TARIFF ON FOREIGN OIL

[Enthalpic + 1,496]

All those market short circuits are because computers do too much of the trading.

It's not even paper pushers... welcome your new AI masters.

[Enthalpic + 1,496]

22 minutes ago, footeab@yahoo.com said:

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. 

With covid plague near everyone is pretending to be working! haha.

Edited March 26, 2020 by Enthalpic

[0R0 + 6,251]

2 hours ago, Gerry Maddoux said:

^

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. 

I can't give you the details of the reinjection  oil storage scheme without doing the detailed engineering work on an actual candidate field. And I have been out of the oil patch since 1985. I would rather ask @ceo_energemsier and his colleagues how feasible it is and what the state of candidate oil fields actually is, and what the cost would be. I have not found a serious engineering and financial estimate posted online so I can't provide you with the solid numbers you require. If you want to pay me to do it then I could. But I a sure everyone in the old line oil companies are checking out their oil fields to work out which spent wells to take out and how to reroute the piping. There is nothing like buying your product well below its production price. My finger to the wind estimate is that it will require gas injection for recovery, but that reinjection and re-lifting total cost would be about the same as lifting a drilled conventional well with gas reinjection X2. About $5/bbl + pipeline fees both ways. Integrated cos. would own both the leases wells and pipelines so ~$5-6 for the full cycle to store a bbl. Just a guesstimate. But good enough to raise the issue here.

I posted before what I think MBS is trying to do. I am not sure if you like that reading, but you obviously don't agree. Russia believes that the market was somehow naturally priced at some point in history and that their market share should reflect their low cost production compared to the supposedly high cost shale frackers. But that is not how a free market works. In the free market the lowest cost producer takes up the greatest market share and maximizes their production capacity. Russia is not that. The only reason they had market share that high was because OPEC cut production when supply overheated or demand fell. The Shale patch is there and will remain there regardless. It is either going to be 50% in mothballs till the market evens out when Russia and Saudi start approaching depletion, running at max throughput developing fields before new demand comes or old supply dies off, so that the shale takes its turn at higher prices some years forward.. Then both Russia and Saudi had depleted their national treasures and legacies.  

The fact is that the free market price of oil and the OPEC imposed price are different things and at totally different price points. The actual blow up is probably motivated on the Putin side by the relationship with China. The latter needs low oil prices now and needs to fill up storage in order to reduce its forex bill when their exports are down and orders are not coming in. And they need to prepare for a world that may not want to trade with them at all and may demand reparations for their most costly export as of yet, the SARS COV 2. So it may very well be that what oil it is getting now is all that they would be able to afford to buy for a few years to come. 

I am pretty much certain that the Saudi demonstration project is intended to teach Russia what the free market price of oil is. So that with that in mind, Russia takes its jealous eyes off the Shale patch and focuses on maximizing the lifetime returns from their hydrocarbon legacy rather than look only to market share. 

There a different read on this that I haven't posted yet, and that is regarding the possible shift of perception about what the future of the oil market looks like. Meaning that if they see it as I do that cheap NG will displace oil form shipping and petrochem and that peak oil demand already happened last year, then they both face a perpetually falling demand so long as oil is priced so much higher than NG. At $55-60 and <$3 NG and $5 LNG, Give you oil equivalent pricing of $15 and $25, respectively, Thus in order for Brent to remain a shipping fuel source and petrochemical input, it has to remain near $30 to prevent transitioning to LNG  They definitely can't compete with US NG as not even Saudi can pump oil at $15. But a quick look at the oil futures calendar shows that long term projected prices remain in the $40s, So if that was the target then they haven't really moved the needle much, particularly for shipping from the US which is $1 lower so $20 per oil barrel equivalent. That is why I didn't bother to post this concept before. Particularly as Venezuela, Libya and so many others are already offline and so many more high cost producers are being sidetracked right now, so that Saudi and Russia are gaining market share anyway. 

The numbers in the post you replied to as to cash costs are fairly easy to find, they originated from Rystad. They include lease costs when such are paid. EIA takes ~$10 as representative lease costs for shalers. The main difference between the high cost and low cost producers is that the low cost ones own the property while the high cost ones pay the leases. The median figure includes lease costs. So cash costs for most basins are around $33-35 and the lease will cost as much as the market will bear - which is nothing like what it did when they were first signed. 

The US being as intensely reliant on oil as it is, should very much take oil in when it is cheap enough and stuff it back into whatever storage can accommodate it. I think that if the physical storage costs and market pricing don't really come close to excluding a well reinjection storage project. All depends on the contango. It gives you $20 over a few years over spot. Plenty of storage operations you can fit into that sort of spread. 

 

[BLA + 1,666]

16 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.

Yesterday Cuomo said they need 30k ,  not 130k.  He detailed about15k lined up.

Louisiana is the next hot spot.  They need everything , especially ventilators.

The bigger problem is the need for  trained medical staff to man the ventilators.  New York can want 30k ventilators and have nobody to operate them. Can't just take a nursing student out of City College and expect them to run a critical care operation.  New York doesn't have enough trained technicians to run the 15k ventilators they now have. 

 

Edited March 26, 2020 by BLA

[BLA + 1,666]

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?  

 

Nothing is going to change the course of oil prices at this time.  

Nobody is driving.  Economies are shut down.  Storage will fill up quickly.  

Now, if you want to stick it to Saudi Arabia for their destructive mission to kill shale,  tariff their oil.  They will have to buy 600k bbls day for their Port Arthur, Tx refinery from other producers. It would also thwart their attempt by Saudis to sell extremely discounted heavy oil used by half the GOM refineries.  

Keep in mind Chevron and Exxon are joint venture partners with Saudis for exploration, refining and chemical processing.

Saudi Arabia has never been a true friend of U.S.

They use the U.S and the U.S. uses them.

Edited March 26, 2020 by BLA

[Douglas Buckland + 6,308]

25 minutes ago, BLA said:

Yesterday Cuomo said they need 30k.  He has 15k lined up.

Louisiana I the next hot spot.  They need everything , especially ventilators.

The bigger problem is the need for  trained medical staff to man the ventilators.  New York can want 30k ventilators and have nobody to operate them. 

 

And someone will blame Trump, or say the US was unprepared, because we didn’t keep a warehouse stocked with 100,000 ventilators!

[Enthalpic + 1,496]

20 minutes ago, Douglas Buckland said:

And someone will blame Trump, or say the US was unprepared, because we didn’t keep a warehouse stocked with 100,000 ventilators!

Oh, you probably have a warehouse with 100,000 ventilators.

Those are for soldiers (during real bio-warfare) or rich people, not regular civilians. Duh.

[Enthalpic + 1,496]

If I was Elon I would be launching myself into space - now that is social distancing! 

People living on the ISS are so lucky. Ha

[Old-Ruffneck + 1,246]

9 hours ago, Douglas Buckland said:

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.

Even if crude doesn't make it to $60, and holds in the mid $40's+ the American people are still the winner. Might be hard on the "patch" but it's still there till we need. There is no loser here accept the Shale folks who need a bailout now. Your thinking of the oil "industry" survivability and it will, just with cheap crude and keep all associated "petro" products for us inexpensive. 50,000 oilfield related jobs or Millions of Americans saving lots of bucks. I think Shale oil will get better at extraction and if they can't get by without borrowing themselves into bankruptcy, well the strong will survive. And your over zealous Fracking will come to a halt and even out. Folks tend to forget there are still 7000 DUC wells to go thru and greed and borrowed money all over again. Oil in my opinion has tested the scales at both ends of the spectrum. Low price, productive society. 120$ and the world as a whole goes into the toilet. I am still a firm believer 57$-WTI 62$-Brent is the perfect numbers to keep the world going on axis. If Iran and Kuwait and Saudi lift oil at 2.00 a barrel and need 91$ a barrel to survive, well tough sh*t!!  TRRC cannot dictate to them Mid-East countries. Remember the mid 70's when the RRC decided to quit dictating pro-rating in Texas? I sure do. It was because OPEC now controlled pricing. I can go for hours about this but Mid-East countries are NOT our friends. End of Rant

[Old-Ruffneck + 1,246]

9 hours 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?

It's a messed up system I know, but it does keep money infused into the to "whole" scheme of spudding in, to refining. Necessary Evil it appears. Buy contracts for 30 days and can't store it, you resell and hope to make a buck or two.....it's the 'free" market at work but as we saw in early 2000's hedge fu**ers put the screws to the American people and world wide. [If] only they had to take possession lol.

[Douglas Buckland + 6,308]

1 hour ago, Old-Ruffneck said:

Even if crude doesn't make it to $60, and holds in the mid $40's+ the American people are still the winner. Might be hard on the "patch" but it's still there till we need. There is no loser here accept the Shale folks who need a bailout now. Your thinking of the oil "industry" survivability and it will, just with cheap crude and keep all associated "petro" products for us inexpensive. 50,000 oilfield related jobs or Millions of Americans saving lots of bucks. I think Shale oil will get better at extraction and if they can't get by without borrowing themselves into bankruptcy, well the strong will survive. And your over zealous Fracking will come to a halt and even out. Folks tend to forget there are still 7000 DUC wells to go thru and greed and borrowed money all over again. Oil in my opinion has tested the scales at both ends of the spectrum. Low price, productive society. 120$ and the world as a whole goes into the toilet. I am still a firm believer 57$-WTI 62$-Brent is the perfect numbers to keep the world going on axis. If Iran and Kuwait and Saudi lift oil at 2.00 a barrel and need 91$ a barrel to survive, well tough sh*t!!  TRRC cannot dictate to them Mid-East countries. Remember the mid 70's when the RRC decided to quit dictating pro-rating in Texas? I sure do. It was because OPEC now controlled pricing. I can go for hours about this but Mid-East countries are NOT our friends. End of Rant

There is no loser....except those of us in forced retirement before we reached 60. But apparently this group is expendable.

[Gerry Maddoux + 3,627]

^

These posts presuppose a normally functioning human brain inside the cranium of MbS. That is decidedly not the case. 

Greed is mentioned above. Greed spreads its legs across all aspects of commerce and industry. Greed is John Galt. 

My redundant point is, fill all the coffers, every single damn thing that will hold crude oil, fill the refinery offload storage, create total obstipation of the oil feedthrough mechanism, and see what happens to the price of oil. Answer: There would be no floor. Two-dollar oil is not unthinkable. And to what end? Has anyone achieved anything at all from ruining an entire industry?

Even if you don't like the oil business in general, or shale in particular, consider for a moment what such a nightmare scenario would do to the world. What would have been done--with malice aforethought, mind you--would be the complete destruction of the lifeblood of commerce. Urging this on is akin to cheering for Plasmodium falciparum to eat all the red cells of a malaria patient for purposes of experimentation.

For the first time since 1945, the United States actually controls the levers. Pull the right one and impose a 25% tariff on Saudi oil. They can produce as much oil as they want; they just can't bring it here unless they pay the piper. Call it an insanity fee. Pull the NOPEC lever and the Saudis' world goes topsy-turvy: litigation from thousands of families who lost loved ones in 911, deep investigations into Saudi sponsorship of terror, a distinct readjustment of rules on Aramco to fit American business standards on price-fixing. Pull the embargo lever and shut down Saudi oil from even coming on our shores. 

Or we can just ignore all those levers, say bring it on, cheap oil is really good for Americans, fill every pan. And see how well American commerce does with $2 oil. Let's see, a desperate Iran frenetically enriching uranium with nothing to lose, an even-more erratic Saudi Arabia as they go broke, a nuclear-happy Russia in cahoots with China, a Venezuela starving to death, a totally dead American oil industry, the ultimate collapse of Exxon, Chevron, Occidental, Hess, Continental, Marathon.

Really? We're willing to roll the dice on this one?  

[Enthalpic + 1,496]

1 hour ago, Douglas Buckland said:

There is no loser....except those of us in forced retirement before we reached 60. But apparently this group is expendable.

More than expendable...  you are done paying taxes and are now therefore just a burden!

Haha

 

 

[Ward Smith + 6,615]

4 hours ago, BLA said:

Saudi Arabia has never been a true friend of U.S.

They use the U.S and the U.S. uses them.

Countries don't have friends, they have interests

[Ward Smith + 6,615]

4 hours ago, Gerry Maddoux said:

For the first time since 1945, the United States actually controls the levers. Pull the right one and impose a 25% tariff on Saudi oil. They can produce as much oil as they want; they just can't bring it here unless they pay the piper. Call it an insanity fee. Pull the NOPEC lever and the Saudis' world goes topsy-turvy: litigation from thousands of families who lost loved ones in 911, deep investigations into Saudi sponsorship of terror, a distinct readjustment of rules on Aramco to fit American business standards on price-fixing. Pull the embargo lever and shut down Saudi oil from even coming on our shores. 

While this sounds tempting, the guaranteed result is that OPEC and the world will quickly move away from the petrodollar. The fallout for us from that will be severe and make everything you've outlined fade into insignificance. We won't care about starving Venezuela when we'll have starving New York.  

The schadenfreude part of me would dearly enjoy watching the entitled elites who make their money by having gone to the best schools with their best friends from childhood doing business with each other pretending superiority suffer like the rest of the world. 

Edited March 26, 2020 by Ward Smith

[BLA + 1,666]

2 hours ago, Gerry Maddoux said:

^

These posts presuppose a normally functioning human brain inside the cranium of MbS. That is decidedly not the case. 

 

Ditto that

[Gerry Maddoux + 3,627]

21 minutes ago, Ward Smith said:

While this sounds tempting, the guaranteed result is that OPEC and the world will quickly move away from the petrodollar. The fallout for us from that will be severe and make everything you've outlined fade into insignificance. We won't care about starving Venezuela when we'll have starving New York.  

Which currency do you think they might have in mind? They are deeply entrenched in the US banking system. Gold sounds good but it's not that transactional. Bitcoin is a joke. If NOPEC is voted in, and there are enough Senate votes to overturn a presidential veto, the Saudis will suffer from a thousand cuts. 

I'm floored. Everyone seems to be so cowed by the Saudis, worried that we might need them in the future, that they hold all the marbles. They don't. When they last made this mad foray into pump and dump, it cost them in excess of $550 billion out of their sovereign wealth fund. And oil only dipped down to $23. If they go through with this, they will be soiling their robes within three months because oil will be down to $10 and falling. The world, they say, will be out of storage facilities before the end of the year. At that point, they can be paid the Yen or Juan equivalent for two-dollar oil. And you're right, by that time we'll have starving New York. The oil business is still sizable.  

Since you and I probably aren't going to influence this little game of theirs very much, it's of academic interest to argue it. And besides, I'm comfortable letting it play out because I'm as sure as I can be that if Mr. Trump allows them to destroy oil and gas in the great state of Texas, he will be in distinct jeopardy of losing a massive amount of support from the oil and gas sector. Mr. Trump doesn't want to lose Texas. 

[John Foote + 1,135]

I think it was Carter that floated the idea of an import tax in the later 70s, after prices were dropping from the Saudi's '73 moral stand, and before Iran went on it's irrational bender, which is still on. The notion was consumers wouldn't feel the tariff since the effective price per barrel wouldn't change, and it would help protect domestic investment.

Anyway, my was that tariff proposal poorly received. Of course during the days of stagnation, recovering from Nixon's price controls and OPEC discovering itself. Different world.

[Old-Ruffneck + 1,246]

1 hour ago, John Foote said:

I think it was Carter that floated the idea of an import tax in the later 70s, after prices were dropping from the Saudi's '73 moral stand, and before Iran went on it's irrational bender, which is still on. The notion was consumers wouldn't feel the tariff since the effective price per barrel wouldn't change, and it would help protect domestic investment.

Fairly accurate, TRRC was decommissioned in around 76, as the OPEC was now in charge of "price fixing" and the whole Middle East was cash heavy from oil. We let them control and dictate and it was Carter Admin that "fainted" when Iran took the hostages. Everyone in the West figured all Middle Easterners were fanatics. And they still are, just rich fanatics. Last couple years of Carter and into the 3 year of Reagan oil was booming in the US. Economy started dropping and Reaganomics windfall profits tax killed the industry in 1 year. By 84 we were slow to go to none at all in 85. A few of us managed to work sporadically but it was lean times. So goes the business with petro. And I do feel for ya @Douglas Buckland, 4 years down and can't buy a job, I can relate. That's why in 86 I hung up derrick harness. Toolpushers forced to work worms corner was sad......

[Ward Smith + 6,615]

5 hours ago, Gerry Maddoux said:

Which currency do you think they might have in mind? They are deeply entrenched in the US banking system. Gold sounds good but it's not that transactional. Bitcoin is a joke. If NOPEC is voted in, and there are enough Senate votes to overturn a presidential veto, the Saudis will suffer from a thousand cuts. 

I'm floored. Everyone seems to be so cowed by the Saudis, worried that we might need them in the future, that they hold all the marbles. They don't. When they last made this mad foray into pump and dump, it cost them in excess of $550 billion out of their sovereign wealth fund. And oil only dipped down to $23. If they go through with this, they will be soiling their robes within three months because oil will be down to $10 and falling. The world, they say, will be out of storage facilities before the end of the year. At that point, they can be paid the Yen or Juan equivalent for two-dollar oil. And you're right, by that time we'll have starving New York. The oil business is still sizable.  

Since you and I probably aren't going to influence this little game of theirs very much, it's of academic interest to argue it. And besides, I'm comfortable letting it play out because I'm as sure as I can be that if Mr. Trump allows them to destroy oil and gas in the great state of Texas, he will be in distinct jeopardy of losing a massive amount of support from the oil and gas sector. Mr. Trump doesn't want to lose Texas. 

The Euro until it flat lines, then the renminbi will get a huge push from China, although trust won't be there for it. Maybe then the IMF steps in with the plan they've had since 2012 to take everything over.