The Price of a Barrel of Crude Oil

[Beststash]

I suppose it depends on your thoughts on bailouts in general. Personally, I'm not in favor of bailouts - but I suppose if the airlines get bailed out and the banks and car makers last time, then why not the oil industry? I can see our energy industry being just as valuable as these others. While COVID19 isn't the only reason oil prices tanked, it IS a very big reason demand has cratered.

Full disclosure: I'm biased, as I worked in the industry for 30 years and DW currently does. The only way her small oil company avoids bankruptcy is if there's a bailout.

I understand your attitude and also bias. I worked in the telecom industry for 35 years and saw thousands of good people and and businesses go away becuase of technological change. However, after 18 years post-retirement I can honestly say that almost everyone affected (many of which I had the unenviable position of laying them off or transferring them in an attempt to adjust the manload in order to survive) are OK and in many cases used their expertise to progress on to other related industries or start a business of their own. Admittedly I am biased also because I got the gold watch and didn't have to experience the transition.

BUT - it is important to realize that in order to be "energy independent" we have embraced a technology (fracking) that is not sustainable.Why is society using welfare to subsidize the production of fracking that is literally going to destroy the atmosphere, poisons the drinking supply, causes earthquakes, etc. Fracking is the dirtiest, least intelligent industry in the US. And there's a lot of competition for that crown.

Now is the time to move on and accept the inevitable fact that fossil fuels are on their way out as we move to a more sustainable and cleaner way of producing energy. Bailouts are not the answer anymore than they would be for the coal industry.

 

[Mr. Tightwad]

We get it. You love your EV, and every should have one.

But I have to admit I have NEVER heard the reason to get an EV was to avoid the stench of gas stations.

I guess there is a reason I never posted in the EV thread that was going a while ago (or maybe I did and forgot about it).

Forum member Joe Wras wrote a post a while back saying how scummy gas stations were, and how he wished there was a different way to refuel. I'm pointing out that there is.

Edited-Just saw Micheals post. Done talking.

 

[Tiger8693]

I also don't see how the ETF's for Energy are not resting more.... Maybe something we don't know?

 

[RobLJ]

This is very reminiscent of the oil price crash in the mid-'80s. A lot of my friends in Texas lost jobs; I was in grad school in Cali. When I got the job in Houston in Sept '90, the recovery was only beginning.

 

[BeachOrCity]

I have always felt that cheap energy, especially cheap gas is bad from a public policy perspective.
One solution to it is to create an inverse tax structure at the federal level say when wholesale gas is $3 bucks a gallon the tax is zero, but when it is $1 buck a gallon the tax is a full $2.

Basically moderating the price swings so consumers and industry could count on stable prices when making decisions including investing in EVs, fuel efficient airplanes etc.

Many would gasp at this, but I think stable (and not cheap) energy is smart public policy. It’s better for the environment. It also gives us national security by promoting energy independence.

We are not getting fully off oil anytime soon, but with better policy we could remain energy independent (which fracking gave us like it or not); and at the same time use less of it.

Oil under 30 barrel will kill USA fracking industry. Good for the environment. Bad for USA energy independence. Also bad as once killed prices go back up.

Oil under 30 also kills electric car sales, esp in a week economy. Who is going to pay 40-50k for a fancy ev when their gas only costs them 20 bucks a week at most? Same goes for environmentally sound airplanes etc.

 

[Perryinva]

Industries rise and fall, adjust or die. Alternate clean energies will be in full swing again once it makes sense both environmentally, economically, infrastructure & technologically sound wise. Little to no (outside Hawaii & PR) oil is used by electric utilities anymore as fuel and every year the percentage drops even more. They have either permanently shut down those plants or put them in cold standby, more for environmental reasons than economic. Coal is fast on its heels as natural gas is king, and will remain so until there is a technological way to store bast amounts of electric power besides via potential energy, the current only reasonable way. But oil will never go away like coal as fuel likely will, just take a smaller role. (Coal for steel will still be around). Air travel will be via oil for generations to come. Cheap oil will be gone sooner than later & is a guaranteed recovery, just no consolation to those that lost their livelihoods.

 

[Markola]

Industries rise and fall, adjust or die. Alternate clean energies will be in full swing again once it makes sense both environmentally, economically, infrastructure & technologically sound wise. Little to no (outside Hawaii & PR) oil is used by electric utilities anymore as fuel and every year the percentage drops even more. They have either permanently shut down those plants or put them in cold standby, more for environmental reasons than economic. Coal is fast on its heels as natural gas is king, and will remain so until there is a technological way to store bast amounts of electric power besides via potential energy, the current only reasonable way. But oil will never go away like coal as fuel likely will, just take a smaller role. (Coal for steel will still be around). Air travel will be via oil for generations to come. Cheap oil will be gone sooner than later & is a guaranteed recovery, just no consolation to those that lost their livelihoods.

I think that’s about how I understand the oil industry. We think of petroleum as fueling our cars but our entire economy is shot through with the stuff. Think about everywhere we use plastics, for example, and pharmaceuticals, paints, building materials, packaging materials, clothes, asphalt, you name it. And did you realize that every piece of plastic that has ever been made still exists on planet Earth unless it was burned? Our dependence on oil comes with huge toxicological and climate costs but that’s what we have chosen.

It’s just incredibly useful stuff, like it or not, and there’s no other energy source that yields a higher joule per gram. Nothing else comes close and, with record low crude prices, other energy sources will be strained or priced out. And every time oil prices go high and it seems scarce for some geopolitical reason or other, we manage to find a lot more of it in the ground, e.g. the fracking boom. I wish it weren’t so and that we could run out of it and be forced to develop less damaging alternatives to oil and gas but, objectively, I don’t see it happening. Therefore, eventually, like it or it, subsidized or not, this glut will be used up and oil stock prices will rise.

 

[Masquernom]

A chemist once famously said "if you knew all the valuable uses for oil, you wouldn't be burning the stuff".

 

[COcheesehead]

A chemist once famously said "if you knew all the valuable uses for oil, you wouldn't be burning the stuff".

Reminds me of what a friend once told me. What is vital for life? Water, right. So what do we do with it? Poop in it.

 

[Beststash]

Reminds me of what a friend once told me. What is vital for life? Water, right. So what do we do with it? Poop in it.

 

[Closet_Gamer]

Will avoid going back and picking up the various quotes...but on the topic of whether the market is efficient...

The situation reminds me of the old joke about two guys encountering a bear in the woods. One guy laces up his sneakers and his friend says "You can't out run a bear". The first guy replies, "I don't have to out run the bear...I just have to out run you."

Such it is with free markets vs. the alternatives.

The market is not perfectly efficient.
At all.
Its a scenario discounting machine amplified by emotion and complicated by politics.

But it IS more broadly efficient that any other mechanism that has ever been contrived for allocating capital in a complex economy.

The market gets spectacularly ugly when an edge scenario case (Covid) blossoms into the primary event. For every major miss by the market (and they are legendary and on-going), the market quietly, if imperfectly, grinds inefficiency out of our companies and society, rewarding risk and punishing failures.

For every one-off, at-the-margin, optimisation that is achieved in government or in academic theory, there are breath taking real world failures driven by a central planning and/or a lack of incentives. Entire countries and societies have collapsed when they eschew market forces.

Market efficiency is both supported by government and thwarted by it:

Supported: SEC, Accounting Rules, White Collar Crime Laws, Occupational Safety, EPA,...

Thwarted: Government bailouts, Crony Capitalism, Un-necessary regulations, ...

I am 100% certain the market is mis-priced...but its less mis-priced and will more rapidly correct itself than any other vehicle would make it.

My $0.02.

 

[ncbill]

Yep, I'm out...was making several thousand monthly after oil shot above $100/bbl, then bupkis after it crashed back to under $25/bbl...was making money again with prices nearing $60/bbl...will not be making any money now...once my direct oil investments run their course I won't be buying into such again.

 

[Badger]

Since world economics is outside of my formal background can someone explain how bailouts for any company fits into the definition of Capitalism and a market driven economy. Or are bailouts really the realm of a Socialistic philosophy? I would seriously appreciate an expert explanation and not just a personal opinion from someone with no credible credentials.



Cheers!

 

[SnowballCamper]

Badger, I'm no economist, but I'll recommend a book (also a PBS series): The Commanding Heights. It does a nice job of examining how government's fiscal and monetary policy have responded to economic stresses since WW2. It's been a while since I read or watched it, but the thing I remember is the conclusion that the best stimulus is to give money directly to the people.

EDIT: Oh and the Author, Daniel Yergin, also wrote The Prize, a history of the oil industry.

 

[Markola]

Market efficiency is both supported by government and thwarted by it:



Supported: SEC, Accounting Rules, White Collar Crime Laws, Occupational Safety, EPA,...



Thwarted: Government bailouts, Crony Capitalism, Un-necessary regulations, ...

I really agree with your fair and perceptive post. I think it’s very possible to both admire and benefit from market forces while also valuing a good, strong, effective central government to keep it on the rails. Unfortunately, it benefits too many politicians and well -paid talking heads to polarize the country into one camp or the other in simplistic, zero sum fashion. We should want both strong forces working for our society. We still have both, fortunately, but our rugged individualism mythology deters us from acknowledging the reality of our economy’s strong dependence on government. We could come together more as a people if we acknowledged both sides of the coin.

 

[Closet_Gamer]

I really agree with your fair and perceptive post. I think it’s very possible to both admire and benefit from market forces while also valuing a good, strong, effective central government to keep it on the rails. Unfortunately, it benefits too many politicians and well -paid talking heads to polarize the country into one camp or the other in simplistic, zero sum fashion. We should want both strong forces working for our society. We still have both, fortunately, but our rugged individualism mythology deters us from acknowledging the reality of our economy’s strong dependence on government. We could come together more as a people if we acknowledged both sides of the coin.

Thanks. There is a middle...but dang its elusive these days.

 

[bolt]

I understand your attitude and also bias. I worked in the telecom industry for 35 years and saw thousands of good people and and businesses go away becuase of technological change. However, after 18 years post-retirement I can honestly say that almost everyone affected (many of which I had the unenviable position of laying them off or transferring them in an attempt to adjust the manload in order to survive) are OK and in many cases used their expertise to progress on to other related industries or start a business of their own. Admittedly I am biased also because I got the gold watch and didn't have to experience the transition.

BUT - it is important to realize that in order to be "energy independent" we have embraced a technology (fracking) that is not sustainable.Why is society using welfare to subsidize the production of fracking that is literally going to destroy the atmosphere, poisons the drinking supply, causes earthquakes, etc. Fracking is the dirtiest, least intelligent industry in the US. And there's a lot of competition for that crown.

Now is the time to move on and accept the inevitable fact that fossil fuels are on their way out as we move to a more sustainable and cleaner way of producing energy. Bailouts are not the answer anymore than they would be for the coal industry.

I've little to add other than I also suspect Gas&Oil producers are in a declining industry in the midst of a unsuspected down draft(Corona19) that will facilitate mergers, & acquisitions as well as bankruptcies to survive.

AFAIK : USO, a primary fuel commodity futures ETF, was a centric & widely misunderstood or mis-marketed oil investment stratigy.

Heres a cnbc clip on the same.

https://www.cnbc.com/2020/04/21/ret...witter_impression=true&recirc=taboolainternal

Good luck and best wishes!

 

[cyber888]

Oil could go negative - $100 says analysts. I'll wait for -$100

https://finance.yahoo.com/video/oil-could-soon-fall-100-183038394.html

 

[COcheesehead]

[Mod Edit]

 

[Steevo]

I know!
I bought these this morning, but don’t know where I’ll keep them?

 

[maestro]

Oil will be around for a long time, folks. Until the price of a Tesla comes down from the atmosphere for the average folks to buy, and we start seeing 'Next Tesla Charging Station 50 miles' on the interstates, I think we're good. Oil built this country, oil will always be a part of it. At least in most of our lifetimes anyway. Great entry point to invest.

 

[The HalfBreed]

At this rate, you can trade a roll of bathroom tissue for a barrel of oil.

 

[Global Wizzo]

Maybe my solution is simplistic, but the rules need to change for commodities including oil. If you buy it, you must take delivery.
That would end speculation that artificially inflates prices to the user.

 

[kingkarmann]

Decided I wasn’t gonna read through all this.

Unless we give up plastic and the rest of the things that petroleum based products contribute to our lives, the price of a barrel will reflect our “new normal”.

 

[GladToBeFree]

But weren't the hourly wages back then something like $3 an hour? I would hate to work at a gas station for that little.

Minimum wage was $1.15 in 1961 and didn't rise for a few years after that. Not many gas pumpers were making much more than that. I didn't.

Jim.