Too Much Oil: How a Barrel Came to Be Worth Less Than Nothing
This article an effort to, at least partially, look at your --- "why couldn't the states and opec pick up production to make up that slack of ru loss? P - Because they don't want to. Their so called negative cost was an illusion because they based that on future contracts of oil commodities not what they were making at the time. You can't have negative cost of the barrel and come out at the same time telling shareholders oil is making record profits. Why? Because although gas is like 40% of their use for oil, the profit from fuel sales is almost their lowest return. They make more money in shelf products and exporting a huge amount of oil to the world."
Zorax, You know much more about the industry than i do. I'm with you in that the big players are into some level of manipulation, as it seems big players in every industry are always into some level of manipulation. It's inherent to our capitalist system, isn't it? You may recall some, lol, 50?? years ago book publishers had divided the world into separate domains to enable them to maximize profits. At least you may have read of it. So we agree there is likely some level of market manipulation going on. The question here then, seems to me, is what are the overriding factors in the energy crisis the world finds itself in today. The pandemic et al, OR manipulation. I get the feeling you tend to blaming the situation on manipulation. I'll listen to you. I'm hoping too that you might be able to also deal directly with some of the content i give you so that i can hope to understand more some of the big picture. This article deals with your comment on the negative oil price. Please note particularly my "Insert"s below:
One oil price went negative on Monday, signaling that there is no place to store all the crude the world is producing but not using.
IMAGE - labelled inside, still this offers the basic drift (pun intended.)
$200 Price of oil Financial crisis 2008-09 150 U.S.-led invasion of Iraq 2003 100 50 Covid-19 pandemic Sept. 11, 2001 0 Monday’s close: –$37.63 WTI crude, adjusted for inflation, plotted weekly Source: Refinitiv By The New York Times
By Stanley Reed and Clifford Krauss Published April 20, 2020Updated Sept. 28, 2021
------ [Insert: Zorax, In struggling to understand as much as possible for me these sort of questions arise. The writers say the negative price is because the industry is in disarray. I think basically you say the negative price is a result of manipulation, your -- "Their so called negative cost was an illusion because they based that on future contracts of oil commodities not what they were making at the time. You can't have negative cost of the barrel and come out at the same time telling shareholders oil is making record profits. Why? Because although gas is like 40% of their use for oil, the profit from fuel sales is almost their lowest return. They make more money in shelf products and exporting a huge amount of oil to the world." -- I hope you appreciate when i say i don't know who has it more right, i am not having a go at you. I'm just saying you know much more about it than i do, and those who write these articles also know much more than i do . As i said above, my hope is that you can deal directly with the contents of the articles i give you to help me understand the situation more. Maybe you see all the authors on articles as this as apologists for big oil. I'd hope that wasn't the case.] ------
Demand for oil is collapsing, and despite a deal by Saudi Arabia, Russia and other nations to cut production, the world is running out of places to put all the oil the industry keeps pumping out — about 100 million barrels a day. At the start of the year, oil sold for over $60 a barrel .. https://www.nytimes.com/2020/01/07/business/energy-environment/iran-oil-soleimani.html .. but by Friday it hit about $20.
------ [ Note now .. OPEC+ raises output faster than expected as Russia’s war roils global energy markets Published Wed, Jun 1 202210:36 PM EDTUpdated Thu, Jun 2 20228:51 PM EDT Weizhen Tan @weizent * OPEC and its oil-producing allies agreed to hike output in July and August by a larger-than-expected amount as Russia’s invasion of Ukraine wreaks havoc on global energy markets. * OPEC+ will increase production by 648,000 barrels per day in both July and August. * The group has been slowly returning the nearly 10 million barrels per day it agreed to pull from the market in April 2020. https://www.cnbc.com/2022/06/02/oil-prices-eu-sanctions-russia-saudi-arabia-output-opec.html ] ------
Prices went negative — meaning that anyone trying to sell a barrel would have to pay a buyer $30 — in part because of the way oil is traded. Futures contracts that require buyers to take possession of oil in May are expiring on Tuesday, and nobody wanted the oil because there was no place to store it. Contracts for June delivery were still trading for about $22 a barrel, down 16 percent for the day.
“If you are a producer, your market has disappeared and if you don’t have access to storage you are out of luck,” said Aaron Brady, vice president for energy oil market services at IHS Markit, a research and consulting firm. “The system is seizing up.”
Refineries are unwilling to turn oil into gasoline, diesel and other products because so few people are commuting or taking airplane flights, and international trade has slowed sharply. Oil is already being stored on barges and in any nook and cranny companies can find. One of the better parts of the oil business these days is owning storage tankers.
[Zorax: So in your mind, in that, do we have normal type capitalist-for-profit management, or overly manipulative maneuvers tantamount to price gouging. Does is simply come down to an individual subjective view, more than much else?]
“Traders have sent prices up and down on speculation, hopes, tweets and wishful thinking,” said Louise Dickson, an oil markets analyst at Rystad Energy, a research and consulting firm. “But now reality is sinking in.”
The world has an estimated storage capacity for 6.8 billion barrels, and nearly 60 percent is filled, according to energy experts.
Some of the oil glut is evident in Cushing, Okla., a critical storage hub where the oil that trades on the U.S. futures market is delivered. With a capacity to hold 80 million barrels of oil, Cushing has only 21 million barrels of free storage left, according to Rystad Energy, or less than two days of American production. As recently as February, Cushing was not even up to 50 percent. Now, experts say it will be filled to the brim in May.
Storage is almost completely filled in the Caribbean and South Africa, and Angola, Brazil and Nigeria may run out of warehousing capacity within days.
Read More About Oil and Gas Prices[...more links inside...]
Prices Hit New Highs: The cost of gas keeps rising, thanks to Russia’s war on Ukraine — and also motorists’ robust appetite for hitting the road this summer .. https://nyti.ms/3xdW2cE .
‘Only Bad Options’: President Biden’s trip to Saudi Arabia is unlikely to reduce oil prices. And it is not clear that anything else he might do would work, either.
Russian Oil Ban: The European Union’s embargo on most Russian oil imports will leave no part of the world untouched. But figuring out the impact on each country or business is difficult.
How People Are Responding: We spoke with eight people at a gas station in the New York City borough of Queens. Here’s how the price surge is affecting their lives.
In his news briefing on Monday, President Trump said the government was “looking to put as much as 75 million barrels” into the Strategic Petroleum Reserve, which is used as a buffer during crises and was created after the 1973-1974 oil embargo.
For the first time ever, U.S. oil prices turned negative on Monday and some sellers had to pay buyers to take their fuel. David Mcnew/Agence France-Presse — Getty Images
---------- The Daily Poster Listen to ‘The Daily’: A Glut of Oil This is the energy crisis nobody saw coming. transcript 0:00/28:47 Hosted by Michael Barbaro; produced by Alexandra Leigh Young, Michael Simon Johnson, with help from Stella Tan and Asthaa Chaturvedi, and edited by Lisa Chow and Wendy Dorr
michael barbaro From The New York Times, I’m Michael Barbaro. This is “The Daily.” [music]
michael barbaro Today: For decades, the United States has feared the consequences of running out of oil. Because of the pandemic, it now has far too much of it. Reporter Cliff Krauss on the energy crisis that nobody saw coming. It’s Monday, April 27.
Cliff, tell me about this moment when oil prices collapse.
cliff krauss So, it was late at night, I’m about to go to bed, but I put on Bloomberg television.
archived recording And in terms of how far down these moves are going to go, I mean, what are your expectations?
cliff krauss And I see, suddenly, the oil prices are collapsing.
archived recording 1
It’s at $14 and change —
archived recording 2 Touched around $10. $10 —
archived recording 3 Oil today falling all the way to a penny a barrel —
archived recording 4 I mean, we just saw crazy historic drops in U.S. crude today. What on Earth is going on?
cliff krauss And I write a quick note to my editors, saying, you’re going to see this. It’s weird. But this is a technical issue. It’s a contract. It’s a futures contract that’s going to roll over in 24 hours. It may not mean much.
michael barbaro Mhm.
cliff krauss Then I get up in the morning, and we’re in negative territory.
archived recording At the top, I talked about the craziness of the oil patch. Then we watched as the price of West Texas Intermediate crude for May delivery went from the high teens to less than zero, just in one session.
cliff krauss Which had never happened before.
archived recording Oil falling below $0 a barrel for the first time ever.
cliff krauss Just a few years ago, we had $147 — that’s a plus — barrel oil. And it’s bounced around in recent years between 40 and 60. But negative 37?
archived recording The week begins with U.S. crude oil trading at minus $37.63 a barrel.
cliff krauss Negative $37. Negative $37. Never happened before.
archived recording You probably think that couldn’t happen. How do we make sense of this?
cliff krauss Never. Preposterous.
michael barbaro Right. I remember hearing this news the next morning, after you had flagged it to your editors, Cliff, and being genuinely confused by this. I mean, how can oil be worth less than $0? Right? Like, not just worthless, but somehow having a negative value.
cliff krauss Well, since this had never happened before in history, everybody was confused. But nobody wanted the oil. So people had to actually pay to get rid of it.
michael barbaro Hmm. I mean, why is it that people would need to pay to get rid of what we regard, universally, as the most precious commodity on Earth?
cliff krauss Well, it gets very technical, and I don’t want to get into the technicalities of this. But basically, these were futures contracts that rolled over. And so this was a phenomena that occurred over a 12 to 24-hour period. So there’s something a bit artificial about it. But it does reflect something that’s real. Nobody wants the oil. It is not a precious commodity right now because people are not driving, people are not flying, cruise ships are not cruising, and industry is not burning as much fuel as it was. And yet the world is still producing this oil.
michael barbaro What you’re saying is that the pandemic basically destroyed the normal demand for oil across the world?
cliff krauss That’s right. So now the world is roughly producing 30 million barrels a day more than we’re consuming.
michael barbaro Wow.
cliff krauss So the world is awash in oil. We’re flooded.
archived recording An incredible sight at the port of Long Beach: 24 oil tankers are anchored offshore. That’s four times the number normally waiting to unload crude from Mexico or Alaska.
cliff krauss This problem, which is an immediate problem, the seeds of it go back many, many years.
michael barbaro What do you mean?
cliff krauss Well, there have been a series of traumas, perhaps three major ones that go back to my college days, actually, in the 1970s. [music]
archived recording Good evening. It is an all-out war.
cliff krauss In 1973 —
archived recording That’s how Israeli Defense Minister Moshe Dyan describes an invasion of the Golan Heights and the East bank of the Suez by Syria and Egypt.
cliff krauss During the Arab-Israeli War, the Yom Kippur War, as some still call it —
archived recording All day today, Israeli reservists have been heading for their units. The streets have been full of military traffic.
cliff krauss Arab countries were attacking Israel and almost overran Israel until the Nixon administration —
archived recording (henry kissinger) We will, in this crisis, as we have in other crises —
cliff krauss At the last minute —
archived recording (henry kissinger) — not hesitate to take a firm stand.
cliff krauss — decided to send Israel a massive amount of weapons.
archived recording Kissinger hinted that the U.S. has begun to resupply Israeli military losses.
cliff krauss Which, of course, made many of the oil-producing countries that we were becoming dependent on in the Middle East quite upset. And all they could do in retaliation was —
archived recording The oil producing countries of the Arab world decided to use their oil as a political weapon.
cliff krauss — to inflict an embargo, an oil embargo on the United States and other Western countries that were aiding Israel.
archived recording They will reduce oil production by 5 percent a month until the Israelis withdraw from occupied territories.
cliff krauss And this was a trauma for Americans, causing long lines at the gas pump.
archived recording (richard nixon) Our supply of petroleum this winter will be at least 10 percent short of our anticipated demand. And it could fall short by as much as 17 percent.
cliff krauss Certainly, people of my generation recall this. I was in college. I had a new, sporty, red Capri. [LAUGHTER] And I loved tooling around. And then suddenly —
archived recording Gasoline shortages are spreading across the country. Odd-even service, gasoline lines, and closed gas stations are becoming increasingly common.
cliff krauss — you had to wait on line. I was in college in Poughkeepsie, New York, at Vassar.
archived recording So they waited three hours and there was no gas.
cliff krauss I remember that I would wait as long as possible, till I was almost on empty, to fill up the tank.
archived recording We’re all out of gas! Tomorrow morning! [LAUGHTER] We’re all out!
cliff krauss It was a real bother to do that.
archived recording 1 Now, after waiting two hours, and we’re not sure if I can make it.
archived recording 2 Make it in what way?
archived recording 3 Well, if there’s any gas left.
cliff krauss Now my problem was small compared to people who had to rely on their cars to get to work every day and drive long distances.
archived recording 1 I’ll betcha there’s no gas.
archived recording 2 I heard this morning —
archived recording 3 Well, you get the gas down here.
archived recording 4 — the Commissioner of Energy from Washington. And they claim there’s gas.
archived recording 5 We can’t make a living. What about this?
archived recording 6 I mean, this is ridiculous.
archived recording 7 I have to travel.
cliff krauss So that was a trauma. And it was a political problem and an economic problem for the country. Prices skyrocketed. The economy was badly damaged. We’d just lost the war in Vietnam. And now we don’t even have a secure supply of energy. And we’re dependent on countries such as Saudi Arabia, far away. We barely understand these countries. And they’re not friendly.
michael barbaro Mhm.
cliff krauss We’re in trouble.
archived recording (richard nixon) Let me conclude by restating our overall objective. It can be summed up in one word that best characterizes this nation and its essential nature. That word is independence.
cliff krauss And so from that pain comes a dream: energy independence.
archived recording (richard nixon) What I have called Project Independence 1980 is a series of plans and goals set to ensure that by the end of this decade, Americans will not have to rely on any source of energy beyond our own.
cliff krauss And the leadership of the country —
archived recording (gerald ford) With a comprehensive plan to make our country independent of foreign sources of energy by 1985.
cliff krauss — basically, Nixon, Ford, Carter —
archived recording (jimmy carter) The energy crisis has not yet overwhelmed us. But it will if we do not act quickly.
cliff krauss — over those years made energy independence a, basically, keystone to all of their policies. The dream is that we can produce our own energy supply so that we don’t feel this vulnerability anymore. That was the dream.
michael barbaro And what do we start to do to achieve that dream?
cliff krauss Those three administrations did several things.
archived recording (gerald ford) It is in that spirit that I have decided to sign the energy bill just passed by the Congress.
cliff krauss There was the establishment of a strategic petroleum reserve in 1975.
archived recording (gerald ford) It will enable us to set up a strategic oil storage system.
cliff krauss So we would have a reserve when there would be a war or a natural catastrophe.
archived recording Starting in 1977, oil will begin flowing through the pipeline, across Alaska, and then by tanker to the lower 48 states.
cliff krauss We built the Trans-Alaska Pipeline.
archived recording (jimmy carter) — in a new energy department.
cliff krauss The Department of Energy was created.
archived recording (jimmy carter) — to bring order out of chaos.
cliff krauss We started to use more coal to burn for power.
archived recording Ready for war, sir. Ready for war.
cliff krauss We went to war —
archived recording Well, at this hour, Iraq remains in firm control of the tiny oil-rich country of Kuwait.
cliff krauss — years later, in the Middle East —
michael barbaro Right.
cliff krauss — over the invasion of Kuwait by Iraq.
archived recording And now sirens, air raid sirens, are beginning to sound over Baghdad.
cliff krauss In part, not just to liberate oil fields in Kuwait, but to defend our gas station, Saudi Arabia.
archived recording (george h.w. bush) Much of the world is even more dependent upon imported oil and is even more vulnerable to Iraqi threats.
michael barbaro Because suddenly, those foreign sources of oil that we still needed, because we weren’t quite energy independent, they were at risk of being overtaken by Saddam Hussein?
cliff krauss That’s right. So all of those things were done. But all that was accomplished, and it was something, was to stem the bleeding. And that brings us to the second trauma, which is the early years of the current century. When suddenly, our production is in decline again. China is growing by leaps and bounds. India is starting to grow by leaps and bounds. A middle class is growing around the developing world. So demand is going up, like, 5 million barrels a day around the world. And the Middle East is suddenly more unstable. And so prices skyrocket between the years of about 2004 and 2007.
michael barbaro And when you say skyrocketing, what do you mean?
cliff krauss I mean, prices skyrocket to as high as $147 a barrel.
michael barbaro Hm. Correct me if I’m wrong. This is the point where U.S. gasoline prices at the pump reach $5 a gallon.
cliff krauss Yes.
michael barbaro And I remember how upsetting that was to consumers and to voters. cliff krauss P - Yes. It was very, very upsetting. And for those of a certain age, it was a reminder of the 1970s.
michael barbaro Huh.
cliff krauss We were right back in the same problem, dependent on foreign oil, which was very expensive. But then something big happened. P - There was a Texas oil man named George Mitchell. And for years and years, he had been experimenting with hydraulic fracturing, which is basically splitting up shale, hard, shale rock which had been useless when drilled vertically. George Mitchell came up with the idea of drilling horizontally through these layers of rock and unleashing the oil in the rock by basically exploding the rock and then introducing sand and water to keep the cracks open, releasing the oil.
michael barbaro Fracking.
cliff krauss Fracking.
archived recording Consider this a eureka moment for the rest of the world, the biggest energy innovation of the decade.
cliff krauss Suddenly, they were able to release enormous amounts of oil in fields that big companies had given up on years before.
archived recording The so-called shale revolution has spawned boom towns in the Dakotas. That’s a lot of money. It’s life-changing money. It’s a dream.
cliff krauss We were able to do it in North Dakota, Texas, Colorado, Oklahoma, a few other places.
archived recording Thanks to fracking technology, the U.S. now producing about 9 1/2 million barrels a day, a 70 percent jump from just five years ago.
cliff krauss And it’s occurring because the price of oil was so high. That incentivized innovation.
michael barbaro And Cliff, what does fracking for oil mean for this still quite unfinished American dream of energy independence? cliff krauss
Well, it means that we actually, at least momentarily, seem to almost reach that independence. Because American oil production more than doubled in about five years.
michael barbaro Wow.
archived recording (barack obama) Last year, we relied less on foreign oil than in any of the last 16 years. archived recording P - It’s changed the whole world and the economy of the whole world. It’s changed our dependence on foreign oil. It’s changed our alliances in terms of their value to us.
cliff krauss The United States became an exporter of oil for the first time in many years. And last year, actually leapfrogged over Russia and Saudi Arabia as the biggest oil producer in the world.
michael barbaro So this seems like a pretty good problem to have, right? I mean, too much American oil for the first time, basically, in our history.
cliff krauss Economically speaking, no question about it. By 2014, we were bringing down gasoline prices for consumers. It was part of our recovery from the recession. And all of this American production puts the United States in a extremely powerful position economically, employing millions of people and producing revenues for state and local governments across much of the country. Also giving the United States the freedom to act in foreign policy in ways that would have been unheard-of years before, such as putting pressure on Iran without endangering our energy supply. It was basically the culmination of the dream from the 1970s. And it was hard to imagine, just a few months ago, what could happen that could undercut that dream.
michael barbaro Like a pandemic?
cliff krauss Like a pandemic that would suddenly destroy the demand for oil and kneecap the American oil industry that had produced all of this oil in the first place.
michael barbaro We’ll be right back. [music]
michael barbaro So Cliff, when this third trauma arrives, the pandemic, the world at this point, and the United States, in particular, is awash in oil. And from what you’re saying, demand for that oil has instantly plunged. So what’s actually happening to all of this overproduced oil?
cliff krauss So the oil has no place to go. And it’s rapidly filling up tank farms, strategic reserves around the world. Refineries are running out of space to put the oil. And so the inventories are building to a point where there’ll be no physical space to put the oil. You now have tankers which, you know, used to ship oil from place to place, just storing the oil and sitting out off of the shores of Los Angeles, for instance, and other places. And these are the people who are making a lot of money. They’re getting paid to just hold the oil.
michael barbaro So this explains those negative oil prices, right? They’re producing so much oil that they have nowhere to store it. So they end up having to pay people to take it.
cliff krauss Exactly.
michael barbaro Cliff, maybe this is a bit of a stupid question, but why don’t oil producers, knowing that there’s just way too much oil, and that, if they keep producing it, they’re going to hurt their own ability to command meaningful prices, just stop pumping or fracking oil? Just leave it in the ground.
cliff krauss Well, that’s beginning to happen, but it’s a cumbersome, complex process. First of all, you have thousands of producers in the United States. We don’t have a national oil company which is taking orders from the government, such as in Saudi Arabia. And then there are complications that go along with shutting in wells. It’s an expensive process. You can actually damage the resource to the point where, when you restart the oil, you’ll actually pump less oil out. And then, you have all of these companies that, even when they’re losing money, they need cash flow. They need cash flow to meet their payroll, to meet their debt responsibilities. So what oil companies prefer to do, you let the well, basically, slowly decline.
michael barbaro So if we can’t easily turn off the pumps, and we can’t suddenly overnight create enough storage for all this oil, what can — and I guess what is — the U.S. doing about this glut of oil?
cliff krauss Well, there are a number of things that are being considered, such as stopping imports from coming in, particularly imports from Saudi Arabia that are on their way in tankers.
archived recording 40 million barrels of Saudi oil is already on its way to the United States. Shipping —
cliff krauss But there are probably American refiners who have already paid for it.
archived recording President Trump is facing pressure to stop Saudi crude oil imports in an effort to save the American oil industry.
cliff krauss And so you would be hurting American refiners. That’s not something that the administration would like to do, I’m sure. So they don’t have a lot of options. But meanwhile, small oil producers are in dire straits and on the verge of bankruptcy. And that could be the future, especially if our demand is going to be depressed for a long time.
michael barbaro So Cliff, how is this new reality of the glut and the small producers struggling within that glut, how is that starting to look on the ground in America’s biggest oil towns, including, I’m sure, yours, which is in Texas?
cliff krauss Well, thousands of people are losing their jobs. Others are being furloughed. Probably, it’s only going to get worse. You have oil states that rely on what’s called severance taxes, which is dependent on the price of oil. So that will have an impact on state and local services. And it will have an impact on people who actually earn money because oil is coming out of fields on their private property. So there’s going to be a big macroeconomic impact in these oil-producing states.
michael barbaro Cliff there are going to be people who hear this and think, this is what happens when a country like the United States becomes overly focused in this discussion of energy and dependence on old line forms of energy, on oil, rather than on newer, greener forms of energy. And what do you say to that?
cliff krauss So there are definitely going to be a lot of people who will celebrate the demise of the American oil industry.
michael barbaro Mhm.
cliff krauss And there is a strong argument to be made that we need to diversify our energy supply. And we have done that successfully when it comes to power. We are now using wind and solar. But not for our cars. The electrical age, the electric cars, they’re coming. There’s no question about it. But it’s going to take decades. Because the average car today is on the road for 10 years. So it takes a long time to change the transportation fleet. And our transportation fleet is overwhelmingly dependent on gasoline and diesel.
michael barbaro Right. Which comes, of course, from oil.
cliff krauss Exactly. [music]
michael barbaro Cliff, what’s so interesting about the history that you have described here is that it feels like every decision the United States has made about oil was about avoiding a single scenario, which is that we would run out of oil and we would be beholden to our adversaries to get that oil. And it feels like we never really prepared for the opposite scenario, which is the situation we’re in now.
cliff krauss That’s right. Nobody anticipated a pandemic that would destroy demand. And no one is to blame for this, but we are now facing an entirely new set of problems.
michael barbaro Right.
cliff krauss And of course, if we had anticipated this problem, we would not have solved the problem that we had being dependent on producers in the Middle East and other unfriendly powers.
michael barbaro Mhm.
cliff krauss So my big takeaway, and it may be obvious to everyone, is the idea of energy security is simply an illusion.
michael barbaro Hm.
cliff krauss We are not energy secure when we have little oil. And we’re not energy secure when we have a lot of oil. It’s hard to get it just right.
michael barbaro Thank you, Cliff.
cliff krauss Thank you.
michael barbaro We’ll be right back. [music]
michael barbaro Here’s what else you need to know today. On Sunday, the head of the White House task force on the coronavirus, Dr. Deborah Birx, said that social distancing rules would likely remain in place throughout the summer, even as some states begin reopening their economies. During an interview on NBC’s “Meet The Press,” Birx was asked about President Trump’s unproven claim, made last week, that an injection of a disinfectant like bleach could combat the virus.
archived recording Dr. Birx, help me understand what happened with the suggestion that the president made that the task force study disinfectant injection. Do you have any more information? And are you concerned that people might take bleach because of what the president said? archived recording (deborah birx) P - I think I made it very clear in how I interpreted that. I also made it very clear, and so has Dr. Fauci and everyone associated with the task force in their clarity around, this is not a treatment. What was meant —
michael barbaro The president’s statement was widely condemned and prompted local health officials, and the makers of cleaning supplies, to warn Americans not to ingest or inject their products. As of Sunday night, the coronavirus had infected more than 938,000 Americans and has killed at least 50,000 of them. [music]
That’s it for “The Daily.” I’m Michael Barbaro. See you tomorrow. ----------
The reserve has about 635 million barrels of oil, and is equipped to store 75 million barrels more. But the reserve can take only about 500,000 barrels a day.
Congressional Democrats recently balked when the administration proposed spending $3 billion to fill the reserve as part of the stimulus package lawmakers passed last month. But on Monday Representative Lizzie Fletcher, a Houston Democrat, said she would introduce legislation appropriating funds for a reserve purchase.
But it will be hard to quickly fix the oil industry’s problems. The oil infrastructure is complicated and it’s not easy to turn off the taps. In addition, countries like Saudi Arabia and Russia, whose economies are reliant on oil, only reluctantly cut production.
Shutting down oil wells and then restarting them when demand returns can require expensive manpower and equipment. Fields do not always recover their former production. In addition, some oil companies keep pumping, even if they are losing money, in order to pay interest on their debts and stay alive.
When traders sell oil they guarantee delivery at a future time. Normally the price differences between oil for next month and the following one are relatively minor. But on Monday oil to be delivered next month, or May, was essentially deemed worthless. Oil set for delivery in June also fell but not nearly as much — more reflective of the market’s view on the current value of crude.
Brent crude, the oil price benchmark outside the United States used by much of the world, whose May contract has already expired, fell about 5 percent to a little under $27 a barrel.
The disparities showed a market “undergoing extreme stress,” said Antoine Halff, a founding partner of Kayrros, a research firm. “It’s a sign of the very real imbalance between supply and demand.”
A little over a week ago, there was some optimism in the oil industry. The Organization of the Petroleum Exporting Countries, Russia and other producers said they would cut 9.7 million barrels a day of production .. https://www.nytimes.com/2020/04/12/business/energy-environment/opec-russia-saudi-arabia-oil-coronavirus.html , or about 10 percent of global oil output, the largest cut ever. It was a grim acknowledgment that global demand had collapsed.
“It’s relatively impressive in terms of the overall number, but it’s not enough to tighten the market between now and the fourth quarter of 2020,” David Fyfe, chief economist at Argus Media, a commodities pricing firm, said about the cut by OPEC and its partners.
U.S. oil producers are also reducing production, but not rapidly enough. At the current pace, American production will decline to less than 11 million barrels a day by the end of the year, from 13.3 million barrels a day at the end of 2019.
Many companies are already reporting substantial losses, and experts said businesses across the oil patch will have to seek bankruptcy protection in the coming months.
Halliburton, the giant provider of equipment, workers and services to oil companies, on Monday reported a $1 billion loss in the first quarter, in contrast to net income of $152 million in the same period a year earlier.
Companies have filled up about 60 percent of the oil storage in the world as demand for energy has collapsed. Edgard Garrido/Reuters
Gary Ross, chief executive of Black Gold investors, an oil trading firm, said demand was falling so fast that U.S. companies that recently were exporting oil are now cutting production.
“It doesn’t matter whether it is $15, $10 or $8, you are still going to” stop production, Mr. Ross said. ConocoPhillips, one of the largest U.S. oil companies, said last Thursday that it would temporarily curtail about 225,000 barrels a day of production.
Such cuts should help stabilize the markets, but it might take months. The U.S. contract for oil delivered in May 2021 was trading on Monday at about $35 a barrel, hinting at how long it might take for prices to reach levels they were at just a few weeks ago.
The oil industry’s plight is forcing policymakers to consider intervening more forcefully.
Exxon Mobil and other large companies have opposed mandated cuts but some smaller companies want the commission to act.
Scott Sheffield, chief executive of Pioneer Natural Resources, told the commission at a hearing last week that if the oil price stayed around $20 a barrel for a while, 80 percent of the hundreds of independent oil companies in the state would be forced into bankruptcy and 250,000 workers would lose their jobs.
At $30 a barrel, many companies would be “crippled,” Mr. Sheffield said. “But at least the industry will survive.”
Stanley Reed has been writing from London for The Times since 2012 on energy, the environment and the Middle East. Prior to that he was London bureau chief for BusinessWeek magazine. @stanleyreed12 • Facebook
Clifford Krauss is a national energy business correspondent based in Houston. He joined The Times in 1990 and has been the bureau chief in Buenos Aires and Toronto. He is the author of “Inside Central America: Its People, Politics, and History.” @ckrausss
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