Energy Sector

[rkbabang]

Amazing to think we've been at war for 30+ years over oil. And here we are in an environment where you can't pay people to take it.

 

"The direct use of physical force is so poor a solution to the problem of limited resources that it is commonly employed only by small children and great nations"

 

--David Friedman, "The Machinery of Freedom".

[Dalal.Holdings]

Amazing to think we've been at war for 30+ years over oil. And here we are in an environment where you can't pay people to take it.

 

"The direct use of physical force is so poor a solution to the problem of limited resources that it is commonly employed only by small children and great nations"

 

--David Friedman, "The Machinery of Freedom".

 

Not only do we need to spend trillions to secure these resources, but we also need to prevent investment in renewables because that’s #socialism. Trump bailout for oil workers incoming in 3...2...

[fareastwarriors]

Anything interesting going on oil-related names?

Too early?

[Castanza]

Amazing to think we've been at war for 30+ years over oil. And here we are in an environment where you can't pay people to take it.

 

"The direct use of physical force is so poor a solution to the problem of limited resources that it is commonly employed only by small children and great nations"

 

--David Friedman, "The Machinery of Freedom".

 

Not only do we need to spend trillions to secure these resources, but we also need to prevent investment in renewables because that’s #socialism. Trump bailout for oil workers incoming in 3...2...

 

Subsidies are prevalent on both sides of the energy aisle (GND comes to mind albeit a different flavor). I'm all for clean energy, and I think without all this lobbying, special interests, government intervention, etc. We could have been there a long time ago.

 

Anyways I don't want to derail the thread, but certainly interesting to see considering 100 years of wars have been fought over oil.

 

Always drawing keep the posts coming. Certainly entertaining!

[lnofeisone]

Yesterday, at 4:09 PM EST. the spot price of WTI was MINUS USD 35.30.

A history making USD 44.48+ one-day change in the spot price, yet nobody is taking about it?

 

SD

 

This. Someone, somewhere is sitting on a massive loss. I doubt it's USO but USO is very much a forced seller here.

[writser]

USO did the sensible thing and is deviating from their index strategy: https://www.sec.gov/Archives/edgar/data/1327068/000117120020000259/0001171200-20-000259-index.htm

 

Commencing on April 21, 2020, because of extraordinary market conditions in the crude oil markets, including super contango, USO has invested in other permitted investments, as described below and in its prospectus. In particular, on April 21, 2020, USO invested in approximately 40% of its portfolio in crude oil futures contracts on the NYMEX and ICE Futures in the June contract, approximately 55% of its portfolio in crude oil futures contracts on the NYMEX and ICE Futures in the July contract and approximately 5% of its portfolio in crude oil futures contracts on the NYMEX and ICE Futures in the August contract, except when the front month contract is within two weeks of expiration, in which case the futures contracts held by USO will be rolled into the July contract, August contract and September contract. In addition, commencing on April 22, 2020, USO in response to ongoing extraordinary market conditions in the crude oil markets, including super contango, may invest in the above described crude oil futures contracts on the NYMEX and ICE Futures in any month available or in varying percentages or invest in any other of the permitted investments described below and in its prospectus, without further disclosure. USO intends to attempt to continue tracking USO’s benchmark as closely as possible, however significant tracking deviations may occur above and beyond the differences described herein. USO’s portfolio holdings as of the end of the prior business day are posted each day on the website: www.uscfinvestments.com/uso.

 

Was the market trying to bust USO today? Or was the huge drop in June contracts caused by USO rolling half of its June futures to the next expiration? Fascinating stuff.

 

Liquidity doesn't seem too bad if they can roll half their position in a few hours.

[Viking]

It looks like we are starting to see some second order effects play out from the economic devastation brought on by the virus.

 

Oil has seen an unprecedented massive demand shock that is ongoing. Producers have not cut back nearly enough. Excess storage is now full. So what is the solution? Lower prices.

 

The problem is cutting production results in lower employment and no national government wants this so everyone keeps producing. What we are seeing is what happens to an oligopoly when there is no cooperation.

 

Interesting commodity indexes are now trading at new historic lows. And the 10 year US Treasury is trading lower (near its all time low). Disinflation is a reality. And that train is just getting started. We are in unprecedented times...

 

i wonder what will be the next shoe to fall? Low commodity prices, a rising US$ and virus ravaged economies can’t be good for emerging markets (Brazil, Turkey, Iran, Iraq, Venezuela, India etc).

[alwaysdrawing]

Just FYI, USO filed an 8-k, changing their holdings from 80% front month, 20% next to

 

40% front, 55% next, 5% two from now (eg, 40% June, 55% July, 5% August)

 

EDIT:  This makes the near term default risk minimal, as the longer dated futures contracts will not lose value so fast.

 

Short term puts will likely expire worthless, longer term will devalue as long as contango persists.

 

Difficult to calculate NAV right now, because USO was trading outside their prospectus and it's impossible to know the prices they paid.  Crazy situation all around.

[KJP]

It looks like we are starting to see some second order effects play out from the economic devastation brought on by the virus.

 

Oil has seen an unprecedented massive demand shock that is ongoing. Producers have not cut back nearly enough. Excess storage is now full. So what is the solution? Lower prices.

 

The problem is cutting production results in lower employment and no national government wants this so everyone keeps producing. What we are seeing is what happens to an oligopoly when there is no cooperation.

 

Interesting commodity indexes are now trading at new historic lows. And the 10 year US Treasury is trading lower (near its all time low). Disinflation is a reality. And that train is just getting started. We are in unprecedented times...

 

i wonder what will be the next shoe to fall? Low commodity prices, a rising US$ and virus ravaged economies can’t be good for emerging markets (Brazil, Turkey, Iran, Iraq, Venezuela, India etc).

 

On the other hand, the natural gas forward curve has been rising, with the January 2021 contract up around 25% in the last 45 days.  I assume part of the reason for that is the assumed decline in associated/byproduct gas going forward.

 

Also, for US producers, what percentage of oil production is hedged at much higher prices than the June or July contracts?  More broadly, if you've already incurred the expense of drilling and completing a shale well, what is the actual cost to lift and transport it for sale?  I assume that's quite low.  So, wouldn't US production likely decline with the aging curve of recent shale wells, rather than simply fall off a cliff?

[Viking]

It looks like we are starting to see some second order effects play out from the economic devastation brought on by the virus.

 

Oil has seen an unprecedented massive demand shock that is ongoing. Producers have not cut back nearly enough. Excess storage is now full. So what is the solution? Lower prices.

 

The problem is cutting production results in lower employment and no national government wants this so everyone keeps producing. What we are seeing is what happens to an oligopoly when there is no cooperation.

 

Interesting commodity indexes are now trading at new historic lows. And the 10 year US Treasury is trading lower (near its all time low). Disinflation is a reality. And that train is just getting started. We are in unprecedented times...

 

i wonder what will be the next shoe to fall? Low commodity prices, a rising US$ and virus ravaged economies can’t be good for emerging markets (Brazil, Turkey, Iran, Iraq, Venezuela, India etc).

 

On the other hand, the natural gas forward curve has been rising, with the January 2021 contract up around 25% in the last 45 days.  I assume part of the reason for that is the assumed decline in associated/byproduct gas going forward.

 

Also, for US producers, what percentage of oil production is hedged at much higher prices than the June or July contracts?  More broadly, if you've already incurred the expense of drilling and completing a shale well, what is the actual cost to lift and transport it for sale?  I assume that's quite low.  So, wouldn't US production likely decline with the aging curve of recent shale wells, rather than simply fall off a cliff?

 

It makes sense to me that once storage capacity is reached production WILL come down. Prices will keep falling until this happens. Volume cuts will be voluntarily or forced via bankruptcy.

[rb]

LOOOL! R Senator from ND on Bloomberg right now:

 

"The current situation in the oil markets is mainly due to the super price war between Russa and KSA."

 

"Our companies are very good, very responsible companies".

 

https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WCRFPUS2&f=W

 

https://tradingeconomics.com/saudi-arabia/crude-oil-production

[Dalal.Holdings]

https://seekingalpha.com/news/3562819-interactive-brokers-reports-margin-loss-on-crude-oil-contracts

 

Looks like IBKR took (relatively small) hit due to customer losses:

 

Interactive Brokers Group (NASDAQ:IBKR) recognizes an aggregate provisionary loss of ~$88M resulting from the price of New York Mercantile Exchange West Texas Intermediate May crude oil contract price dropping to negative $37.63.

 

Several Interactive Brokers LLC ("IBLLC") customers held long positions in these CME and ICE Europe contracts and, as a result, they incurred losses that exceeded the equity in their accounts.

 

What are the margin requirements for futures holders going to be going fwd?

[randomep]

 

I have a basic question about oil futures. I have never traded oil future and don't intend to. But I do trade in SP500 Eminis so I know a bit about futures.  So the price of the future is going to converge to the spot price up to the expiry date.  So does that really mean on the date of expiry the oil company is actually going to pay people to take their oil at cushing?  And how long as the spot price been negative?

[SharperDingaan]

It looks like we are starting to see some second order effects play out from the economic devastation brought on by the virus.

 

Oil has seen an unprecedented massive demand shock that is ongoing. Producers have not cut back nearly enough. Excess storage is now full. So what is the solution? Lower prices.

 

The problem is cutting production results in lower employment and no national government wants this so everyone keeps producing. What we are seeing is what happens to an oligopoly when there is no cooperation.

 

Interesting commodity indexes are now trading at new historic lows. And the 10 year US Treasury is trading lower (near its all time low). Disinflation is a reality. And that train is just getting started. We are in unprecedented times...

 

i wonder what will be the next shoe to fall? Low commodity prices, a rising US$ and virus ravaged economies can’t be good for emerging markets (Brazil, Turkey, Iran, Iraq, Venezuela, India etc).

 

On the other hand, the natural gas forward curve has been rising, with the January 2021 contract up around 25% in the last 45 days.  I assume part of the reason for that is the assumed decline in associated/byproduct gas going forward.

 

Also, for US producers, what percentage of oil production is hedged at much higher prices than the June or July contracts?  More broadly, if you've already incurred the expense of drilling and completing a shale well, what is the actual cost to lift and transport it for sale?  I assume that's quite low.  So, wouldn't US production likely decline with the aging curve of recent shale wells, rather than simply fall off a cliff?

 

It makes sense to me that once storage capacity is reached production WILL come down. Prices will keep falling until this happens. Volume cuts will be voluntarily or forced via bankruptcy.

 

https://oilprice.com/Energy/Oil-Prices/EX-BP-CEO-Low-Oil-Prices-Are-Here-To-Stay.html

The reality is that it will take YEARS of demand > supply, to work off the existing above ground inventory, and because there's lots of inventory - prices will stay low during that entire time. Left to the market, that means widespread and long-standing shut-in/re-drilling across most production sectors, and largely state-only production. Hard on jobs.

 

More practical, is national energy policies, and 'in-country' prices [tariffs] high enough to sustain domestic production. Alternative energy incentives switch to pollution minimization incentives. In Canada, a made-in-Canada price, and more pollution saved by Tar Sands polluting less/carbon sequester, versus switching to EV. NEP 2.0, and rebuilt pipelines across Canada. We 'the people' pay more, but we get jobs, stability, and the ability to plan our futures.

 

Canada might even improve its Kyoto Accords performance!,

albeit not in the way intended.

 

SD

 

 

 

 

[Viking]

It looks like we are starting to see some second order effects play out from the economic devastation brought on by the virus.

 

Oil has seen an unprecedented massive demand shock that is ongoing. Producers have not cut back nearly enough. Excess storage is now full. So what is the solution? Lower prices.

 

The problem is cutting production results in lower employment and no national government wants this so everyone keeps producing. What we are seeing is what happens to an oligopoly when there is no cooperation.

 

Interesting commodity indexes are now trading at new historic lows. And the 10 year US Treasury is trading lower (near its all time low). Disinflation is a reality. And that train is just getting started. We are in unprecedented times...

 

i wonder what will be the next shoe to fall? Low commodity prices, a rising US$ and virus ravaged economies can’t be good for emerging markets (Brazil, Turkey, Iran, Iraq, Venezuela, India etc).

 

On the other hand, the natural gas forward curve has been rising, with the January 2021 contract up around 25% in the last 45 days.  I assume part of the reason for that is the assumed decline in associated/byproduct gas going forward.

 

Also, for US producers, what percentage of oil production is hedged at much higher prices than the June or July contracts?  More broadly, if you've already incurred the expense of drilling and completing a shale well, what is the actual cost to lift and transport it for sale?  I assume that's quite low.  So, wouldn't US production likely decline with the aging curve of recent shale wells, rather than simply fall off a cliff?

 

It makes sense to me that once storage capacity is reached production WILL come down. Prices will keep falling until this happens. Volume cuts will be voluntarily or forced via bankruptcy.

 

https://oilprice.com/Energy/Oil-Prices/EX-BP-CEO-Low-Oil-Prices-Are-Here-To-Stay.html

The reality is that it will take YEARS of demand > supply, to work off the existing above ground inventory, and because there's lots of inventory - prices will stay low during that entire time. Left to the market, that means widespread and long-standing shut-in/re-drilling across most production sectors, and largely state-only production. Hard on jobs.

 

More practical, is national energy policies, and 'in-country' prices [tariffs] high enough to sustain domestic production. Alternative energy incentives switch to pollution minimization incentives. In Canada, a made-in-Canada price, and more pollution saved by Tar Sands polluting less/carbon sequester, versus switching to EV. NEP 2.0, and rebuilt pipelines across Canada. We 'the people' pay more, but we get jobs, stability, and the ability to plan our futures.

 

Canada might even improve its Kyoto Accords performance!,

albeit not in the way intended.

 

SD

 

Trudeau and pretty much the rest of Canada (outside of Alberta and Saskatchewan) has moved on from oil. Oil is so hated my guess is completing the pipeline projects will be difficult; more massive protests with many groups doing everything they can to stop it. Meanwhile, the economy is falling off a cliff. But the government is cutting everyone a check so who cares about being ‘unemployed’ or if we have a shitty economy.

[lnofeisone]

 

I have a basic question about oil futures. I have never traded oil future and don't intend to. But I do trade in SP500 Eminis so I know a bit about futures.  So the price of the future is going to converge to the spot price up to the expiry date.  So does that really mean on the date of expiry the oil company is actually going to pay people to take their oil at cushing?  And how long as the spot price been negative?

 

Very few futures are closed out with physical delivery. Even if there is physical delivery, all of the futures costs are settled daily (marked to market) so whoever bought the future basically paid up out of the required margin.

 

Edited to quote the question. Still getting used to the new format.

[randomep]

 

I have a basic question about oil futures. I have never traded oil future and don't intend to. But I do trade in SP500 Eminis so I know a bit about futures.  So the price of the future is going to converge to the spot price up to the expiry date.  So does that really mean on the date of expiry the oil company is actually going to pay people to take their oil at cushing?  And how long as the spot price been negative?

 

Very few futures are closed out with physical delivery. Even if there is physical delivery, all of the futures costs are settled daily (marked to market) so whoever bought the future basically paid up out of the required margin.

 

Edited to quote the question. Still getting used to the new format.

 

 

Thanks for trying but you didn't answer my question.  Is someone going to take delivery at negative cost?  Or is that not a right question to ask? 

 

But I see the WTI spot price and it is normal around $20, so do we agree that the spot price of oil is around $20, it will never be negative?

 

Ok so I do trade Emini futures so I know how it settles everyday.  But what would prompt a person to sell oil at -$35.  I wouldn't.  Suppose I bought a future on a barrel for $40, then coronavirus hits us and I know I am hosed, ok I'll get out by selling $20.  But if it goes to $10 I won't sell, I know that one minute before expiry I can unload it for $20 (the above minimum price I gave).

 

Now I imagine maybe I really want to get rid of a barrel of oil, so I have the "original" contract.....  and no one has taken the other side of this contract.  I need to get rid of the oil cos I have no place to put it, so I am willing to take a loss on the barrel.  But if I just hold on to the oil, on expiry I know I can get $20 / barrel.  So in what scenario will a sane person sell oil at -$35?  Am I missing something? like a margin call? what?

 

please help!

[pocoapoco]

 

I have a basic question about oil futures. I have never traded oil future and don't intend to. But I do trade in SP500 Eminis so I know a bit about futures.  So the price of the future is going to converge to the spot price up to the expiry date.  So does that really mean on the date of expiry the oil company is actually going to pay people to take their oil at cushing?  And how long as the spot price been negative?

 

Very few futures are closed out with physical delivery. Even if there is physical delivery, all of the futures costs are settled daily (marked to market) so whoever bought the future basically paid up out of the required margin.

 

Edited to quote the question. Still getting used to the new format.

 

 

Thanks for trying but you didn't answer my question.  Is someone going to take delivery at negative cost?  Or is that not a right question to ask? 

 

But I see the WTI spot price and it is normal around $20, so do we agree that the spot price of oil is around $20, it will never be negative?

 

Ok so I do trade Emini futures so I know how it settles everyday.  But what would prompt a person to sell oil at -$35.  I wouldn't.  Suppose I bought a future on a barrel for $40, then coronavirus hits us and I know I am hosed, ok I'll get out by selling $20.  But if it goes to $10 I won't sell, I know that one minute before expiry I can unload it for $20 (the above minimum price I gave).

 

Now I imagine maybe I really want to get rid of a barrel of oil, so I have the "original" contract.....  and no one has taken the other side of this contract.  I need to get rid of the oil cos I have no place to put it, so I am willing to take a loss on the barrel.  But if I just hold on to the oil, on expiry I know I can get $20 / barrel.  So in what scenario will a sane person sell oil at -$35?  Am I missing something? like a margin call? what?

 

please help!

 

I believe that the futures contract specify physical delivery.

It’s not cash settled like your Emini futures.

So come expiration, you don’t just get some dollar amount for the contract (like a $20 spot)

You get a barrel of oil (or however many the contract specifies)

 

If you do not have the ability to take delivery of the oil, and put it in storage, then you will be forced to close at market.  I’m guessing that you as an investor don’t have the ability to take delivery of physical oil.  That is why people roll the futures a day or two before expiration.

 

Liquidity is provided by those that can take delivery, store the oil and short a further out contract, pay the storage fees, and make the spread.  If there’s no storage available and storage costs skyrocket then the spread between the months blows out.

[lnofeisone]

 

I have a basic question about oil futures. I have never traded oil future and don't intend to. But I do trade in SP500 Eminis so I know a bit about futures.  So the price of the future is going to converge to the spot price up to the expiry date.  So does that really mean on the date of expiry the oil company is actually going to pay people to take their oil at cushing?  And how long as the spot price been negative?

 

Very few futures are closed out with physical delivery. Even if there is physical delivery, all of the futures costs are settled daily (marked to market) so whoever bought the future basically paid up out of the required margin.

 

Edited to quote the question. Still getting used to the new format.

 

 

Thanks for trying but you didn't answer my question.  Is someone going to take delivery at negative cost?  Or is that not a right question to ask? 

 

But I see the WTI spot price and it is normal around $20, so do we agree that the spot price of oil is around $20, it will never be negative?

 

Ok so I do trade Emini futures so I know how it settles everyday.  But what would prompt a person to sell oil at -$35.  I wouldn't.  Suppose I bought a future on a barrel for $40, then coronavirus hits us and I know I am hosed, ok I'll get out by selling $20.  But if it goes to $10 I won't sell, I know that one minute before expiry I can unload it for $20 (the above minimum price I gave).

 

Now I imagine maybe I really want to get rid of a barrel of oil, so I have the "original" contract.....  and no one has taken the other side of this contract.  I need to get rid of the oil cos I have no place to put it, so I am willing to take a loss on the barrel.  But if I just hold on to the oil, on expiry I know I can get $20 / barrel.  So in what scenario will a sane person sell oil at -$35?  Am I missing something? like a margin call? what?

 

please help!

 

So few things here. Let's start with the mechanics and then do an actual example because there are some funny quirks. If you hold futures contract on oil into the expiration and go into a settlement (let's stick with light sweet) you have to take the delivery. At Cushing, the futures buyer needs to have storage access that is connected to either an EPD or ENB pipelines. Let's say you decided to take the delivery and the price is positive. At expiry (price is at spot), the exchange will take money from your account and deposit it into the seller's account. You get to Cushing and the seller will likely have oil storage in Cushing or will contract it from someone. That's the normal process for physical exchanges.

 

There are protections in place for everyone (this is important because I think this is what drove some entity to basically take any price). For example, if the futures seller fails to deliver, the exchange will find the oil or compensate the buyer. If the buyer fails to accept delivery, the exchange will debit the account to make sure seller gets paid. If the facility fails to load out, the exchange guarantees the buyer will get the full market value of content. You get the idea. Now if either party fails to live up to their obligation the exchange will consider it an act detrimental to the welfare of the exchange and penalties can be stiff (e.g., suspension or expulsion).

 

Now, onto the quirks. In reality, very few accounts are allowed to hold oil futures into expiration. If you hold futures, a few days prior to expiry you get a phone call from the exchange to either roll your futures or close out the position. If you are EPD or MPLX and have a business need you'll get questions but probably will be able to hold onto your position. If you are big and sophisticated players (le's say GS) you can probably figure out how to hold on. Small retail, no chance. This is one of those small differences between commodities and e-minis. The bigger difference (the one that doomed our hero) is that the e-minis (if they weren't financially settled) would deliver a basket of paper that is liquid while taking physical delivery of a commodity is a process that requires sophistication and infrastructure).

 

Next quirk. A few weeks ago this went out (https://www.bloomberg.com/news/articles/2020-03-28/pipelines-ask-u-s-oil-drillers-to-curb-output-as-tanks-fill-up). EPD basically now asking everyone to show that they have a destination for their oil (meaning that they have no storage to spare).

 

This is the part where I am guessing. Some sophisticated entity had a large position going into expiry. I say sophisticated because this is very close to expiry for someone like me to be holding oil futures. Exchange called this entity and asked to prove storage/destination or unwind. Failure to do so would result in not so great consequences. The entity was unable to find storage so the trading desk had to unwind at the insistence of risk officer. As prices started to come down, there were probably others in the market that started getting margin calls, and frenzy ensued. EPD/ENB and others with storage were probably buyers at negative prices. Hopefully, not too much because that oil isn't going anywhere for a while.

 

 

[meiroy]

https://twitter.com/realDonaldTrump/status/1252932181447630848

 

"I have instructed the United States Navy to shoot down and destroy any and all Iranian gunboats if they harass our ships at sea."

 

Clever. "Go ahead, block it."

 

[SharperDingaan]

Trudeau and pretty much the rest of Canada (outside of Alberta and Saskatchewan) has moved on from oil. Oil is so hated my guess is completing the pipeline projects will be difficult; more massive protests with many groups doing everything they can to stop it. Meanwhile, the economy is falling off a cliff. But the government is cutting everyone a check so who cares about being ‘unemployed’ or if we have a shitty economy.

 

Agreed, times have changed, but they have also made a national energy policy more of a necessity than it has ever been.

Lack of money, has a wonderful way of concentrating the minds of everyone,

 

Like it or not, there will be climate driven constraints, but it can be done intelligently (ie: orphan well clean-up)

 

The Supreme Court has ruled there is 'duty to consult', not a 'duty to agree'. A sick community cannot veto a pipeline, because it cannot make a decision. The obvious industry 'consultors', are the governments of the day, under a national energy policy.

 

There will be quasi-privatization. Crown corporation in-ground SPR, pipeline company, oil company, rail (oil/grain car) fleet, tanker (nfld) fleet, supply-chain (medical, food) infrastructure, etc. Most likely as oiligarch, crown corp and 1-2 private corps.

 

And perhaps one of the biggest lessons from Covid-19.

All of the above are essential services, with immense value-add, and robust . When the sh1te hits the fan, the gig economy, and non-essential services break down.

 

Interesting times.

 

SD

 

 

 

[wescobrk]

USO will have 8 to 1 reverse split on April 28th.

How will this affect puts and calls?

[LC]

The real unknown here is how various desks will price these assets going forward and the various implications of that (i.e. reduced volumes or higher collateral reqs). Many existing models (e.g. gabillon) do not allow for negative prices. Similarly to negative interest rates a few years back.

 

FYI this lends more color here:

https://www.bloomberg.com/news/articles/2020-04-21/negative-oil-prices-are-literally-breaking-traders-risk-models

 

CME Group Inc. said late Tuesday that the clearing house will switch the options pricing and valuation model to Bachelier -- a model named after the famous French mathematician -- to accommodate negative prices in the underlying futures and allow for listing of options contracts with negative strikes for a certain set of crude oil and energy products. The change is effective Wednesday and will remain in place until further notice.

 

[Dalal.Holdings]

The real unknown here is how various desks will price these assets going forward and the various implications of that (i.e. reduced volumes or higher collateral reqs). Many existing models (e.g. gabillon) do not allow for negative prices. Similarly to negative interest rates a few years back.

 

FYI this lends more color here:

https://www.bloomberg.com/news/articles/2020-04-21/negative-oil-prices-are-literally-breaking-traders-risk-models

 

CME Group Inc. said late Tuesday that the clearing house will switch the options pricing and valuation model to Bachelier -- a model named after the famous French mathematician -- to accommodate negative prices in the underlying futures and allow for listing of options contracts with negative strikes for a certain set of crude oil and energy products. The change is effective Wednesday and will remain in place until further notice.

 

Holy cow--negative strikes.

[Uccmal]

Trudeau and pretty much the rest of Canada (outside of Alberta and Saskatchewan) has moved on from oil. Oil is so hated my guess is completing the pipeline projects will be difficult; more massive protests with many groups doing everything they can to stop it. Meanwhile, the economy is falling off a cliff. But the government is cutting everyone a check so who cares about being ‘unemployed’ or if we have a shitty economy.

 

Agreed, times have changed, but they have also made a national energy policy more of a necessity than it has ever been.

Lack of money, has a wonderful way of concentrating the minds of everyone,

 

Like it or not, there will be climate driven constraints, but it can be done intelligently (ie: orphan well clean-up)

 

The Supreme Court has ruled there is 'duty to consult', not a 'duty to agree'. A sick community cannot veto a pipeline, because it cannot make a decision. The obvious industry 'consultors', are the governments of the day, under a national energy policy.

 

There will be quasi-privatization. Crown corporation in-ground SPR, pipeline company, oil company, rail (oil/grain car) fleet, tanker (nfld) fleet, supply-chain (medical, food) infrastructure, etc. Most likely as oiligarch, crown corp and 1-2 private corps.

 

And perhaps one of the biggest lessons from Covid-19.

All of the above are essential services, with immense value-add, and robust . When the sh1te hits the fan, the gig economy, and non-essential services break down.

 

Interesting times.

 

SD

 

What this says to me is that if you have pipe already, it will become increasingly valuable.  The repercussions for future supply are interesting to say the least. 

 

SA, And to a lessor degree the other large Mideast countries are going to be facing revolution if the oil price stays down for very long.  We saw what happened to Libya’s and Venezuela’s supplies when governments become unstable.  Simultaneously we have a virtual elimination of long tail projects by every major player in the world. 

 

The outcome is likely toppled regimes, and a massive price bounce back, down the road.  It may become more like railroads, with very few players making a lot of money. 

 

We could speed up the rebalance really quick by turning the gulf fields into glass.  China may take exception but I sure Moscow would be on board.