This seems like a good thing but give that a good think, Dagwood. (CNN: Epic oil glut sparks super tanker 'traffic jams' at sea)
Seems there are two ways this kind of a situation develops. The first is investors buy oil when it's low and they're happy leaving it floating at sea in a tanker because that costs less in overhead than buying it a higher price so they make the big profit when the prices jack back up again. Unknown how much has been floating about for that reason.
Given oil prices have been low for a substantial time, probably a lot of junior investors who get information from insane YouTube financial economists got into oil trading. Likely they will lose their houses and everything else and we don't care.
There's more thinking ISIS is deliberately smuggling as much oil out of Syria, Iraq, etc as possible in a deliberate attempt to crash oil prices around the world. Frankly, we don't really think they can roll enough tanker trucks to the ocean to accomplish that but we need to be open to the possibility, good science 'n all.
That goes cosmic in why should the OPEC nations pump so much when they can easily control it at the source to prevent the glut, keep prices juicy high for the big profits, blah de blah.
Someone's playing Three Card Monte out there and the Ohio whizkid never wins in this game. You play Three Card Monte with some guy on the street and you will lose yo' ass every single time.
I know some of you financial whizzers out there can go way deep with this and perhaps it's necessary to explain it but rarely will that explanation penetrate to those (i.e. me and I'm sure others) who have no real inkling of it. Lemme see, you take yer derivative of the coefficient of yer international whoopie de do and multiply that times the price of a potato in K-Mart and thus market forces ...
Aiiiiyyyyeeeeeee ... what does it all mean, Great God Mescalito!
(Ed: they sell potatoes in K-Mart?)
Dunno. I don't think K-Mart even exists anymore.
Seems to we of the Socialist Left there needs to be substantially more stability in this market than exists ... well ... ever. Whether oil price is high or low depends strictly on the supply and when the price bounces since like a yo-yo, how should the consumer have any possible hope of balancing things. (This assumes demand remains generally constant with a predictable rate of increase)
The over-supply doesn't change the value but rather it beats hell out of the price and this kind of chaotic financial relationship can't possibly be good for business.
Note: last segment (two paragraphs) updated to correct logic errors. I understand it shows limited understanding and maybe that's good for the whizkids to see because that level of expertise (i.e. the absence of it) is likely not at all uncommon.
Herewith, the Kannafoot Response:
Kannafoot said...
So here's what's going on. Full disclaimer: I do, on occasion, play in the oil commodity market.
First, there IS a glut of oil on the market. Oil refineries are at max capacity, and oil storage is also near max capacity. So the unrefined crude being shipped really does have no place to go. Don't forget, too, once it gets here, your limiting factor becomes the ability to ship it overland to a refinery or a storage facility, typically via truck or rail.
Second, the reason for the glut has a lot to do with global politics. There are several different types of wells pumping oil, these days, each with a different break-even point for profitability. The most profitable are in Saudi Arabia and they have a break-even of around $20 per barrel. The Saudis have seized the opportunity to steal market-share from the other OPEC nations plus the US and Russia by flooding the market with oil. This drove the price down as low as $38 per barrel, which meant the ONLY wells making money were the Saudi wells. It's now hovering around $45 per barrel which is not much of an improvement. The Saudis want to steal Europe from Russia, and they are trying to force the US hydrolic fracturing wells out of business. (Break-even for those are just over $80 per barrel, so the strategy is working.)
The end of this game of chicken comes when there are no tankers available to ship and hold oil. When that will be is anybody's guess.
Socialist Left said ...
Great scribe, thanks.
It all seems an exceptionally dangerous game in potentially economy-wrecking brinksmanship. Everyone dances just now because pump cost is down so it's all groovy, groovy but that pendulum swings, like a pendulum do, and I still hate that song but it's right.
Killing the frackers has substantial support in U.S. and we of the Socialist Left don't like them because we're not clear on the actual impact of the earthquakes caused by it have been but we're sure it's caused a substantial number of them. In general, they're just complete environmental crap.
That gives an interesting green weenie dilemma. Are we happy about Saudis killing the frackers when the long-term consequence of it is probably not good when there's a hard civilian crash due to prices going back to the typically greedy levels. It seems senseless at that time for the frackers to get back into it because the Saudis can do it again at will, based on the ships we see floating in the Gulf right now.
Senseless hasn't stopped a whole lot of things lately so it looks unpredictable from this end.
Anonymous said...
The end game would be how soon China rebounds as that will end the oil glut. And the prices will return. This is also true for such markets as scrap metal which is about 75% off its highs.
Socialist Left said ...
It seems you show the same concerns and Kannafoot didn't say it specifically but I think it's his concern as well.
Seems there are two ways this kind of a situation develops. The first is investors buy oil when it's low and they're happy leaving it floating at sea in a tanker because that costs less in overhead than buying it a higher price so they make the big profit when the prices jack back up again. Unknown how much has been floating about for that reason.
Given oil prices have been low for a substantial time, probably a lot of junior investors who get information from insane YouTube financial economists got into oil trading. Likely they will lose their houses and everything else and we don't care.
There's more thinking ISIS is deliberately smuggling as much oil out of Syria, Iraq, etc as possible in a deliberate attempt to crash oil prices around the world. Frankly, we don't really think they can roll enough tanker trucks to the ocean to accomplish that but we need to be open to the possibility, good science 'n all.
That goes cosmic in why should the OPEC nations pump so much when they can easily control it at the source to prevent the glut, keep prices juicy high for the big profits, blah de blah.
Someone's playing Three Card Monte out there and the Ohio whizkid never wins in this game. You play Three Card Monte with some guy on the street and you will lose yo' ass every single time.
I know some of you financial whizzers out there can go way deep with this and perhaps it's necessary to explain it but rarely will that explanation penetrate to those (i.e. me and I'm sure others) who have no real inkling of it. Lemme see, you take yer derivative of the coefficient of yer international whoopie de do and multiply that times the price of a potato in K-Mart and thus market forces ...
Aiiiiyyyyeeeeeee ... what does it all mean, Great God Mescalito!
(Ed: they sell potatoes in K-Mart?)
Dunno. I don't think K-Mart even exists anymore.
Seems to we of the Socialist Left there needs to be substantially more stability in this market than exists ... well ... ever. Whether oil price is high or low depends strictly on the supply and when the price bounces since like a yo-yo, how should the consumer have any possible hope of balancing things. (This assumes demand remains generally constant with a predictable rate of increase)
The over-supply doesn't change the value but rather it beats hell out of the price and this kind of chaotic financial relationship can't possibly be good for business.
Note: last segment (two paragraphs) updated to correct logic errors. I understand it shows limited understanding and maybe that's good for the whizkids to see because that level of expertise (i.e. the absence of it) is likely not at all uncommon.
Herewith, the Kannafoot Response:
First, there IS a glut of oil on the market. Oil refineries are at max capacity, and oil storage is also near max capacity. So the unrefined crude being shipped really does have no place to go. Don't forget, too, once it gets here, your limiting factor becomes the ability to ship it overland to a refinery or a storage facility, typically via truck or rail.
Second, the reason for the glut has a lot to do with global politics. There are several different types of wells pumping oil, these days, each with a different break-even point for profitability. The most profitable are in Saudi Arabia and they have a break-even of around $20 per barrel. The Saudis have seized the opportunity to steal market-share from the other OPEC nations plus the US and Russia by flooding the market with oil. This drove the price down as low as $38 per barrel, which meant the ONLY wells making money were the Saudi wells. It's now hovering around $45 per barrel which is not much of an improvement. The Saudis want to steal Europe from Russia, and they are trying to force the US hydrolic fracturing wells out of business. (Break-even for those are just over $80 per barrel, so the strategy is working.)
The end of this game of chicken comes when there are no tankers available to ship and hold oil. When that will be is anybody's guess.
Socialist Left said ...
Great scribe, thanks.
It all seems an exceptionally dangerous game in potentially economy-wrecking brinksmanship. Everyone dances just now because pump cost is down so it's all groovy, groovy but that pendulum swings, like a pendulum do, and I still hate that song but it's right.
Killing the frackers has substantial support in U.S. and we of the Socialist Left don't like them because we're not clear on the actual impact of the earthquakes caused by it have been but we're sure it's caused a substantial number of them. In general, they're just complete environmental crap.
That gives an interesting green weenie dilemma. Are we happy about Saudis killing the frackers when the long-term consequence of it is probably not good when there's a hard civilian crash due to prices going back to the typically greedy levels. It seems senseless at that time for the frackers to get back into it because the Saudis can do it again at will, based on the ships we see floating in the Gulf right now.
Senseless hasn't stopped a whole lot of things lately so it looks unpredictable from this end.
Anonymous said...
Socialist Left said ...
It seems you show the same concerns and Kannafoot didn't say it specifically but I think it's his concern as well.
4 comments:
So here's what's going on. Full disclaimer: I do, on occasion, play in the oil commodity market.
First, there IS a glut of oil on the market. Oil refineries are at max capacity, and oil storage is also near max capacity. So the unrefined crude being shipped really does have no place to go. Don't forget, too, once it gets here, your limiting factor becomes the ability to ship it overland to a refinery or a storage facility, typically via truck or rail.
Second, the reason for the glut has a lot to do with global politics. There are several different types of wells pumping oil, these days, each with a different break-even point for profitability. The most profitable are in Saudi Arabia and they have a break-even of around $20 per barrel. The Saudis have seized the opportunity to steal market-share from the other OPEC nations plus the US and Russia by flooding the market with oil. This drove the price down as low as $38 per barrel, which meant the ONLY wells making money were the Saudi wells. It's now hovering around $45 per barrel which is not much of an improvement. The Saudis want to steal Europe from Russia, and they are trying to force the US hydrolic fracturing wells out of business. (Break-even for those are just over $80 per barrel, so the strategy is working.)
The end of this game of chicken comes when there are no tankers available to ship and hold oil. When that will be is anybody's guess.
Posted up to the main body. Excellent scribe, thanks.
The end game would be how soon China rebounds as that will end the oil glut. And the prices will return. This is also true for such markets as scrap metal which is about 75% off its highs.
Pushing that one up as well. Thanks for the addition.
Post a Comment