Government Bailout of Oil Industry

[Douglas Buckland + 6,308]

5 hours ago, ronwagn said:

I might normally agree but the shale oil industry is the greatest tool we have in our foreign policy tool box, aside from our armed forces. It provides us with the tool we need to peacefully weaken our enemies and help our friends. Without the oil industry we might all be speaking German or Japanese. Certainly Europe would be speaking German.   

Perhaps, but how long will this shale oil miracle last and be a foreign policy tool? Even before this recent pissing contest between Russia and Saudi the shale oil industry was showing signs of weakening. Tight rock and no money will do that.

Should the US oil industry put all it’s eggs in the shale oil basket and isolate itself from the international oil and gas community under the assumption that the shale oil miracle will last forever?

I agree with the idea of ‘America first’ from the US government....that is their job, but burning bridges internationally will come back to haunt us.

[ronwagn + 6,290]

1 minute ago, Douglas Buckland said:

Perhaps, but how long will this shale oil miracle last and be a foreign policy tool? Even before this recent pissing contest between Russia and Saudi the shale oil industry was showing signs of weakening. Tight rock and no money will do that.

Should the US oil industry put all it’s eggs in the shale oil basket and isolate itself from the international oil and gas community under the assumption that the shale oil miracle will last forever?

I agree with the idea of ‘America first’ from the US government....that is their job, but burning bridges internationally will come back to haunt us.

A very good question. My logical answer would be for us to start using our cleaner and far more abundant natural gas. We need a long term plan to do this. We can use it by encouraging natural gas vehicles and/or natural gas electricity for electric vehicles. We do not need foreign energy of any kind IMO. There is very well proven technology for natural gas vehicles of all sizes. We have many decades worth of oil left to get the job done. There is no good reason not to do it. Every existing ICE vehicle can be converted if that is necessary. They can also be converted to dual fuel gasoline and CNG or diesel and CNG or LNG. All of this is irrefutable. 

[ceo_energemsier + 1,818]

President Donald Trump has directed the U.S. Energy Department to buy “large quantities” of oil for the government’s strategic petroleum reserve following this week’s crash in oil prices.

“We’re going to fill it right up to the top,” Trump said in a briefing on the coronavirus outbreak, adding that he’s instructed the Energy Department to buy crude “at a very good price.” Oil lobbyists had been pressing the Trump administration to make purchases for the reserve as U.S. shale drillers face the worst crude market collapse in a generation.

Buying oil for the reserves means “saving the American taxpayers billions of dollars” and “helping our oil industry,” Trump said. It will also, he said, bring the nation further toward its goal of achieving energy independence.

[0R0 + 6,251]

2 hours ago, Wombat said:

Oro, u need to remember that Fed is a "geo-political animal" and does not necessarily share your concerns for the global economy. In their eyes "you should never waste a good crises"?

Yes, they do have some geopolitical positioning to take care of. But their target is the same pool in which both US and foreign credit is allocated. If China banks are distressed, that translates into stress in the Eurodollar system in general, and they draw their liquidity in the US and dry out the money markets Repo etc. so you get large bid ask spreads and Treasuries trading like Tesla shares. So by avoiding 100 billion interventions trying to "cure" the demand for liquidity by not increasing to match oversubscriptions, the Fed turned a 1/2 trillion problem into a $5 Trillion intervention. 

There is no border for liquidity. The Fed may be trying to pull  on China's strings, but that is unlikely. The general reaction and discussion avoids any reference to the Eurodollar events with no real effort made to even collect data in a timely fashion. Their philosophy is that when the foreign central banks ask for currency swaps they will put up the necessary facilities. It looks far less than something purposeful than as just plain oblivious ignorant Fed members Constantly thinking these things are someone else's problem. When the liquidity hole rolls into the US markets and goes through assets like a wrecking ball, the hole had been magnified by the defacto leverage in the financial system - meaning $100 Billion turns into $1-2 Trillion of distressed assets. 

And the funny thing about it is that only Powell and Kashkari have direct experience in the matter. The NY Fed head is usually the financial markets expert, Powell stuffed the post with a labor economist. Incompetence.

[George8944 + 128]

17 minutes ago, ceo_energemsier said:

President Donald Trump has directed the U.S. Energy Department to buy “large quantities” of oil for the government’s strategic petroleum reserve following this week’s crash in oil prices.

I heard that too.  I'm still deciding if this is a good thing.  I think it is. The joke will be on us when they top off the tanks with Saudi oil.

[Ward Smith + 6,615]

3 hours ago, Wombat said:

Yes, and the method of extracting the oil is very simple. The simply pump water into the bottom of the pits and the oil floats to the surface. This is what they have been doing the last few years as the SPR has been sold off. Time to refill it!

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. 

[Wombat + 1,028]

29 minutes ago, 0R0 said:

Yes, they do have some geopolitical positioning to take care of. But their target is the same pool in which both US and foreign credit is allocated. If China banks are distressed, that translates into stress in the Eurodollar system in general, and they draw their liquidity in the US and dry out the money markets Repo etc. so you get large bid ask spreads and Treasuries trading like Tesla shares. So by avoiding 100 billion interventions trying to "cure" the demand for liquidity by not increasing to match oversubscriptions, the Fed turned a 1/2 trillion problem into a $5 Trillion intervention. 

There is no border for liquidity. The Fed may be trying to pull  on China's strings, but that is unlikely. The general reaction and discussion avoids any reference to the Eurodollar events with no real effort made to even collect data in a timely fashion. Their philosophy is that when the foreign central banks ask for currency swaps they will put up the necessary facilities. It looks far less than something purposeful than as just plain oblivious ignorant Fed members Constantly thinking these things are someone else's problem. When the liquidity hole rolls into the US markets and goes through assets like a wrecking ball, the hole had been magnified by the defacto leverage in the financial system - meaning $100 Billion turns into $1-2 Trillion of distressed assets. 

And the funny thing about it is that only Powell and Kashkari have direct experience in the matter. The NY Fed head is usually the financial markets expert, Powell stuffed the post with a labor economist. Incompetence.

I thought Congress out-lawed swap lines in Dodd-Frank?

[Wombat + 1,028]

8 minutes ago, 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. 

Good point! Dunno where I read that, but it was only recently.

[Wombat + 1,028]

25 minutes ago, George8944 said:

I heard that too.  I'm still deciding if this is a good thing.  I think it is. The joke will be on us when they top off the tanks with Saudi oil.

Not at all. The more Saudi Oil u get at $30, the better! I just wish the Australian Govt had the brains to do same thing.

[Ward Smith + 6,615]

1 hour ago, Douglas Buckland said:

And just how long would the SPR last at the US useage levels peior to the recent corona virus scare and pissing contest between Russia and Saudi?

Theoretically, six months. But the so called usage rate of the US is flawed, and has been for decades. We've got some of the the best refineries in the world and for the decades the US wasn't allowed to export crude oil, there was no such limit on refined goods, which amounted to about 4 million bbls equivalent per day! That skewed everything, including the idiots doing climate studies who falsely assumed A) that every drop America "consumed" was burned vs going into plastics, tires, asphalt and so on and B) thoroughly ignored the refined goods being exported every day. 

I'll guarantee right here, right now that should an emergency show up, we'd stop selling refined goods and probably start implementing rationing. That should extend the SPR (plus production, which should increase in an emergency) dramatically. But only if someone intelligent like Trump is in charge. Love him or hate him, there's no way in hell an Obama manages through that crisis. 

[George8944 + 128]

5 minutes ago, Wombat said:

Not at all. The more Saudi Oil u get at $30, the better! I just wish the Australian Govt had the brains to do same thing.

That would seem logical, but there's much to consider on what constitutes "better".  Lowest price isn't the only consideration here.  The goal is not to fill the reserve.  We don't need to top off the reserve right now so the purchase is a polital gesture and charity at this point in time.   My thought is the US Gov would buy at the current going rate and not a highly inflated rate, but the money needs to flow back into US companies.  I want the most economic bang for my tax payer buck.  They are only buying 80-90 mbls.  That's only one week of US production!   I hope they buy in volumes just large enough to offset US demand due to the virus.

( My sister-in-law is an Aussie!  Maryborough, Queensland ) 

[Wombat + 1,028]

10 minutes ago, George8944 said:

That would seem logical, but there's much to consider on what constitutes "better".  Lowest price isn't the only consideration here.  The goal is not to fill the reserve.  We don't need to top off the reserve right now so the purchase is a polital gesture and charity at this point in time.   My thought is the US Gov would buy at the current going rate and not a highly inflated rate, but the money needs to flow back into US companies.  I want the most economic bang for my tax payer buck.  They are only buying 80-90 mbls.  That's only one week of US production!   I hope they buy in volumes just large enough to offset US demand due to the virus.

( My sister-in-law is an Aussie!  Maryborough, Queensland ) 

Fair enough, but the way I see it, buying a Cpl 100 mb necessary just to stabilise price at $30 for a while. CV crises quickly turning into financial crisis as well. Need to buy time for public to accept need to bailout banks, oil industry, auto etc.

[Wombat + 1,028]

15 minutes ago, George8944 said:

That would seem logical, but there's much to consider on what constitutes "better".  Lowest price isn't the only consideration here.  The goal is not to fill the reserve.  We don't need to top off the reserve right now so the purchase is a polital gesture and charity at this point in time.   My thought is the US Gov would buy at the current going rate and not a highly inflated rate, but the money needs to flow back into US companies.  I want the most economic bang for my tax payer buck.  They are only buying 80-90 mbls.  That's only one week of US production!   I hope they buy in volumes just large enough to offset US demand due to the virus.

( My sister-in-law is an Aussie!  Maryborough, Queensland ) 

PS: 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

[Ward Smith + 6,615]

28 minutes ago, George8944 said:

That would seem logical, but there's much to consider on what constitutes "better".  Lowest price isn't the only consideration here.  The goal is not to fill the reserve.  We don't need to top off the reserve right now so the purchase is a polital gesture and charity at this point in time.   My thought is the US Gov would buy at the current going rate and not a highly inflated rate, but the money needs to flow back into US companies.  I want the most economic bang for my tax payer buck.  They are only buying 80-90 mbls.  That's only one week of US production!   I hope they buy in volumes just large enough to offset US demand due to the virus.

( My sister-in-law is an Aussie!  Maryborough, Queensland ) 

I'm not convinced that's the upper limit. As long as they can find room in any storage it should still be part of the "Reserve". Meanwhile, buying generic oil from American suppliers even LTO, has great value including giving a floor to the spot price. It's better to do this generically than pick winners and losers at the individual company level. We saw too much of that in the banking crisis. 

[0R0 + 6,251]

2 hours ago, Douglas Buckland said:

Perhaps, but how long will this shale oil miracle last and be a foreign policy tool? Even before this recent pissing contest between Russia and Saudi the shale oil industry was showing signs of weakening. Tight rock and no money will do that.

Should the US oil industry put all it’s eggs in the shale oil basket and isolate itself from the international oil and gas community under the assumption that the shale oil miracle will last forever?

I agree with the idea of ‘America first’ from the US government....that is their job, but burning bridges internationally will come back to haunt us.

The oil is great. But it is the cheap gas that is the real prize. Plentiful cheap and is starting to rapidly displace diesel.and has already done a number on petrochem inputs. 

[0R0 + 6,251]

1 hour ago, Wombat said:

I thought Congress out-lawed swap lines in Dodd-Frank?

I don't remember if it made it into the final legislation. But dollar swap spreads are costing double those for the Euro Yen and Pound. It is an opportunity to arbitrage that is sitting on the table since Dodd Frank because of the tighter leverage limits on the US side. So Eurodollar banks always ask to make your side of a transaction produce a dollar swap on their side so they can turn it on the market and make the spread.

The Fed can back up US banks offering swaps for other central banks. The Law does not apply there. 

Edited March 14, 2020 by 0R0

[Douglas Buckland + 6,308]

3 hours ago, ronwagn said:

A very good question. My logical answer would be for us to start using our cleaner and far more abundant natural gas. We need a long term plan to do this. We can use it by encouraging natural gas vehicles and/or natural gas electricity for electric vehicles. We do not need foreign energy of any kind IMO. There is very well proven technology for natural gas vehicles of all sizes. We have many decades worth of oil left to get the job done. There is no good reason not to do it. Every existing ICE vehicle can be converted if that is necessary. They can also be converted to dual fuel gasoline and CNG or diesel and CNG or LNG. All of this is irrefutable. 

So what about the petrochemicals industry?

[Douglas Buckland + 6,308]

What about those of us who simply do not want an electrical or LNG vehicle?

[PE Scott + 563]

15 minutes ago, Douglas Buckland said:

What about those of us who simply do not want an electrical or LNG vehicle?

Foot powered like the flintstones. 

[ronwagn + 6,290]

10 minutes ago, Douglas Buckland said:

So what about the petrochemicals industry?

Natural gas is used to make ethylene the main basis for plastics and can be used in many processes. There would still be plenty of oil for that too. Many of the chemicals can be made from coal also. I am no chemist, so I can't go into detail. I lived near a large ethylene plant in Illiopolis Illinois. It was sold by Borden, I believe, to a Japanese firm but it exploded a few years later killing several workers. 

https://en.wikipedia.org/wiki/Ethylene

[ronwagn + 6,290]

19 minutes ago, Douglas Buckland said:

What about those of us who simply do not want an electrical or LNG vehicle?

Gasoline and diesel can be made from coal, but you are talking silly. You know damn well there will be no shortage of oil in our lifetime. 

Edited March 14, 2020 by ronwagn

[zextaz + 20]

it take a real bank # and SS # to be a trader how many of those were leaked in past 5 years? you think krimlin dint already infested the stock market with bots? i know for a fact when i registered my trading account i dint meet with anyone i just sent paper and digitally signed it i even have the option to show or hide account balance on my bank web page criminals bots probably use that function to hide illicit activity using real ppl ID 

[zextaz + 20]

at least bitcoin crashed after my last post this is a sign that someone is ensuring that this illicite fake currency get cleaned out of our banking this bitcoin crash probably cause putin to have an erection drop from maximum level to a flaccid one either someone made it crash or he cash on to start buying asset with USD

[zextaz + 20]

owning a bitcoin should be illegal its a pyramidal scam at high level or a trusted fund exchange for criminal 

[notsonice + 1,068]

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