. 

[Douglas Buckland + 6,308]

16 hours ago, SERWIN said:

So if what I understand is true, Trump bought up a LOT of that cheap oil that SA dumped into the market, but it really is too late with the COVID19 slowing everything down anyway. MBS's attempt to hurt the Soviet market has done worldwide damage to the entire oil industry. So his little temper tantrum has cost the world again, so maybe we need a little temper tantrum of our own. If I was Trump, every friggin' scrap of military equipment and every person in the military would be packing up right now, and I would be telling that self entitled little prick to have a good time with Iran... I am sure Putin would be happy to allow Iran to have their way with them as well right now. Hmmmm, I know that until very recently that the ME was needed by us to keep up the flow of oil, but times have changed, and those little self entitled pricks don't get it yet, do they? Crap hole country with only one thing to offer, and we don't need it now like we used to. Maybe it is time to teach those self serving jerks a permanent lesson...

My wording was incorrect, I meant that we are buying oil from America that is cheap due to SA dumping all that oil into the market. My apologies y'all...

Let’s get on the reality railroad. This is NOT a price war between Saudi Arabia and Russia. This is another coordinated attempt to diminish the US shale oil industry. The Saudis flooded the market back in 2014 to force them out of business. That was too painful for OPEC financially and it didn’t work. Production cuts were tried and didn’t work as the shale players, in a free market economy, were not required to show restraint or play along with the cuts.

The rise of the corona virus and dropping demand globally made for another opportunity. 

Of course, causing a global recession during a perceived pandemic is a risky ploy, and if proven, will destroy any economic or political collateral that may have existed previously.

Rightly or wrongly, due to hysteria or not, the rest of us are simply along for the ride now.
 

 

 

Edited March 18, 2020 by Douglas Buckland
Typo