Hot answers tagged

21

This isn't the "oil price" that's going negative; it's the price of WTI Oil Futures contracts for May. WTI Futures contracts mean taking physical delivery in Cushing, Oklahoma (the hub of the US pipeline network). Many, many contracts was signed some time back, for the seller (at a future date, hence futures) to deliver X barrels of oil to Cushing and for ...


12

My understanding of the recent drop in oil price is due to recent changes in US drilling. They are now the worlds largest oil producer. This article by the economist does a good job explaining. My answer (borrowed very heavily from the economist.) Demand is low because of weak economic activity, increased efficiency, and a growing switch away from oil to ...


9

The oil spot price didn't go negative, this was future contract price. Basically the future contract expires at a certain date and they have to take delivery. The futures owners were dumping because the price of storage if they had to take delivery would have been very high, or even impossible. The people buying back the future contracts (at negative ...


7

This is the cost curve of oil production (North American shale at $65): Source And this is the cost curve of major American projects: Source While "Citi's Ed Morse highlighted this chart, showing that for most US shale plays, costs are below $80 a barrel." And clearly, many of these new projects would lead to losses with oil prices at $60: Source The ...


6

First of all, the fall in prices does not only concerns oil but most commodities, in particular raw materials such as iron ore, copper, nickel and many other, though it is indeed most noticeable for gas and oil. If you want to see the full extend of this drop in price, you can check out the IMF Primary Commodity Prices and their monthly reports, from which ...


5

The OPEC scenario is quite well described by a market with Cournot Competition. That is, while collusion would lead the highest total profits to the sum of the participants, each invididual participant would gain by increasing his production a little bit. Without observing the quantity of each participant and proper enforcement, that's the outcome the model ...


5

News say it is because sellers cannot sell it. But, why don't they just hoard it until the coronavirus crisis is off? They can't because their oil storage facilities have a limited capacity. According to this German article from Spiegel Online, there is currently less demand for oil than there is production. Oil wells are pumping oil which they can not sell ...


5

The Brent price is for oil physically delivered in the UK. The price that went negative if for oil delivered in West Texas, US. The physical and economic conditions at the two places are different - volume available, flexibility of that volume, demand, storage, and so on. This leads to different prices.


4

Why do falling oil prices take stocks with it? They don't. And your gut feeling is mostly incorrect. This article suggests that the price of oil and the overall stock market are generally not correlated. The main reason is that there are too many other factors in play that even a large cost reduction in one area doesn't carry enough weight to affect the ...


4

The most comprehensive survey of estimating oil prices is here. There you fund from very complicated models to very simple ones. As the article shows, the ultimate answer depends on whether you are estimating nominal or real price, and short-term or long-term prices. Some simple models to estimate price of oil might be: no-change forecast: if changes in ...


3

Refineries need oil to produce chemical products. Therefore, it means declining demand for oil and falling prices according to demand supply principles. The point is refineries which use oil as ingredient.


3

The Rouble depreciates against the US dollar because of demand and supply. Think of it as a story that goes as follows: a) In the ruble/dollar market, the supply of dollars consists of foreigners that have dollars and want to buy goods(oil and other things) and assets from Russia, while the demand for dollars consists of Russians that want to buy goods ...


3

It would be easy enough to subject the question to simple quantitative analysis - get the time-series of historical oil prices and away we go. Or, we can take a quick qualitative approach and get the same answer: The Rule just sets out what the most economically efficient path would be. That's nothing at all to do with how things happen in reality: it's ...


3

The benefits of market share in the somewhat-fungible oil market: pricing power (because OPEC is big enough to retain pricing power in the long term because they're a big % of the market. They're just choosing to not use that pricing power right now, perhaps because they're choosing to bankrupt competitors) geopolitical strength Note that there are ...


3

Considering oil as a commodity that does not expire and can be relatively easily stored, I believe the reason for the recent price drop of oil is much more political than what it has to do with economics. Russia is a giant producer of crude oil and its governmental operation fund is tightly related the export tax of oil. By lowering the price of oil, the ...


3

The basic factors in the decline of petroleum prices is the increased production in the US in the North Dakota and Texas shale oil fields as a result of the use of hydraulic fracturing in conjunction with horizontal drilling (up to 2 miles horizontal in a single borehole. Furthermore, the Saudi Petroleum Minister chose not to reduce their output in order to ...


3

I'll go ahead and admit that I do not have any empirical evidence, and this is more of factor to consider when evaluating future movement in the oil market. As oil prices drop, some US oil producers will find continued exploration and production unprofitable. This will serve as a counter balance to the falling prices aa producers choose to reign in supply. ...


3

It's worth differentiating between the financial crisis of 2007-2009, and the recession that began in December 2007. The financial crisis was indeed caused by a run on wholesale funding that was precipitated by significant losses on real estate, both subprime and otherwise. As noted in the first link, stresses in wholesale funding first appeared in August ...


3

why would they force to trade in U.S. dollars instead of just taking the oil from their country by force? One of the basic tenets of power is that $control$ is superior to $ownership$. War is expensive, oil must be stored before it is used, and any captured production assets must be defended and maintained at great cost. Rather than own all of this ...


2

To appreciate why OPEC can´t do this now, we have to understand a little better why they were able to do it in the 1970´s - temporarily at least. The received wisdom on the 70´s crisis is a little oversimplified. There are two key things going on at that time, one was that US oil consumption was steadily increasing throughout the 60´s, which is what led to ...


2

This started as a comment on Stephen Landsburg's answer but was getting too long for the comment format. When a new supply of oil is discovered, it increases the potential new supply. This will cause prices of oil fields to fall (if everything else is constant). However, gasoline costs are determined not by the future supply but by current supply. ...


2

It might be that the market views the falling price of oil as a sign, not of simply excess supply, but of falling demand. Consumers, in this scenario, are running out/have run out of purchasing power(cash/credit). They are forced to conserve what they do have for necessities like rent and other bills, which renders them unable to buy gasoline, driving down ...


2

over the past few months, the oil harvested from fracking had come onto the market reducing the price of gas. Obviously, this makes no sense insofar as the oil harvested from fracking displaces oil harvested by other means. Absent changes in supply or demand, the price of oil has to rise at the rate of interest. The development of a new extraction ...


2

To repeat EnergyNumbers's comment as an answer to this question, the following chart from the St Louis Federal Reserve shows the increase in the crude oil price in US Dollars in the first half of 2016. Other factors also affect local diesel and gasoline prices and timings, but this increase will have contributed to the local change.


2

There has been rampant smuggling from Venezuela to Colombia - see links below. This is the basis for my question. http://www.wsj.com/video/colombia-black-market-gas-trade-/BC14C5B7-69A0-4A0E-84B2-5377A7FDF79B.html http://www.wsj.com/articles/venezuela-pays-price-for-smuggling-1402271308 http://www.wsj.com/articles/venezuela-to-reopen-colombia-border-...


2

This article states: Brent, WTI and Dubai-Oman are the main crude oil benchmarks of the current oil pricing system. Nearly all oil traded outside America and the Far East is priced using Brent as a benchmark. WTI is the main benchmark used for pricing oil imports into the USA. Dubai-Oman is used as a benchmark for Gulf crudes (Saudi Arabia, ...


2

If you take the oil price as a given, meaning not set by Canada but by the market, then the costs of more expensive transport will eat the profit margins. For example, if the price of the oil is 100 USD per barrel, 20 USD would be costs for Canada, while for US producers the cost is, for instance, only 10$. Keep in mind that a project investment analysis ...


2

I'll try to answer your question as best as I understand it. There are innumerable reasons for why taking oil by force from these nations would be seen as unnecessary by the US, for both political and economic reasons. Just to name one risk, the condemnation of the world community and the breach of trust in our status as a relatively non-predatory hegemon ...


2

There is a lot of literature on this question. This review looks like a good place to start although it is from 2013. It looks at a wide range of both qualitative and quantitative approaches. Among them, the most frequently used technique is the time series econometrics in order to forecast the volatility of oil prices, the second frequently used is ...


Only top voted, non community-wiki answers of a minimum length are eligible