Another fast paced time in energy news, understanding COVID-19, and Pennsylvania gradual reopening. It is apparent that the reality of two Pennsylvania’s put forth in a previous article impacts decisions being made by Government officials, business owners as well as state residents. It is apparent geography and population demographics will now drive re-opening of the state, far more than the closing. It is hoped the balancing of so many risks will enable prudent social interaction and reengagement. All the focus on the local COVID-19 re-start will diminish attention on various national issues and global developments and perhaps justifiably so.
The tendency to be more concerned for local matters is characteristically a human behavior trait. However in today’s digital world is there some resonance that each of us is also a member of the global community. Many of us in our daily lives focus on our Main Streets. The hope is in so doing our world can remain just as we perceive it or believe it to be. Even with COVID-19 we frame it in our own world view.
It is clear the considered threat of widespread pandemic forces and possible deadly outcomes has like never before stopped the world. Commerce, communication, travel, business human interaction, has been decelerated to such a degree that when we look out our Main Streets are empty, devoid of past bustle and activity. On my evening walks in the village I am often the only person out except maybe a rogue biker or someone walking their dog. No matter ones view of right, wrong, overreaction, insufficient concern regarding COVID on the world stage energy driven activity continues whether one is aware of it or not.
Who out smarted who in the oil supply chess games? Weeks ago multiple opinions gushed like oil on what to do. The world oil producers lead by the US were over producing. The US confident so called market forces would rule the day saw Saudi Arabia and Russia turn on the proverbial spigot. Out flowed cheap oil over supplying the market as demand decreased dramatically. The US postured about tariffs, other constraints, and watch the price of oil fall dramatically to below $20 a barrel.
As there was a natural gas shale boom producing abundant unprecedented amounts natural gas here in our area; there has also been an oil shale boom in Texas, New Mexico, Oklahoma and North Dakota. This oil from shale with record outputs over the last year made the US the world’s leading oil producer. With the shale oil comes natural gas, so much so in places in Texas the oil guys were paying others to take their gas or it is flared. With this shale oil comes a higher cost of production. So did the Saudis back In March increase their production to spite the Russians or use that as an excuse to drive the US shale producers from the market? US shale oil producers as reported before depending on the basin need $46 to $55 dollars a barrel to break even. The drastic reduction of price has reduced rig count, and is curtailing significantly US shale oil production and threatening bankruptcy of many producers. In the spread between $20 and $40 odd dollars a barrel the Saudis make money and the US has to absorb this adjustment in the so-called free market system.
Other thoughts owners of oil tankers are selling oil storage space on the ocean at unseen prices, Traders continue to hedge and manipulate the market. On April29th the trading syndicate WTI sold all their hedges and drove the oil daily price to zero for several days. Future June oil price now is $32 a barrel, no help there for Texas crude. Who makes out? China is buying up cheap oil. As stated Saudis can produce oil at a profit under $20. The president’s commitment to add 30 million barrels of domestic oil to the strategic oil reserve did not materialize. Latest is Australia has bought the space and now the DOE is offering to buy a million barrels (writers note a drop in the bucket) from the US shale oil companies. Most likely the time has passed to prevent a number of these US producers from going bankrupt. Perhaps we the people, the government will be asked to provide some relief. The banks are already taking over some of the companies and will foreclose. When the price of oil returns to above $50 a barrel they will fund new startups or sell wholesale to the companies that survive. So much for a national energy policy and being energy independent. Last month many of the large global oil companies pressured the president on tariffs because they buy from the Saudis for some of their refineries. A reminder the largest oil refinery in the US is totally owned by Saudi Arabia.
By the way several COVID-19 asides.
US banks, remembered how we the people baled them out in 2008. Be aware now two possible scenarios, the treasury department is allowing the banks the ability to grab the stimulus check if they are owed money and the check is deposited electronically. Those who need mortgage help called forbearance, may be granted in some cases delay payment for 90 days. Be wary the three payments don’t necessarily get tacked on the end date of the mortgage as an extension. More likely the deferred payments will all be due as a lump sum at the end of the 90 day grace period. Talk about leading the unsuspecting to the slaughter, the real new threat of foreclosure, losing one’s home, a repeat of the 2008 crisis. Who wins in all this, not Main Street? What ever happened to cleaning up the swamp?