What's going to happen to crude oil

If you have a supertanker with one million BBLs it is several months away from some of it going into your car.

Crude is not just bought on spot prices, it can be bought on future prices. At the moment, I'd be looking to buy crude - then, based on my judgement of how long it would be before prices rise, I would decide how long to keep it (either sitting in the supertanker or in a tank farm) in order to make a profit from selling. Once sold it would then have to go to a refinery, and depending on the API Specific Gravity, H2S content etc, a certaing amount would come out of the other end as something that might be suitable for internal combustion engines. From the refinery it would then have to go to petrol stations.

In other words, a drop in the price of Brent or WTI does not have an immediate impact on petrol pump prices. Although conversely, the downstream retailers are very happy to raise the price at the pumps when the price of a barrel of crude (months away from the pumps) goes up.
All understood, but I think the issue in Europe is that the insane amount of tax provides price inertia to a large degree. In the US, pump price movements seems to pretty closely reflect crude price movements, not crude price movements from several months ago. Less than a month ago, gas was $2.20/gal here. Now it’s $1.45 and plummeting at a rate of knots.

The tax take is a big factor. Despite being a lower fraction (therefore less refinement needed), diesel round here is typically 60-70 cents a gallon more than gasoline. Gasoline just isn’t as heavily taxed. It’s also much less prevalent. Not all filling stations sell diesel, and of those that do, usually it’s not at all pumps, so I imagine there’s a supply/demand component to the pricing too.
 
All understood, but I think the issue in Europe is that the insane amount of tax provides price inertia to a large degree. In the US, pump price movements seems to pretty closely reflect crude price movements, not crude price movements from several months ago. Less than a month ago, gas was $2.20/gal here. Now it’s $1.45 and plummeting at a rate of knots.

The tax take is a big factor. Despite being a lower fraction (therefore less refinement needed), diesel round here is typically 60-70 cents a gallon more than gasoline. Gasoline just isn’t as heavily taxed. It’s also much less prevalent. Not all filling stations sell diesel, and of those that do, usually it’s not at all pumps, so I imagine there’s a supply/demand component to the pricing too.
Yes, and a sales volume element also. In the US, sales volume of diesel is probably a lot lower than in Europe, therefore stock lies in the tank longer, and there is a lag before the retailer can purchase new, lower cost stock when the price is falling.
 

mcphee1948

War Hero
Suppose the price of crude oil continues to fall - how low could it get before the oil becomes uneconomic to pump up out the ground?
 
Suppose the price of crude oil continues to fall - how low could it get before the oil becomes uneconomic to pump up out the ground?
It's probably getting there already with North Sea. Saudis on the other hand only have to kick over a layer of sand and drop a bucket on a rope... Alex Salmond's economic strategy for Scotland looks pretty disastrous now.
 

ExREME..TECH

On ROPS
On ROPs
It's probably getting there already with North Sea. Saudis on the other hand only have to kick over a layer of sand and drop a bucket on a rope... Alex Salmond's economic strategy for Scotland looks pretty disastrous now.
What year are we in, my bloody TARDIS said 2020
 

Oyibo

LE
All understood, but I think the issue in Europe is that the insane amount of tax provides price inertia to a large degree. In the US, pump price movements seems to pretty closely reflect crude price movements, not crude price movements from several months ago. Less than a month ago, gas was $2.20/gal here. Now it’s $1.45 and plummeting at a rate of knots.

The tax take is a big factor. Despite being a lower fraction (therefore less refinement needed), diesel round here is typically 60-70 cents a gallon more than gasoline. Gasoline just isn’t as heavily taxed. It’s also much less prevalent. Not all filling stations sell diesel, and of those that do, usually it’s not at all pumps, so I imagine there’s a supply/demand component to the pricing too.
I think you're on the nail to a large degree. I'd just add that in the UK (and most of Europe) the time it takes for upstream production to get to the pumps is probably much longer than in the US - which contributes to the lag in price changes
 

Daxx

MIA
Book Reviewer
It would be nice to see some of the oil producing cartels pile in as a result of the current global crisis.
 

mcphee1948

War Hero
It would be nice to see some of the oil producing cartels pile in as a result of the current global crisis.
When you say "pile in" do you mean join in or collapse?

This terminological ambiguity reminds me of an old TV film, seen years ago, when an RAF officer participating in a hypothetical Nato/Warsaw pact conflict, had to seek clarification of a US term.

The RAF guy asked of his US counterpart: "When you say the Russian plane has been "splashed", do you mean "shot down"?
 
When you say "pile in" do you mean join in or collapse?

This terminological ambiguity reminds me of an old TV film, seen years ago, when an RAF officer participating in a hypothetical Nato/Warsaw pact conflict, had to seek clarification of a US term.

The RAF guy asked of his US counterpart: "When you say the Russian plane has been "splashed", do you mean "shot down"?
I’ve never seen the film, but I think I’m on safe ground when I say that I highly doubt the USAF forced the Russian plane to land, very kindly washed it for them, and sent them on their way with a full tank of gas and a cheery wave.

There’s nothing ambiguous about it at all. Or “pile in”. At least, not to the target audience of this website.
 
The price of one grade of heavy oil in the US apparently hit negative 19 cents a barrel a couple of days ago. "Negative 19 cents" means the producer has to pay the buyer to take it off his hands.

A lot of the high cost producers around the world are going to have to shut down if this keeps up. They won't be able to start up quickly again once demand and prices pick up (technical reasons which I won't go into in this post), which means that oil prices could spike upwards later. That's not something that will do a very shaky economy any favours when it's trying to get back on its feet again.
 

giatttt

Old-Salt
I do kinda realise that, however before he was asked to explain his wandering fingers, tongue and pelvis before the Procurator Fiscal he was supposedly putting a plan for together for Scotland to sustain itself financially forever more, based on the bonanza of black stuff on Scottish subsoil. Looking back on his dream there may have been a flaw there...
The flaw was confusing revenue with tax take. A rather wealthy sage once advised that when the CEO starts shagging the staff you should dump your shares. Wee Eck has taken that to a new level and sadly the conspiracy loons are dismissing it all as simple political rivalry. IMHO he's the proverbial puppy sitting beside a pile of poo - endearing, but still a problem
 

ExREME..TECH

On ROPS
On ROPs
I do kinda realise that, however before he was asked to explain his wandering fingers, tongue and pelvis before the Procurator Fiscal he was supposedly putting a plan for together for Scotland to sustain itself financially forever more, based on the bonanza of black stuff on Scottish subsoil. Looking back on his dream there may have been a flaw there...
No
 

mcphee1948

War Hero
I’ve never seen the film, but I think I’m on safe ground when I say that I highly doubt the USAF forced the Russian plane to land, very kindly washed it for them, and sent them on their way with a full tank of gas and a cheery wave.

There’s nothing ambiguous about it at all. Or “pile in”. At least, not to the target audience of this website.
When you pointedly refer to the "target audience" you sting us civilian interlopers.

But surely there was something unfamiliar about the American term "splashed", at least there was years ago.

That's why the RAF bloke queried it. He wanted to be absolutely sure he understood the banter.
 
When you pointedly refer to the "target audience" you sting us civilian interlopers.

But surely there was something unfamiliar about the American term "splashed", at least there was years ago.

That's why the RAF bloke queried it. He wanted to be absolutely sure he understood the banter.
Let me put it this way.. I have practically zero knowledge of say pharmaceutical R&D, or quarrying techniques, or even something as low-level as how birds paint their nails and get a flawless finish. If I wandered into a discussion on any of those subjects, I wouldn’t assume any ambiguity. Almost certainly a level of ignorance on my part, but that’s not ambiguity.

However, it sounds like what you were watching was a film with actors rather than a documentary. It may just be that the script had the RAF guy questioning the USAF guy for the education of the viewership. In reality, the only reason an RAF officer would ask such a dumb question of a USAF officer is to sneer down his nose at him.

There are many different military terms for the same thing at different points of history across the pond.

Int/Intel
Heli/Helo/Helicopter
MT/Motor Pool
ASDIC/SONAR
RDF/RADAR
Stockade/Guardroom

It doesn’t follow that British servicemen think the US Army drive their vehicles into a great big pond at the end of the working day, or that blokes in the shit are herded into a pen with 12” tree trunks driven into the ground. Or that Americans think the Grenadier Guards throw grenades all day, or that the RCMP are all called Malcolm.

(not 100% sure on the last one :) )
 

Oyibo

LE
The price of one grade of heavy oil in the US apparently hit negative 19 cents a barrel a couple of days ago. "Negative 19 cents" means the producer has to pay the buyer to take it off his hands.

A lot of the high cost producers around the world are going to have to shut down if this keeps up. They won't be able to start up quickly again once demand and prices pick up (technical reasons which I won't go into in this post), which means that oil prices could spike upwards later. That's not something that will do a very shaky economy any favours when it's trying to get back on its feet again.
In the upstream business that has been the case for a while. Many upstream businesses measure costs per barrel - so, for example if a barrel is at $100 (for the sake of a convenient number) then the various parts of the business will be assessed on the percentage of the barrel cost. If production cost is, say $50, and HSE and HR are using $40 adjustments will be made, and not in the first instance to production costs.

Reduce the price of a barrel to $25 and a whole load of upstream businesses are in deep poo. Most of the small and medium companies have no choice but to sweat it out while ramping up debt. There are a small number who can afford to mothball until prices go up. In the end it will be the majors and super-majors who survive while snapping up the smaller companies for bargain bucket prices.

ETA:

Most upstream producers/operators will be on Production Sharing Contracts (PSCs). That means that the licence holder (usually a government) has just over a 50% stake. 'Cost oil' will reduce the amount the licence holder takes, but also reduces the operators profits. So from the notional $100 the licence holder takes 51% and the producer (oil company) 49%. Cost oil allows the operator to offset costs of production to the licence holder, but at $25 a barrel the smaller companies are f**ked.
 
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The flaw was confusing revenue with tax take...
I'm not sure where you get this idea from. The tax mechanisms for North Sea production are well documented. Perhaps you would like to share your source for your proposal that Alex Salmond confused revenue with tax take.

Or, is this just another bit of bullshit disguised as banter?
 

giatttt

Old-Salt
I'm not sure where you get this idea from. The tax mechanisms for North Sea production are well documented. Perhaps you would like to share your source for your proposal that Alex Salmond confused revenue with tax take.

Or, is this just another bit of bullshit disguised as banter?
I entirely concur with you. That suggests that you are not one of those rabid Nat warriors who listened to the conference rhetoric about oil being a bazillion dollar business and Westminster robbing Scotland blind. That manifests itself in chest poking economic experts in every pub accusing you of being English scum if you don't agree with them.

There are plenty that are totally unwilling to recognise that oil is through the floor and that you can't build an economy by flooding it with public sector jobs.
<rant ends> apologies for the tangent
 
I entirely concur with you. That suggests that you are not one of those rabid Nat warriors who listened to the conference rhetoric about oil being a bazillion dollar business and Westminster robbing Scotland blind. That manifests itself in chest poking economic experts in every pub accusing you of being English scum if you don't agree with them.

There are plenty that are totally unwilling to recognise that oil is through the floor and that you can't build an economy by flooding it with public sector jobs.
<rant ends> apologies for the tangent
I don’t know anything about “conference rhetoric“, I don’t generally pay much attention to political conferences, as they are all prone to spin their own bullshit, regardless of party. What I do know is that the figures in the white paper were taken from genuine (at the time) tax figures. Of course, this has largely disappeared with the current oil price, but the SNP are not the only ones who have been scratching their heads since 2015, trying to figure out how to replace it.
I get enough of English people in pubs poking me in the chest and telling me what a scrounging twat I am, and how they pay for my prescriptions (the basics of the Block Grant going over their head), so I feel your pain.
 
Canada has been talking to the US about the low price of oil which is hurting producers in both countries.
Canada and U.S. in 'close contact' amid oil price rout, Freeland says
There isn't a lot of information at this time as to where this will lead. Some of the options could include the US and Canada cooperating with OPEC, Russia, and Brazil on production curtailments to support prices. Another could be to an import tariff on oil. If it is the latter, Canada's concern apparently is to avoid tariffs on Canadian oil exports to the US, which could mean coordinated tariffs on oil imports from overseas.

Global oil demand is expected to fall by 30 million barrels per day in April, which is about one third of normal consumption.
 

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