Large differences in commodity futures prices over short differences in contract dates

[classical_Liberal]

Right, but the US is a very efficient economy. Also the largest oil producer, this isn't 1970 anymore. Even if the fracking/shale companies go bankrupt and disappear, if the Saudis cut production to the point that crude is at, say $100 barrel, how long do you think it'll be before new fracking companies are up and producing? Certainly less than a couple years. Plus the fed's will offer incentive to keep the US nondependent on a now uncooperative OPEC. Maybe completely ban exporting again, or maybe just ban exports to unfriendly countries. The US economy has proven it can function fine at $60-$80 a barrel and we can produce that independent of Saudi oil fields.

It seems to me this would be much more damaging to places with unstable governments or inefficient economies who also have inefficient crude production. Like those I listed above.

The alternative is that OPEC keeps prices below US profitability threshold, which means they are selling their oil reserves cheaper than they need to for longer than they need to. Then the US gets the advantage of cheaper energy until the Saudis exhaust their supply.

[theanimal]

True. According to Zeihan, fracking companies will be the first back up and running. Technology isn't going to be uninvented and the start up time is small. Nonetheless they aren't doing well in the meantime. I thought he was discussing this in the article I linked but it's actually another article a couple weeks prior. Also worth reading: https://zeihan.com/coronavirus-the-energy-guide/

He suggests that Russia will not cut output and as a result Saudi's will just keep the valves full open since they have much larger reserves. It's definitely a power play at the top, and the weakest will be hurt the most. It'll be interesting to see how it plays out for the weaker players he identified:

Canada’s Alberta province has the most to lose. Not only landlocked, it must sell all its oil into the American market that is already so saturated. Its production must be shut in for years.

Venezuela was facing civilizational collapse due to mismanagement before oil prices tanked. As oil is the government’s only remaining income stream, this marks the end of Vene as a country. Its oil will not come back for at least a decade, and even then only if an outside power first physically invades the place to rebuild the country from scratch.

America’s sanctions regime against Iran has been so successful the country isn’t an oil exporter any longer. Its output will absolutely collapse this summer, and the country lacks the funds to bring in foreigners to help restart it or the skills to do the work itself.
Russian fields are in swamps and permafrost. Drilling is only possible during the winter. Any shut-ins means the wells freeze solid, necessitating completely new drilling. Last time this happened it took the Russians nearly 15 years to get production back.

Azerbaijan and Kazakhstan are both dependent upon other countries (in some cases, Russia) to transit their crude to market. High production costs plus finicky neighbors equals long-haul shut-ins.

Nigeria is a mess on a good day, and the supermajors who have made Nigerian output possible have steadily moved offshore to get away from the chaos and violence. Once they turn off their wells, they won’t even consider returning until global prices rise to the point that they are once again willing to subject their staff to frequent kidnapping. That’s several years off.

Iraq has been in a state of near civil war for some 15 years. The country is now producing over 4mbpd, the income of which helps hold the place together. Negative prices will remove the “near” from the country’s political condition and (at best) make the place a ward of the Arab states of the Persian Gulf.

On a local note, Alaska is not doing well with barrels being sold for under $10 right now. Oil is the 2nd highest means of revenue for the state (behind investments from oil revenue) and the state faces a deficit any time oil is below $79/barrel. New drilling has slowed to a halt amidst widespread layoffs and there are rumors that the Trans Alaska Pipeline could come to essentially a standstill sometime soon.

[Lucky C]

OIL ETN is shutting down.
https://www.forbes.com/sites/lcarrel/20 ... 8f65032015

Kyle Bass has some negative commentary on USO and other such ETFs.
https://www.cnbc.com/2020/04/21/usos-be ... to-ex.html

Seems like there is no easy way to bet on oil prices going up. You need to do the right thing and learn about futures contracts and all their nuances, and then you have to compete against the commodities futures pros. Seems like simply investing in emerging markets / commodities-sensitive countries once prices start to stabilize would be the easiest route, but of course a likely recovery in oil prices would already be priced in. No such thing as a free lunch, and in this case no such thing as free storage either.

[Lucky C]

And USO selling its short-term contracts.
https://www.ft.com/content/a8a7dc16-1a9 ... 269f94218a

[jacob]

USO announces a 1-8 reverse split effective 4/29.

[white belt]

MacroVoices seems to think that conditions could cause a collapse of the system in the next few months since oil producers have an incentive to keep producing and transfer the cost of storage to the next guy down the line. This works until there is no more storage left: https://www.macrovoices.com/podcasts-co ... jim-bianco