Topic: The drying oil - page 4. (Read 899 times)

Well, it was coming just around the corner...
People don't need to use that much oil today (Electric transport, alternative energy).
I just counted for myself, and it appears it's cheaper to get a solar electrostation rather than paying electricity bill 3 - 4 years

It's a mixture of the two.

Russia and Saudia Arabia are currently in the midst of a oil price war at the moment. What this has lead to is the two countries continuing to pump out as much oil as possible to stick it to the other. Typically, in a time like this OPEC and other large drillers of oil would have limited the supply of oil to help themselves out to stabilize the price.

The Coronavirus situation isn't helping as some of the biggest users of oil -- Cruises, Airline Companies, etc -- are not using as much oil as usual as a large amount of flights are cancelled due to lack of demand and cruise have been stopped for awhile in the US as well (pretty sure the government is making them stop for like 120 days or so?)

People also don't really understand how the oil futures contracts work as well: I'll try to explain it as best as possible. The futures contracts that went negative (down to -38 per barrel at a point) if held to expiry would force you to have to purchase 1000 barrels of oil at $-37 a barrel. While that sounds perfect, the problem is that no one wants that oil and there's no cheap way to store crude oil. There's a major glut in the market, and you'd kinda just be sitting on product that you'd have to pay to go pickup.

1000 barrels of oil is 42,000 gallons of oil. You'd need like two extra long tractor trailers to go hold that product and then you'd have to store it and find someone to sell it to later. Contracts expired yesterday, April 21st. Which is why people were playing hot potato with it.

In my country we didn't realize a huge drop in the oil price.
There is a small decrease of about 0.20 cents but this is not totally the change that we expected.
The price stays high due to the high taxation that is imposed from the government.

Indeed oil price has taken a deep drive and reached to the lowest level in last 22 years. However, majority of the countries have not seen a single penny less. The reason is simple - government taxes! It's an opportunity to the government to increase the tax on the oil price to fill their own coffers. I can give you a simple example of India. The news is a month old but it would give you a clear understanding on the tax bifurcation on oil.

https://www.mycarhelpline.com/index.php?option=com_latestnews&view=detail&n_id=417&Itemid=10

Hope this helps!

Yes and No.
Yes there are many other factor to include in computation when assessing impact on petrol station prices. Mainly taxes. Where I live those are more than 50% of the final price, hence the "industrial price of gasoline" has little effect on the final prices, as you said there are many more margins, costs, taxes and excises to be added. As @figmentofmyass mentioned in his post, most taxes are actually excises, so a fixed amount per liter, and their toll on final prices has grown dramatically lately.
Of course in many other world region the FX aspect of a devaluing currency can play a major role in that dynamic also, I have no direct experience of that being in the EUR area, but of course it is true for many regions.


The No part is regarding the industrial price itself. This is determined by some kind of "spot" (meaning "real time") price indicators. So the price at which the products are sold is always tied somehow to the current price of oil. There are many agencies to provide such indicators, one of the prominent being Platts. The point is: what is real time? In the past two days the first WTI future was NOT included in this definition of price. So the fall in that particular instrument had NO IMPACT in the industrial price. This is something I already pointed out here, a few post above in this very threrad.


Of course June expiry is going down the same path now, as the disruption continues.
As I said the world had never been so full of OIL lately. US  has begun to literally crack Oil our of rocks, russians are desperate to sustain them self, on top of that OPEC is falling apart.
This is a secular trend.
On this secular trend added the Coronavirus.
Major oil consumers are lagging (transportation for obvious reasons are a missing buyers here- air lines in particular, but also industrial users or land transportation).
Many oil producers simply cannot turn the well out, as the costs will be massive, so they keep pumping oil and filling every hole on Earth. Deposits at Cushing, OK (delivery point of US WTI)  are nearly full capacity, OIL tankers are full just anchoring idle outside ports everywhere.
So, this is the temporary trend.

On topo of those trends there was the last technical trend, the less relevant, but the most dramatic relating the May US WTI future Expiry.

Summing up in just two lines: everyone saw low petrol prices, so a lt of investors put money in OIL ETF's. Those ETF saw massive capital inflows in the last weeks. This caused some "smart" ETF manager to hedge themselves not only with JUNE, JUL and AUG contracts, but also with MAY Contracts, that were trading at huge discount (why pay more for the same product?).
Nearing future expiry they HAD to roll the expiry (they are banks after all, they cannot take the physical delivery), so they had to SELL the MAY expiry to buy the JUN expiry (or JULY, or AUG), whatever the price.
THIS sent the price negative to -40 USD.

The most reasonable reason why the price of fuel oil in various countries has not decreased even though the price of world crude oil dropped. There are several factors that determine the selling price of BBM as a basis for calculation. The main components of this calculation are the price of crude oil and the dollar exchange rate. While the other components are distribution costs, storage costs, margins, and others. One thing that should not be ignored is the period of importing crude oil for raw materials for producing BBM.

The average crude oil currently produced to be sorted into fuel is the crude oil that was imported 2 months ago when the price of crude oil was still high. So, of course, the calculation of fuel prices still refers to the price of oil in February instead of using the current price. Current prices are only used for the calculation of fuel prices over the next 2 months. That is the reason why fuel prices have not yet come down. Plus the current high dollar exchange rate makes price reductions even harder to realize. Then it is predicted that a new decline around May and June can be adjusted prices.

I think that falling oil prices have the following reasons. First, due to the COVID-19 epidemic, many countries restrict people from leaving their homes. Therefore, the world demand for gasoline dropped sharply. Second, the oil producing countries cannot close their oil production companies because the cost to close the companies and open the companiest after the epidemic is over is huge. So they chose the solution that produces oil as always. Therefore, the amount of oil in the storage is very large. So I think these are the main reasons for the significant drop in oil prices.

Just this moment where oil become nothing without have value because many bigger countries keep to product of oil around the world, but I am still confused with my country why price keep the same and not down, how ever oil world price going down but my government not give access to make oil keep going down.

gas prices have been steadily dropping over the past few weeks. it doesn't happen all at once since gas stations price it based on their actual costs, not the price of futures contracts.

fuel taxes (at least in the USA) are also priced in cents per gallon, not %, so taxes become disproportionately large as prices drop. take california for example: state/federal excise taxes add ~66 cents per gallon, plus local taxes where applicable, no matter what the base price is.

Somebody help me understand. So Oil prices took a deep dive to the lowest price in 20 years. But in most countries, the price of gasoline in most countries hasn't even dropped. Why is this so?

+1. this is one reason why the oil market will continue being really wonky into next month. shutting down a well is super expensive and doing so can apparently do permanent damage to the oil field too.

that creates big incentives for producers to keep pumping full steam ahead---which also means more dumping of oil futures to hedge against production, even below $0. this is obviously unsustainable for long periods of time. something has gotta give.

No, the pandemic is not the main reason. The main reason the disagreement between OPEC and non-OPEC countries. 

The demand was really going down a bit and OPEC countries wanted to decrease production so that the prices wouldn't go down drastically.

I read that some countries don't know what to do with oil surplus so they're loading every single container they have and keep trains fully loaded ready for export. I believe the prices will go down even more.

This can be a good policy or way to make oil price increase again because in economics, scarcity brings increase in demand which will make price to rise as few people have the product to sell and they can create their own bid price. However now that the economy itself is sick with covid-19, the demand may not rise because people are observing indoors and no movement

Yeah, and then don't open the market for oil obviously so what we are going to do is to wait for the market to open and invest as much as we can because if the pandemic crisis ends there would be a skyrocket demand for the oil making the price up again and will turn the 21 year low to another ATH. Cryptocurrency market on the other is looking great so far I do trading and impressively making good returns of investment. I'd be thinking if the pandemic crisis will take long, are we going to have a good market like this? I don't wish it to happen tho.

Obviously one of the most reasons is about this pandemic has a huge role for the changes in the price of oil. During this global crisis where a limited number of transportations are allowed to be operational as well as production and other business are a force to shutdown temporarily then the demand on oil has been reduced. In order for oil companies to sell, they will do it at a lower price to encourage everyone to purchase their oil.

For now, let us enjoy the low price because after this pandemic the price might become back to the normal price. Good benefits to the consumers but it is really sad to the investors and businessmen that probably they will experience as of now a huge loss.

Demand reduced drastically short term. Shale oil producers cant just simply pause their production. If they pause it costs to start again are enormous.  Classical oil pumps can be turned on and off easily and they do it.

They produced to much oil and now, there’s no big demand on that but we all know that Oil is still important and when the things get to normal, oil will become more expensive as the economy is trying to survive. It hit the price below ZERO but we also know that it bounce back again, we don’t know what’s happening but the market is still on a good position, either an opportunity or a dead end to some people.

At present, the problem is caused by the virus crisis Since everyone is sitting in the lockdown both production and investment are declining so oil production is declining. If this continues the world will be worse off We need oil in our daily life not just in cars This is why oil companies will not be taken into account if the oil companies take any action.

For now I think there's no effect for switching on renewable energy since actually electric cars globally spread since most of the car guys are still using a oil operated cars and the major cause that contributes for the current price dried up of the oil are the current lock downs happening on the world since if there are no demand coming starting from big factories to the lowest sector who use it well provably we can see more of this things coming.

And for continuously extending up the lock downs of countries affected for sure we can see more price decreased and this could hurt the oil industry badly.

Because cars are the biggest consumers oil and i know you know that. So lockdowns across the Globe means less demand. On top of all the crisis Russia and Saudi Arabia did something unusual after their stupid disagreements and decided to flood the market with excess oil.

You are also forgetting that more and more people are switching to Greener and renewable alternatives of Energy like Electric cars. Look at the trend of the graph, the price of oil may never achieve a new all-time high again