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We need to immediately put a tariff on all imported oil to the USA to keep our domestic oif field service companies, and oil field workers from disappearing.

They are in the worst condition than any industry yet they never get bailed out?  

 

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(edited)

On 3/25/2020 at 2:15 PM, Don Moilan said:

We need to immediately put a tariff on all imported oil to the USA to keep our domestic oif field service companies, and oil field workers from disappearing.

They are in the worst condition than any industry yet they never get bailed out?  

 

I change my opinion.  This is a GOOD IDEA.  If OPEC countries want to kill shale screw them.  

Tariff oil imports $15 bbl.  I would exempt Canada even though they are the largest exporter to U.S.  Plus the Gulf of Mexico refiners  need their heavy oil. 

Let's go with it.  

If Saudi Arabia doesn't  heed Pompeo's request to stop the insanity tariff all their imports.  

 

Edited by BLA
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^

Best plan. 

Shoot 'em all. Let the market sort 'em out.

I guarantee that when the shooting is over and the price rises, somebody's going to want to drill the shale. 

For that matter, who is going to have the money to go drill elsewhere?

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Terrible idea. 

US is the largest oil consumer and the highest per capita user among industrialized countries. We CRAVE cheap oil. We NEEDs it. 

The shale industry benefits the US because it lowers oil costs here. Particularly relative to the global benchmark. 

We used to pay a 10% premium, Now we pay a 10% DISCOUNT. That 20% swing is a terrific tail wind to the US economy. A competitive boost too.

A post bankruptcy shale industry is going to have unburdened its historical legacy of bad lease terms and excess debt so could, for once actually be cash flow positive across the industry once prices recover. 

That also means that it will kick into gear when 9 month forward futures pick up to unexciting price levels even if spot remains depressed. At current Jan2021 contract at $34 there are some producers who breakeven even before restructuring. 

The best thing the US can do is store up as much oil as it can obtain at a cost below domestic production. Say thank you to Saudi and Russia and IMPORT the ultra cheap oil. We will need it. 

Storage may take a while to open capacity, but a few conventional oil fields have a large capacity to reinject oil into intact reservoirs using well maintained pipeline infrastructure. If we can fund it, I say go wild and stuff it with as much oil as you can. 

Don't make policy to favor the shale patch at everyone's expense. 

The tariff idea is demented. The US processes enormous amounts of Saudi and Russian oil and re-exports it as finished goods. 

If Trump has it right and the virus will be cresting within days as Prof. Levitt predicts, and the treatments tested over the past two months are as successful as they seem to be already, then the crisis is over NOW and we will resume a semblance of normal economic activity again as soon as the dementia addled governors will let us. The crisis as it is today is not a coronavirus problem any longer, but a headless chicken policy response. I would say remove the entire panoply of emergency powers from all levels of government so that it can't happen again. They failed to act when it was possible to delay the disease propagation, they started acting when virus contagion probably reached a large minority of the population in dense central metros, and went full on lockdown when essentially all have been exposed to the virus. So if they don't use their powers when it matters, they should not have them to torture us with useless responses AFTER the failure of containment. 

So the next step in recovery is the "China Free" supply chain movement to pull China out of the global supply chain and finance. It will consume commodities and oil. It is on the order of $3 Trillion.

 

 

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22 minutes ago, 0R0 said:

At current Jan2021 contract at $34 there are some producers who breakeven even before restructuring. 

Name one . . . along with reasonable substantiation of that ability. I certainly don't know of one. 

 

25 minutes ago, 0R0 said:

Storage may take a while to open capacity, but a few conventional oil fields have a large capacity to reinject oil into intact reservoirs using well maintained pipeline infrastructure.

That's right, but I imagine the cost of reverse flowing the pipelines, and then retrieving it will eat up any savings. 

 

27 minutes ago, 0R0 said:

The crisis as it is today is not a coronavirus problem any longer, but a headless chicken policy response.

In the center of commerce in the United States, NYC, they're asking for 130,000 additional ventilators. That's a large number.

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4 minutes ago, Gerry Maddoux said:
36 minutes ago, 0R0 said:

The crisis as it is today is not a coronavirus problem any longer, but a headless chicken policy response.

In the center of commerce in the United States, NYC, they're asking for 130,000 additional ventilators. That's a large number.

Hence the headless chicken response. There is panic and no means to react. Cuomo has no substantial industrial production left in NY state because his party's regulations drove them away. He personally, and his predecessors have made sure that fast production can't be done in NY state. 

There are 6 manufacturing companies (including all the automakers) working with Medtronic to  produce ventilators on their manufacturing lines. They also released the specs and production process info for their basic model to anyone who can make it. No amount of hand waving from the government will make it go any faster than it is. The Defense Production act is more a tool to push action and lower price than it is a real option to move things. The Federal government can't run an efficient production line to produce anything in any time frame. Yet Cuomo acts as if legal power results in actual physical action on the ground that would not be there otherwise. The essence of his complaint is that not all the ventilators being made are going straight to NYC. 

Everyone who can is trying to make medical equipment. The FDA has (at last) lightened its certification criteria and inspection process so that it can happen. 

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21 minutes ago, Gerry Maddoux said:
52 minutes ago, 0R0 said:

At current Jan2021 contract at $34 there are some producers who breakeven even before restructuring. 

Name one . . . along with reasonable substantiation of that ability. I certainly don't know of one. 

 

The first thing to learn about oil is that within a broad band, all the costs scale to the price of oil. Thus rig rates, crew rates, pump and control system lease rates and oil services fees roughly adjust with oil prices. Of course, below a certain price level the crews scatter and the rigs are mothballed etc. but that leaves a great deal of flexibility. 

WTI-Breakeven-Prices-for-50-Most-Commerc

This is as of end 2018. Costs are significantly lower now. If you remove lease costs, then most companies see an additional $5 to $10 less expense. 

https://www.dallasfed.org/research/economics/2019/0521

Don't know if I can find it again, but I came across an industry practitioner comment that they contracted a couple of weeks ago to have a set of wells drilled and fracked at ~$480/ft. $400/ft is possibly the bottom cost now after the OPEC blowup. 

 

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37 minutes ago, Gerry Maddoux said:
1 hour ago, 0R0 said:

Storage may take a while to open capacity, but a few conventional oil fields have a large capacity to reinject oil into intact reservoirs using well maintained pipeline infrastructure.

That's right, but I imagine the cost of reverse flowing the pipelines, and then retrieving it will eat up any savings. 

I have no figures, just comments, mostly from here. Not an overnight event, and may only work with a "disposal" cost of oil. But it happened for NG at negative prices and may well happen in oil.

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^

You can't formulate without facts, and you can't get reliable facts on break-even costs from one single producer, much less the group of them. You can certainly get  plenty of huff and puff (at least when oil is at $60) but you can't get facts. My supposition? If the break-even cost for production in the shale basin was $34--even for only one producer--that person or group of people would be buying drilling rights hand over fist. 

Trust me, that's not happening. So one must suppose that the break-even price is somewhere above $34. Where is that mysterious level? Since junk bonds supporting the shale endeavor are heavily discounted, and since the banks underwriting shale drillers sell off every time there is a downtick in the stock market, I have to assume that the real break-even price is somewhere well above $34. 

Your response was to buy up cheap Saudi and Russian oil and store it somewhere--probably in an old barely working field with thousands of holes shooting into a large mostly-empty reservoir interconnected to the working part of the oil world through infrastructure that could be easily activated to go both ways. Think about the logistics of doing that. How much will each well hold? Will the oil that's put down the hole come back out on its own or will it need to be lifted by using methane, or helium? Or is a large measure simply going to be lost for good? I could easily imagine a scenario whereby you'd lose 25% of what you put down and that it would cost a lot to retrieve the rest.

So that little circular firing squad puts us back to the gentleman's idea of placing a tariff on imported oil. You called it a "terrible idea." Then recommended these sterling ideas of your own, with absolutely no basis in fact. I'm not the word police, but the man had a damn good idea--especially when you compare it to going on a shopping spree to buy all the oil this maniac in Saudi Arabia can produce until he goes broke.

Don't you get it? The prince is an angry, vindictive, childish person in charge of the oil price to the world. He is also in charge of a very large refinery, which happens to be on US soil. His country gets by with spawning most of the 911 perpetrators. He gets by with the murder of a journalist who happens to live in the US. And we're to just sit by and let him destroy the oil market because we're #1 now?

There are several scenarios: 1) A tariff, which the gentleman above proposed--not a terrible idea and by far the mildest of all exogenous pressures, 2) NOPEC, which effectively opens the KSA up to a flurry of lawsuits over 911 and also potentially shuts down their refinery for improper price-fixing, 3) An out and out embargo of Saudi oil, and 4) Let the market go, in the process bankrupting the kingdom but also potentially damaging the shale drillers to the extent that we lose any semblance of energy-independence. From that list take your pick. This is the entire list. Unless of course, the prince suddenly comes out of his fever dream of times past. 

We are said to be at over 75% storage levels. It is predicted that if this keeps going we'll be 100% full by Christmas--if it even comes this year. Since you're such a strong proponent of storage of cheap oil, tell us, please, what happens, exactly, at 100% storage? $5 oil? $2? I'm asking here, because like the coronavirus, no one has ever seen storage capacity maxed out. I'm sorry if this seems preacherly, but I get the distinct impression you just wanted to rattle off some dialogue without thinking it through. 

Letting a deranged prince destroy the oil markets of the world is not much of a plan. 

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(edited)

8 hours ago, Don Moilan said:

We need to immediately put a tariff on all imported oil to the USA to keep our domestic oif field service companies, and oil field workers from disappearing.

They are in the worst condition than any industry yet they never get bailed out?  

 

Two things here:

First, the shale oil boys didn’t give a damn about putting foreign workers, or American oil workers overseas, out of work with their undisciplined production practices, so why should anyone care when they put out of work by a result of these same practices?

Second, putting tariffs on foreign oil may sound good now, but when the US shale oil miracle falters or fails (and it will) those foreign countries you imposed tariffs on, and whose oil you now need, are going to be in ‘payback mode’.

Edited by Douglas Buckland
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“In the center of commerce in the United States, NYC, they're asking for 130,000 additional ventilators. That's a large number.”

New York is always asking for something as long as they do not have to pay for it...

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2 hours ago, Gerry Maddoux said:

Name one . . . along with reasonable substantiation of that ability. I certainly don't know of one. 

 

That's right, but I imagine the cost of reverse flowing the pipelines, and then retrieving it will eat up any savings. 

 

In the center of commerce in the United States, NYC, they're asking for 130,000 additional ventilators. That's a large number.

1. Kuwait, UAE, Iran, KSA, Venz…… Many breakevens under 34$.

2. Reverse flowing to some south Texas fields at todays cost per barrel times 500mb and re-return to surface the price in negligible. Common sense is to buy as much as we can get without borrowing money to do. 

3.NYC....'nuff said...…..lol

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26 minutes ago, Gerry Maddoux said:

Letting a deranged prince destroy the oil markets of the world is not much of a plan. 

I'm reasonably certain @0R0 isn't in charge of a deranged Saudi prince. Admittedly he used his high IQ with low information and surmised that what works for gas might work for oil. Unfortunately the correlation is too low for that to fly. Oil is too viscous, methane isn't. 

You and I disagreed about the CDC incompetence. I didn't fight with you at the time, I respect you too much. I think you've now come around to my way of thinking about them as evidenced by your subsequent posts. I'd like you to cut 0r0 some slack please. 

Here's an interesting stat from the oil embargo in the 70's. The government was trying to figure out where all that fuel had gone. Then someone did some thinking and calculated that there were 300 million vehicles with an average fuel tank holding 15 gallons.  That's a lot of gas and diesel. Another thing to think about are the hundreds of thousands of miles of pipelines moving crude and refined product at essentially walking speed. Everything was fine when input essentially equaled output. Now there's no place for refined goods to go, cars are staying in their garage, people are staying home. That won't last forever. 

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28 minutes ago, Douglas Buckland said:

Second, putting tariffs on foreign oil may sound good now, but when the US shale oil miracle falters or fails (and it will) those foreign countries you imposed tariffs on, and whose oil you now need, are going to be in ‘payback mode’.

Tariffs on a degraded market? Swimming in oil and Saudi and Russian Xtra oil hasn't even been shipped yet. Makes zero sense to make enemies when U.S.of A. oil is limited. Shale oil might last 20 years that is recoverable for fair price. After that break-even will rise quite rapidly. 

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Gee whiz, you've all convinced me.

Splendid idea: Buy all the cheap oil and store it wherever. 

Max out the storage all over the world.

Let me know how that works out, will you?

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3 minutes ago, Gerry Maddoux said:

Gee whiz, you've all convinced me.

Splendid idea: Buy all the cheap oil and store it wherever. 

Max out the storage all over the world.

Let me know how that works out, will you?

If the Crowned Prince wants to play games and sell oil for 20$ a barrel, we'd be fools not to inhale contracts for a billion barrels. My math isn't that fuzzy and guarantee in 2 years 60$ will be the norm again.

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4 minutes ago, Old-Ruffneck said:

If the Crowned Prince wants to play games and sell oil for 20$ a barrel, we'd be fools not to inhale contracts for a billion barrels. My math isn't that fuzzy and guarantee in 2 years 60$ will be the norm again.

I tend to disagree Roughneck. If everyone just buys oil like crazy and shoves it into storage, it will take decades to get back to $60/bbl. Even with storage less than 100% full and with shale oil pumping like there was no tomorrow, we were struggling to hold at $50/bbl.

With storage maxed out and EVERYONE starting to pump back into the market we end up in the same situation, except this time storage is maxed out.

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54 minutes ago, Douglas Buckland said:

Two things here:

First, the shale oil boys didn’t give a damn about putting foreign workers, or American oil workers overseas, out of work with their undisciplined production practices, so why should anyone care when they put out of work by a result of these same practices?

Second, putting tariffs on foreign oil may sound good now, but when the US shale oil miracle falters or fails (and it will) those foreign countries you imposed tariffs on, and whose oil you now need, are going to be in ‘payback mode’.

There is plenty of oil around the world and I doubt we would ever run out of sellers. How long from now are you guessing that would happen. I am thinking decades and then there is natural gas. Call me a broken record. 😊

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The value of something does not necessarily correspond to its price. 

I see "art" selling for millions of dollars and see gorgeous furniture lovingly built by hand that sells for peanuts. So many items have prices that are out of whack with reality I really couldn't name them all. Petroleum is only one of them, its value is consistent but its price fluctuates all over the place.

Traders make markets in oil, but of course they'll never receive a single drop. Only refiners actually get the stuff, and they're the only ones who have a clue what to do with it. Maybe instead of placing tariffs on foreign countries, we take oil off the futures markets? How long would it really take for oil to find its own level between producers and consumers (refiners)? Pipe dream I know, too much money sloshing around and a market that's too easily manipulated. 

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59 minutes ago, ronwagn said:

There is plenty of oil around the world and I doubt we would ever run out of sellers. How long from now are you guessing that would happen. I am thinking decades and then there is natural gas. Call me a broken record. 😊

Aye, but that’s the problem! We are now swimming in oil! Why buy ‘new’ oil, encouraging new production, when there is so much ‘old’ oil out there that needs used up before any serious consideration is given to finding a stable oil price.

I an NOT a financial guy but this incessant pumping into a flooded market, which was occurring long before the present Saudi vs Russia pissing contest began, makes absolutely no sense from a Keynesian supply vs demand perspective.

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15 minutes ago, Ward Smith said:

The value of something does not necessarily correspond to its price. 

I see "art" selling for millions of dollars and see gorgeous furniture lovingly built by hand that sells for peanuts. So many items have prices that are out of whack with reality I really couldn't name them all. Petroleum is only one of them, its value is consistent but its price fluctuates all over the place.

Traders make markets in oil, but of course they'll never receive a single drop. Only refiners actually get the stuff, and they're the only ones who have a clue what to do with it. Maybe instead of placing tariffs on foreign countries, we take oil off the futures markets? How long would it really take for oil to find its own level between producers and consumers (refiners)? Pipe dream I know, too much money sloshing around and a market that's too easily manipulated. 

I was always of the opinion that the paper traders were a root cause of the oil market problems. They NEVER have to take possession of what they ‘buy’ and never have to store it.

What would happen (perhaps you could sort me out here) if they actually had to take possession?

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You seem to have an economic model in your head. I am looking for geopolitical strength for America by weakening Russia and OPEC. That is probably our difference. 

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34 minutes ago, Ward Smith said:

The value of something does not necessarily correspond to its price. 

I see "art" selling for millions of dollars and see gorgeous furniture lovingly built by hand that sells for peanuts. So many items have prices that are out of whack with reality I really couldn't name them all. Petroleum is only one of them, its value is consistent but its price fluctuates all over the place.

Traders make markets in oil, but of course they'll never receive a single drop. Only refiners actually get the stuff, and they're the only ones who have a clue what to do with it. Maybe instead of placing tariffs on foreign countries, we take oil off the futures markets? How long would it really take for oil to find its own level between producers and consumers (refiners)? Pipe dream I know, too much money sloshing around and a market that's too easily manipulated. 

You can't do that because that makes the oil patch instantly unbanked and impossible to finance. You could have done that before Dodd Frank's Volcker rule because the hedging and packaging of loans and forwards contracts was done indoors at the banks and only the tail end reached the open outcry markets. Can't be done today. What banks can do within their own client base is as far as they can go, everything else has to go to the open market in futures and options. 

 

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Pumping oil back into the ground is funny.

Remember the last time the US sold off some of the strategic reserves? It was so contaminated the government ended up paying settlements to refineries because it messed up the catalysts.

https://www.reuters.com/article/us-usa-oil-contamination-exclusive/exclusive-firms-complain-of-contaminated-crude-from-u-s-reserve-idUSKBN1H50GI

Buy Canadian oil - we can make a barrel equivalent for like $12 last I checked.

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1 hour ago, Douglas Buckland said:

I was always of the opinion that the paper traders were a root cause of the oil market problems. They NEVER have to take possession of what they ‘buy’ and never have to store it.

What would happen (perhaps you could sort me out here) if they actually had to take possession?

Far as I am concerned, this practice for all commodies should be outlawed.  No futures trading period.  But hey, people love to gamble and pretend they are "working" when in fact they are nothing but a drain on society. 

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