Crude Oil trading way below zero

If you haven’t noticed, today crude oil prices have totally collapsed on Wall Street, at one point trading at nearly negative $40.00 a barrel. That’s 40 dollars below zero.

In the meantime, over the past several months, as the impending oil collapse became crystal clear to most everyone, the U.S. Bureau of Land Management and U.S. Forest Service continued to auction off public lands for fracking and oil and gas development for fire-sale prices.

On April 9, the Trump administration even released a final plan to expand drilling and fracking and other fossil fuel extraction across southwestern Colorado for the next two decades as part of the Bureau of Land Management’s final Uncompahgre land-management plan and record of decision. The plan would allow fracking on more than half of the 675,000 acres of public land and almost a million acres of federal minerals that it covers, and coal extraction on another 371,000 acres. The BLM’s environmental impact analysis fails to tally direct and indirect climate pollution that would result from fossil fuel production. The BLM’s oil and gas production forecast shows the plan would increase climate pollution in the region by more than 2,300% over the next decade. Colorado’s new law calls for cutting greenhouse gas pollution in half by 2030.

Look for Republicans in Congress, and GOP leaders around the country, to yet again become true believers in socialism…for the oil and gas industry and corporate America, anyway. When it comes to socialism for people, such as supporting a living wage or universal health care for the American people, the GOP still opposes these basic rights.

P.S. Today is also the 10-year anniversary of the BP Deepwater Horizon oil rig exploding, which killed 11 people and spilled more than 200,000,000 gallons of oil into the Gulf of Mexico for 87 days.

10 thoughts on “Crude Oil trading way below zero”

  1. Markets are driven by quite a few things but in this case you have the confluence of two main drivers:

    1) oil storage https://www.grandviewresearch.com/industry-analysis/oil-storage-market
    So the Russian’s apparently have been desperate for revenue to the point that crude storage has filled up on shore & has moved onto ships. An agrement has been reached with the Russian’s and eventually things should start to reverse.
    In the meantime, storing oil costs big money so you get negative prices when companies unload storage to cut their losses.

    2)covid-19’s impact on transportation https://finance.yahoo.com/quote/CL%3DF/history?p=CL%3DF
    As you can see, crude oil prices for this yr are directly correlated with the duration of the virus because of the cumulative impact of shelter in place on transportation due to reductions in personal travel and curtailment of business as evidenced by the inversely correlating trend in unemployment.

    3) as to your conjecture about GOP efforts to destroy nature. You probably weren’t born but experience from the long gas lines during the Carter years & a couple of short term similar events in the interim has driven us to make sure that we aren’t at the mercy of self serving foriegn powers for our crude supply. The country is making great strides to switching to renewable energy which also create their own environmental problems. In the interim, we need to maintain a stong degree of crude self sufficiency.

    It’s a messy world but knee jerk reaction will only make it messier.

    Reply
    • FWIW: I was 9 years old when President Carter left office. I do have childhood memories of the 1979 oil crisis and hostage crisis. Thanks for flattering me by thinking I’m younger, Gil.

      P.S. Seems like “knee jerk reaction will only make it messier” applies to pretty much every single thing the current president says or does.

      Reply
      • I don’t think that the president is any different than most politicians when it comes to Knee Jerk reactions. At least his aren’t based on what the polls say from day to day. Trump’s been running against the polls since the start.

        Reply
  2. Hmmm… are you saying they should wait until the price goes up to lease? The quotes are about an RMP and lease sales are down the road from that. I’m not sure that people will bid based on current prices, they have to guess what it will be when they get into production.

    So when WEG (not the most unbiased source of info) says:
    “Fossil fuel production on public lands causes about a quarter of U.S. greenhouse gas pollution. Peer-reviewed science estimates that a nationwide federal fossil fuel leasing ban would reduce carbon emissions by 280 million tons per year, ranking it among the most ambitious federal climate policy proposals in recent years.”
    Maybe I took economics too long ago, but I thought if you reduced supply and didn’t change demand, then prices will go up and/or you will import from somewhere else. Demand will change (usually) via a price signal. And yet, many people in lower economic strata depend on fossil fuels to get to their jobs and heat their homes. So maybe the analysis should include the economic difficulties to citizens of the US perhaps caused by higher oil and gas prices? Indirect economic effects (including education) of states not getting their 50% of lease dollars?

    We’d have to compare methane leakage to that from other countries and guess what other countries we’d be getting it from, and their drilling practices and regulations… oh, and air quality models..

    Even when I left working on oil and gas and coal EIS’s, I thought the BLM did a pretty good job of analyzing this stuff (given the known unknowns and the unknown unknowns). It makes a timber sale EIS look like a walk in the park.

    Reply
    • Re: Hmmm… are you saying they should wait until the price goes up to lease?
      NO – That would be silly – I was NOT responding to the lease sales. I was responding to Matthew’s comment:
      “If you haven’t noticed, today crude oil prices have totally collapsed on Wall Street, at one point trading at nearly negative $40.00 a barrel. That’s 40 dollars below zero.
      In the meantime, over the past several months, as the impending oil collapse became crystal clear to most everyone, the U.S. Bureau of Land Management and U.S. Forest Service continued to auction off public lands for fracking and oil and gas development for fire-sale prices.”
      To me, this seems to imply that this is a long term issue negating the need for leases. when, in fact, it is a short term blip due to a confluence of miscalculation by some crude buyers for storage and due to the short term reduction in demand tied to Covid-19.
      You are absolutely correct in saying that “people will” NOT “bid based on current prices”. They will have to bid on their expectations of “what it will be when they get into production”

      So that should put us pretty much on the same page above and below this line of comment.

      Re: “Peer-reviewed science estimates that a nationwide federal fossil fuel leasing ban would reduce carbon emissions by 280 million tons per year”
      False – as you state elsewhere, in this case the lost supply will be purchased ‘from somewhere else’ AND, Unfortunately, it will increase carbon emissions. Carbon emissions disperse throughout the world and the demand will be meet by other countries which will not control emissions as well as the US and other countries with more stringent environmental standards. Continuing to rephrase what you said elsewhere: In this case, a lower quality crude will replace the lost production somewhere in the supply chain. Maybe not in the US but the increased extraction and transportation pollution and lower yield at the refinery coming from the low end of the supply chain elsewhere will not remain in-place. It will have a global impact on the earth’s atmosphere including in the US. It’s like playing with a child’s pop up toy – you push a block in here and a different block pops up somewhere else. Only in this case the different block is less environmentally friendly.

      Re: “I thought if you reduced supply and didn’t change demand, then prices will go up and/or you will import from somewhere else”
      Here’s the problem with Economic theory: The static supply demand curves are not the real world. In the dynamic real world, a significant change in price will produce a significant change in demand and vise versa. There is no “magic hand” that can direct a change in one without changing the other. At least not until we have one world wide socialist government. 🙁

      Reply
  3. Whether the “lost supply will be purchased from somewhere else” depends on many things, like the price elasticity (change in demand in response to a change in price) and the availability of alternatives, which can also be manipulated as part of a comprehensive policy. This article suggests that there are “Low international leakage rates associated with supply-side policies” (limiting production). They encourage limiting supply as a complement to the demand-side efforts that have dominated international agreements so far. Closing federal lands would fit this recommendation: “The emergence of international cooperation on fossil fuels is likely to be contingent on a coalition of early-movers taking unilateral steps to limit or reduce fossil fuel supply…”
    https://www.vox.com/energy-and-environment/2018/4/3/17187606/fossil-fuel-supply

    Reply
    • Jon, those folks scare me a little… how would they know about “low international leakage rates”? Certainly before the shale gas boom, we were procuring oil and natural gas from somewhere… else…
      It seems like they are interested in “international agreements”. It looks to me like “demand side efforts” in international agreements don’t have a good track record in this area. Really, “cooperation is likely to be contingent…on reducing fossil fuel supply?”

      This seems like an op-ed to me with lots of arm-waving. Closing federal lands may also increase pressure on private lands (does this remind you of timber?) which has many economic and environmental ramifications as well.

      Let’s use the same logic on food. There are environmental impacts from food production which (some of us think) would best be addressed through international agreements. In addition to reducing demand, we think we should also form a coalition of early-movers to limit or reduce food supply..

      Reply
      • Two things:

        1) Re: “cooperation is likely to be contingent…on reducing fossil fuel supply?”
        Yes, to drive prices up. But the Ruskies haven’t been cooperating have they? They must be in some desperate need for cash or have a determination to maintain or increase market share. Some think that they are ready to cooperate but only time will tell.

        2) Technicality: From my link to crude prices on Yahoo in my first comment you can see that crude prices didn’t go to -$38/barrel.

        What went to -$38 were the Expiring April Futures Contracts.

        So speculators had to unload their contracts or take possesion of 1,000 50 gallon drums (50,000gal) of crude per contract with no place to store them other than in 5 11,000 gallon truck tankers per contract. Especially since, as speculators, they never even had the remotest thought of taking possesion.
        Some expect the same thing to happen when the May contract expires.

        Reply

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