OPEC+ Agrees to 10 mmbbl/d Production Cut… Should the US join in?

Guest “maybe, maybe not” by David Middleton

  • Note: mmbbl = million barrels

OPEC and allies agree to 10 MMbpd production cut

By JAVIER BLAS, NATALIA KNIAZHEVICH AND SALMA EL WARDANY on 4/9/2020

LONDON (Bloomberg) – Major oil producers agreed to slash output as feuding members of the OPEC+ coalition buried differences in an effort to lift the market from a pandemic-driven collapse.

The Organization of Petroleum Exporting Countries and its allies, meeting by video conference on Thursday, now have the outline of a deal to cut production by 10 million barrels a day, delegates said. Importantly, Russia has agreed to make deep cuts, the delegates said.

Oil prices pared gains, trading up 1.6% in London at $33.37 a barrel as of 4:13 p.m. local time. That reflects concern that the volume of cuts being discussed equates to just a fraction of the demand loss, which some traders estimate at as much as 35 million barrels a day.

It’s unclear whether the tentative deal is contingent on the U.S. also committing to curbs at talks on Friday. An agreement from OPEC+ and a broader alliance — including America — is crucial to reviving prices that have sunk to an 18-year low. Not only oil companies, but entire oil-dependent economies need the market to rebound if they’re to balance ailing budgets.

[…]

World Oil

While we still can’t “see the light at the end of the tunnel”… And don’t even know how long the tunnel is… If this agreement holds, it will shorten the length of the tunnel.

Should the US join in? Is it even possible for the US to join in?

Interesting article by Robert Bryce…

Colluding With the (Oil) Enemy
By Robert Bryce
April 08, 2020

On April 2, Ryan Sitton, one of three members of the Texas Railroad Commission, communicated with officials from Saudi Arabia and Russia about coordinating cuts in oil production. Just a few years ago, the notion that an American politician would talk with foreign producers about how to prop up oil prices would have been considered colluding with the enemy. But the coronavirus pandemic, along with the collapse in oil demand and oil prices, requires a rethinking of ideas that have dominated American energy policy for decades.

[…]

We have been inundated with predictions about scarcity and societal collapse since the days of Thomas Malthus.

[…]

In an essay published in 2015, Stern wrote that continued claims about oil scarcity “both created and met demand for apocalyptic ideas.” He continued, saying that forecasts about peak oil (remember that?) “all of which proved wrong, repeatedly led policymakers to assume that rival powers sought to seize dwindling supplies or that disaffected exporter-states would decline to sell.”

But today’s battered oil industry shows, yet again, that the recurring problem in the global petroleum sector has never been too little oil, but too much. At the end of last month, oil prices collapsed to about $20 for the first time in nearly two decades. The price collapse threatens the domestic oil and gas sector, which over the past few years has created hundreds of thousands of high-paying jobs and dramatically reduced the cost of oil and natural gas for consumers. 

[…]

For those unfamiliar with the history of the energy sector, putting limits on global oil production sounds absurd. But for eight decades, the industry has relied on limits known as “allowables.” That history can be traced to 1930 when crude oil was selling for about $1.30 per barrel. That same year, an itinerant preacher named Dad Joiner drilled the Daisy Bradford No. 3, and in doing so, discovered the massive East Texas Field. An unrestrained surge in production from the field crushed oil prices and by mid-1931 in parts of East Texas, crude was selling for as little as 3 cents per barrel. That August, to preserve the integrity of the oilfield and save the industry from collapse, Texas Governor Ross Sterling declared martial law in the East Texas Field and dispatched National Guard troops to shut down all production in the region.

[…]

In 1973, OPEC imposed an oil embargo and imposed a system of allowables on its members. The cartel’s influence over supplies and prices lasted until 2014, when it was forced to admit that world markets were oversupplied due to the surge in American shale oil production. Since then, global oil markets have been chaotic, with every producer seeking to gain market share at the expense of others.

[…]

But the obvious long-term solution to the boom-bust oil cycle is a global system of allowables for the world’s biggest producers. Call it OPEC ++. Enforcing allowables won’t be easy. But oil is a strategic commodity. One third of global primary energy and 94 percent of the world’s transportation fuel comes from oil. 

Without such an agreement, the oil market will remain in turmoil and countries may resort to tariffs, price wars, or embargoes to protect their domestic producers – any of which could be more painful than a deal that reduces production across the board.

Robert Bryce is the author, most recently, of “A Question of Power: Electricity and the Wealth of Nations,” which was published last month by PublicAffairs, and the producer of the documentary “Juice: How Electricity Explains the World,” which will be available on iTunes on June 2.

RealClearEnergy

With the sudden drop in US oil consumption due to the ChiCom-19 hostage crisis, the US could just about stop importing oil today:

“OPEC: Cardiac Arrest Done, The Cartel Announced 10 M B/D Cut!” Source: Forbes

We could actually halt imports for quite a while, if we swapped newly produced light/sweet for SPR sour/heavy crude. But, that won’t work when demand recovers.

Are fixed, but somewhat higher, oil prices the proper cure for periodic spikes of very much higher oil prices? Should/could the US join an OPEC++?

My libertarian/nationalist nature says, “No fracking way!” The Federal government has no constitutional powers to limit oil production. Most onshore mineral leases are private property. Offshore state water leases are owned by the states. The Federal government doesn’t even have the power to directly limit production from Federal leases. Although, it can unlawfully impede drilling operations, as the Obama maladministration did. If foreign powers engage in state-sponsored product dumping, the answers are tariffs and embargoes.

My 39 years as a petroleum geologist/geophysicist says, “No schist Sherlock!”… A production level that keeps crude oil between $50 and $70 per barrel would maintain US energy security, perhaps even dominance, without the price spikes that have contributed to recessions and the price collapses that threaten our energy security. The problem is in allocating the production reductions. Some states, like Texas, have the power to do this. It’s a power that was routinely exercised before the rise of OPEC. However, there really isn’t a mechanism, absent congressional action, by which the states and Federal government could lawfully coordinate such an allocation.

The logical course of action is to use the threat of tariffs/embargoes to end the dumping and allow US oil production to flow with prices.

Day 24 of America Held Hostage by ChiCom-19

There is at least one potential serious problem brewing…

10 Dallas firefighters test positive for COVID-19, 126 in quarantine
10 Dallas firefighters tested positive for COVID-19, while 12 tested negative, 10 are symptomatic and waiting for results, 126 are in quarantine.
Author: Tiffany Liou
April 8, 2020
DALLAS — Updated at 7:14 p.m. with more firefighters who have tested positive.

Ten Dallas firefighters have tested positive for COVID-19, officials say. An additional 10 firefighters are symptomatic and waiting for results as of Wednesday afternoon.

Because they work in close quarters, 126 firefighters with Dallas Fire-Rescue are now in quarantine. These numbers change daily.

[…]

WFAA 8

The number of firefighters being placed in quarantine is growing at a troubling rate. DFR has less than 2,000 employees, including administrative and support personnel.

Otherwise…

Dallas CountyCHICOM-19
PopulationCasesDeaths
2,637,7721,432221.5%
% of population with0.0543%0.00083%
% with, rounded0.1%0.00%
% without99.9457%99.9992%
% without, rounded99.9%100.00%
Menodoza Line (.200)13-Mar-20340.200

While the number of Dallas County ChiCom-19 cases crossed the Dean Wormer line (0.0%) yesterday, today’s total pushed the Mendoza Line (.200 batting average) out to March 13, 2034.

On the other hand, the unemployment rate could soon be pushing the Mendoza Line…

New U.S. Unemployment Claims Totaled 6.6 Million Last Week
Labor Department reports a record 7.5 million were receiving benefits at the end of March as coronavirus continues to hit job market

WSJ

This hostage crisis will kill more people than ChiCom-19 if we allow it to go on much longer.

70 thoughts on “OPEC+ Agrees to 10 mmbbl/d Production Cut… Should the US join in?

  1. Does anyone know what’s in the deal? I have a feeling it’s just one of those bubbles created for us to go crazy about. Let’s not forget one essential difference between the US and the others. The US is still mostly a consuming nation. Despite being the biggest oil producer (at least for a while now) it just barely exports oil. In a sense, it could be its own supplier and its own market. It does not depend on oil money to stay afloat. The others do. So, it sits on the longer lever. If OPEC+ likes to play games, they should call their hand.

  2. Definitely USA needs to produce its own oil and medical supplies. Can’t be at mercy of other countries.

    • Water, food & energy. If you are self sufficient in those you are good to create the rest. The last one is the most important IMHO. So how to achieve it? 700+ million barrels storage. That is 7 days for the whole world or 35 days for the USA.

      Put in place a floor price that it gets topped up at automatically. $30 a barrel would be my SWAG. It would not stop the fluctuations but it would dampen them on both ends.

    • Absolutely. China has shown itself to tighten the taps on imports and exports to gain political or economic ends. It’s done it to Japan, Australia, and Canada that come immediately to mind.

      Depending on China for anything important is just plain stupid. China itself tries to ensure that it doesn’t depend on any one country for anything. China is not stupid.

    • This virus outbreak has highlighted this very risk in Australia, allowing China to be the dominant owner/supplier of goods across the board.

  3. Given that several of the poorest performing shale-oil producers are bankrupt or about to go, and constant new money is needed to prevent decline of production, I’d say that US oil production has peaked.
    The US government will have to “nationalize” [subsidize] these producers to keep output up.

    • Eng01, coming at this from the perspective that I, among many, see our petroleum industry to be of national security interest, my suggestion is, instead of nationalizing — or, subsidizing, as you characterize it — why not do AT LEAST the following:

      [1] reduce or eliminate the tax burden on the entire petroleum industries … because most such private enterprise entities could utilize this cash much better than the profligate federal govt;
      [2] eliminate all ETHANOL fuel mandates as well as any and all tax incentives and subsidies which are favorable alone to ethanol … that is, stop these fascistic maneuvers of having the govt pick winners and losers;
      [3] eliminate all RENEWABLE fuel mandates and subsidies — for ALL renewable fuels — again, that is to stop these fascistic maneuvers of having the govt pick winners and losers;
      [4] reduce massively the federal ROYALTY REVENUE RATES, as derived from govt mineral interest ownership, which are mandated against petroleum extraction; and, this last one would probably the most consequential
      [5] to reduce the mountains of onerous rules and regs, specifically devised against the petroleum industry — of course, to drive them out of business — and make such rules and regs commensurate with those on all other “human activities”.

      All of the above suggestions, the matter of national security being a separate issue, can be put under the general category of requiring the govt to practice simple, straightforward “Americanism”: where our American core principle is that ALL, in front of the law — which, ideally must be the law of the people — are to be treated the same; that there is to be no govt interference — fascism, really with all kinds of crony profiteers — with the govt, un-Constitutionally, picking winners and losers.

      Note: a big part of the above is already address, in rather clear language, in our Federal Constitution; where, stated explicitly — actually, in the BOR — is that all other matters not addressed in the Constitution are reserved to the States and the People; which, in this context means, that many of these matters, by rights, should already be in the hands of the respective States.

      Really, pretty simple and basic; where the best part is that, we as a nation, have already agreed to such terms. All we need to do is to follow the terms of our original agreement. [Now, there’s the kicker!]

      In my opinion — hypothetically, of course — if we had followed these guidelines from the get-go, most likely, we would not be in the mess where we are today. OTOH, no time like the present to get started, eh?

      • https://wattsupwiththat.com/2020/03/28/food-prices-and-ethanol-mandates/#comment-2951681

        A RATIONAL ENERGY STRATEGY FOR AMERICA (Rev.1)

        CO2 is NOT a harmful emission and CO2 abatement programs, based on unscientific falsehoods, are costly and harmful to humanity and the environment. Increased atmospheric CO2 is hugely beneficial due to increased plant and crop yields.

        Therefore, almost all forms of “green” energy are uneconomic and counterproductive and must be rejected. This includes grid-connected wind and solar energy, hydrogen-fuel systems and most or all biofuels, including corn ethanol. One green technology that makes technical and economic sense is garbage processing into fuel and energy.

        Nuclear power is proven technology, but there is no justification at this time to shut down fossil-fueled power plants and replace them with nuclear.

        The energy-equivalence of natural gas to a typical crude oil is about 6:1 mcf/bbl (m=1000). Therefore crude oil at US$48/bbl is energy-equivalent to natural gas at US$8/bbl, but natural gas is typically priced at US$2.00 to $2.50 – so gas on an energy-equivalent basis is typically 1/3 to 1/4 the cost of oil.

        There has been a shift in electrical generation from coal to gas, because gas is cheaper and cleaner than coal. Coal emissions (NOx, SOx and particulates) can be cleaned, but at a cost.

        The practical solution to greatly improve in-city air quality is to retire old (pre~2007) diesels or retrofit them with new clean diesel technology.

        For long haul trucking and rail transportation , clean diesel is the best alternative.

        The ~same mid-distillate fraction is used for jet fuel, and there is no practical alternative.

        The ~same mid-distillate fraction is used for heating of structures in areas where natural gas is not available. Obstructions to new natural gas pipelines should be eliminated and natural gas should replace oil heating.

        Economics should govern. There should be a ~95% reduction in energy regulation – no carbon taxes and other unscientific nonsense.

        • With the exception of trucks, why is anyone buying diesels? It takes 500,000 miles for the reliability of diesels to overcome the increased costs of the engines and fuel. Almost no one keeps a car that long. Pickups and trucks yes, anything else a diesel is a waste of money.

  4. It seems to me that if oil is selling on the world markets at, say, $20 Bbl, we should be buying up all we can get, and storing it! That’s below OUR cost for drilling it! When the prices go back up, and they WILL, we’ll be in a b\great place! So, I say, LET them sell their oil below cost, we can make a profit on it, later! Also, teach them a lesson, that America isn’t depending on them!

    • Yes and no. Certainly we should buy it up to the extent that we have excess storage capacity to store it. However, beyond that, it’s not so cheap as they you have to factor in the cost of building more storage capacity and the speed at which more capacity can be built (it does no good to say buy when you won’t have anywhere to store it and by the time the new storage is built, prices have shot back up to the point where it would no longer benefit you to buy).

  5. Hmm…anything else the USA should produce for itself?

    We once made all our own stuff back b4 the globalizm crowd took over.

    What exactly are we not capable of making for our selves??

    • At this time pressure vessels for our nuclear aircraft carriers and subs. They are made in Ontario Canada.

      First Japan then China underpriced their steel to crush our industry.

      Not that it would take long to bring back the steel industry in the US. 1 or 2 years. Especially with all that coal laying around NOT being used for electricty production. And power plants sitting idle ready to power the operations.

  6. Perhaps this is a good opportunity to reverse the well-meaning but short sighted idea of damning up perfectly good rivers just to make electricity. Might as well get rid of the dangerous and expensive nuclear boondoggles while we’re at it. Tear down the intermittent wind and solar desecrations of the landscape and go back to the all natural and organic blood of the earth. As an added benefit, it will fertilize the atmosphere during a time of carbon drought to green the planet. Even with these obvious steps, the incredible power and efficiency of the free market will eventually produce too much cheap hydrocarbons, but it’ll be a great couple of decades of prosperity until the inevitable next crisis.

  7. Should the USA join/cooperate with OPEC? Absolutely not! Even to think of this one has to forget history. Gasoline rationing, you could only buy gasoline on your designated day and wait in long lines. A trip of any length by car meant planning about where to buy gasoline and in Europe there was a time where every vehicle shutdown on Sunday, no cars, and no aircraft flying (civilian and military). I was stuck there and on Sunday had to eat out of a vending machine. Also, don’t forget the crazy nationwide 55 mph speed limit imposed by President Nixon that extended for years.

    • Gerald Ford was the one that implemented 55 mph nationwide speed limit. He was also famous for handing out WIN (Whip Inflation Now) buttons trying to convince people to not get raises and businesses not to raise product prices.

      Most of the states ignored the 55 mph limit until Jimmy Carter got into office. He was much stricter on 55 mph implementation. He was also famous for interstate natural gas price regulations which set different pricing for old gas, new gas, deep gas, tight gas… That was a real fiasco with many games played by gas producers to qualify for high prices.

      Anyways, good old Ronald Reagan did away with the 55 mph speed limit. I think he also put the kabosher on the natural gas price regulations.

    • Gerald Ford was the Prez that implemented nationwide 55mph speed limit (not Nixon). Most people ignored the new speed limit. He was also famous for handing out WIN (Whip Inflation Now) buttons trying to convince people to not take raises and businesses to not raise product prices. Both policies were a flop.

      Jimmy Carter, the next Prez got aggressive with speed limit, and withheld federal highway funds for states not enforcing 55 speed limit. He also implemented interstate natural gas price regulations that set different pricing levels for old gas, new gas, deep gas, tight gas… That was a real fiasco that influenced natural gas companies to play investment games to get high price gas. Poor Jimmy was not one of the most beloved Presidents.

      Thank goodness Ronald Reagan came along and put the kabosher on both the speed limit and natural gas price regulation.

      Many pseudo-smart people think that government control of prices/production/consumption is the best for society. However, the good old law of supply and demand is best in the long run.

  8. Why should the US interrupt two bad actors tearing themselves apart with spectacular childish behavior? Saudi Arabia Russia need to experience market discipline.

    o OPEC had no qualms about attempting to ruin US economy in the 1970s
    o Russia has demonstrated they will shut off gas to Europe in the middle of winter

    I guess, in the spirit of global cooperation, I could see the US reducing output so we are not a net-exporter.

  9. David:
    Your solution is to:

    “The logical course of action is to use the threat of tariffs/embargoes to end the dumping and allow US oil production to flow with prices.”

    By all means, ban that cheap foreign oil by tariffing imports (in other words taxing U.S. importers to make foreign crude more expensive at home). Not to worry, foreign nations would of course not retaliate with tariffs on U.S. exports of all stripes; neither would they then seek suppliers of products that they need from countries that do not apply tariffs to their crude exports. Fat chance of all that; tariffs intended to bar the import of a single product will invariably hurt exports of a wide range of products.

    Tariffs on foreign crude imports will make U.S. crude more expensive, which to your way of thinking will be the salvation of your crude fracking industry. Of course, your gasoline/diesel, and other refined products will be more expensive at home; they will be more expensive abroad as well, forcing your exporters to compete with lower-cost suppliers by “dumping” these products at a loss in order to maintain market share.

    I’m a 40-year geologist as well. The difference between us seems to be that basic economics was required at the university I graduated from.

    • “The logical course of action is to use the threat of tariffs/embargoes to end the dumping and allow US oil production to flow with prices.”

      Carrot & stick. The carrot is access to our market. The stick is impeeded access.

    • Charles, The US buys a lot of stuff. The buyer in a trade war has the most leverage (they can take their business elsewhere) the seller not so much (it’s not so easy to find alternate buyers, particular alternate buyers who buy as much as one of your biggest customers had been).

      Take a look at the tariffs on China. It was predicted that would cause widespread and huge rises in prices in the US based on the same arguments you try to make here. That didn’t happen. Some prices went up, but nowhere near as high or as wide as predicted. Why? Because, in part, US businesses took their business elsewhere from China when and where it made economic sense to do so. Tariffs raise prices on China goods to X, businesses then buy alternates for Y instead (where Y is some number less than X). For someone who claims to have been required to take basic economics, you seem to have been asleep when that lesson was taught.

      • John,
        A point very well made, but poorly understood by many.
        Tariffs cause buyers to shift to other suppliers.

  10. Two answers. 1. No. We’ve never been part of the oil cartels and have always been treated as consumers to their advantage. 2. Yes. It will help our economy at a time when we need it.

  11. We’ll see tomorrow but I doubt it. Currently there is a 20 mbd surplus so taking 10 out would help but you still have 10 to deal with per day. Considering that a surplus of 2-3 is considered a big problem I doubt that going from +20 to +10 is going to do anything.

    • Week-to-week and month-to-month changes aren’t indicative of much of anything. Short term fluctuations are common. Even with the 600 mbbl/d decline last week, it’s still 200 mbbl/d ahead of last year.

      US production will drop by several million bbl/d over the next few months. Local prices are negative in a few places and less than $6/bbl in parts of the Permian Basin. Global storage space is rapidly filling up. Even if OPEC+ immediately cut production by 10 mmbbl/d, it won’t be enough. Global demand is probably currently down by 20-30 million bbl/d.

      I don’t think there is a lawful mechanism for the US to join an OPEC++, so it really doesn’t matter, because this is really an academic exercise. While a stable $50-70/bbl oil price would be ideal for the economy and energy security, I don’t think that will be possible until demand recovers after the ChiCom-19 hostage crisis is over. And the longer this drags on, the harder it will be to restart the economic engine that drives demand.

  12. We should be buying cheap foreign oil to fill the Strategic Petroleum Reserve and prop up the price that way. Too bad Congress didn’t approve the necessary funds, which for all intents and purpose was money going into an asset that will more then double in inflation adjusted value by the time it’s needed. I’d feel much more secure with the Social Security trust Fund investing in cheap oil instead of T-bills.

      • It depends on how much the government gets to store the oil. I don’t think it will be close to what they would earn by purchasing the oil now and selling it later. What the oil companies are putting into the reserve storage isn’t actually part of the strategic reserve anyway. As I said, why isn’t the SS trust fund investing our money like this instead of buying T-bills at a 0.2% interest rate.

        • It depends on how much the government gets to store the oil.

          That’s why I said it’s “A bit of a win-win” rather than completely a win-win. It’s not a perfect solution but it’s better than nothing and at least we gain something from it.

          I don’t think it will be close to what they would earn by purchasing the oil now and selling it later.

          That’s speculation, we don’t know how much would be earned by selling it later, because, for one thing, we don’t know how much later that later is. There’s a time value to money. A $1 today is worth more than a $1 a decade from now.

          As I said, why isn’t the SS trust fund investing our money like this instead of buying T-bills at a 0.2% interest rate.

          There’s really too much speculation for it to be a reliable investing source. How long would the SS trust fund be expected to hold the oil before selling it. The longer it holds it the higher the selling price would have to be just to break even. And what if it needs the money when the oil price is too low to be “profitable”? It’s the same reason SS trust fund doesn’t invest in stocks. The risk is too high. T-bills are considered a “safe” investment (al bet very low yielding right now), however they’re not investing in the 0.2% T-Bills currently available on the secondary market. According to the SS website, they’re invested in special issue government securities that have an interest rate determined by a formula in the law (which, for April comes to 0.875%, which is the lowest it’s been under the current formula. Last month it was 1.25%)

          • The price of oil is artificially suppressed for 2 independent and temporary reasons one increasing the supply while the other is decreasing the demand, so the risk in investing in the resulting under priced oil is less then investing in any government. Like the stock market, oil prices will recover quickly and we’ll be paying $3+ per gallon for gas in no time.

            The SS system was conceived as a pyramid scheme which already has future obligations exceeding future revenue and reserves, so as an institution, they’re definitely not risk averse. The proclaimed safety of their investments is projection to obfuscate the real risks. The government is basically giving the SS trust fund IOU’s for payroll taxes that were collected and diverted into the general fund. This doesn’t sound like a low risk investment to me. What it they needed it, but the government didn’t have it, especially since the trust fund hasn’t been growing and will start to shrink soon.

  13. I see this as an opportune time to upgrade our refinery’s to refine our own oil so we can stop importing altogether.

  14. It is unlikely that “This hostage crisis will kill more people than ChiCom-19 if we allow it to go
    on much longer” as David suggests. The link is to an article about suicide in the US so one would
    assume that David is talking about an increase in suicides linked to a fall in economic output.
    So lets put some numbers on it. On average about 130 people kill themselves everyday in the US.
    In contrast yesterday 1736 people died from COVID-19 with a total death count over 16000. And
    current best estimates for the total number of deaths is still in excess of 80000. So the number
    of suicides in the US would need to double in order for the effects of the lockdown to be worse than
    the disease.

    • The economic crisis may not cause as many deaths as COVID-19, but the high rates of unemployment, poverty and homelessness will all cause the suicide risk to surge.

      Unemployment, poverty and homelessness don’t just kill people by suicide.

      The seasonal flu kills 20,000 to 60,000 Americans every year. We don’t destroy the economy over it. While social distancing and working from home are essential in the short term, we have to start reopening the economy within a few weeks… Not everyone can work from home.

      • Another thing killing people: motor vehicle deaths are increasing. Apparently people are driving even faster with fewer vehicles on the road. Mostly young people, I’d guess.

      • John,
        Firstly that is good news. But also remember that that reduction in the numbers of
        deaths is due to the lock down measures and social distancing measures that have
        been put in place. In NZ for example there has been a complete lockdown as a result
        of which there are currently about 1200 cases and 2 fatalities making it much less
        deadly than the flu. In contrast in the UK which came late to the lockdown party the fatality rate is over 10%.

    • If somebody jumps out of a plane without a parachute but just before they hit the ground someone on the ground pulls out a gun and shoots them in the arm; did the fall kill them or the bullet hitting their arm? Maybe not the best analogy but it works for me.

      I have a problem with the reported number of deaths. I read Powerlineblog.com and they focus on deaths and the impact of the Wuhan flu on Minnesota. Right now they have around 50 deaths in Minnesota and the average age of those dying is 87. It is also well known that the greater number of those who do die have 1, 2, or three underlying health issues.

      If someone has cancer, is in hospice and at deaths door but just before they die they get Wuhan Flu; they are counted among the virus deaths. I think using this method promotes overcounting the deaths due to Wuhan flu. And if the average age of death is 87, then I think there is a lot of overcounting taking place.

      We do not do this type of overcounting if there is a flu outbreak. Why with the Wuhan flu?

      I think that the death certificate should show the major health issue as the reason for the death. If not for the underlying health issues, they most likely would not have died from the Wuhan flu. And even though the Wuhan flu hastened their death, it did not cause their death. That should be the decider for what the cause of death should be. “If not for the underlying issues, would the Wuhan Flu have killed them?”

      If we did this kind of count, the deaths due to Wuhan flu would look more like the regular flu.

  15. Those of us that had to do economics for oil projects starting in the 1970’s know that oil acts as a commodity in the market. In the late 70’s and early 80’s OPEC cut production to raise the price. The price went up and OPEC nations got rich. But then all the non-OPEC companies/countries started drilling for oil using the new inflated price for their justification. And they did a good job of developing oil reserves. It took a few years for the oil to hit the market but when it did, not even OPEC could stop the slide in the price of oil. The damage to the oil industry lasted twenty years. And OPEC lost a lot of money. The price didn’t start to recover till around 2000. The price jumped again and reflected the loss in reserves that had taken place over the previous 20 years. I don’t think OPEC understood the ingenuity of the American oil industry and the effect of the shale oil boom would have on adding reserves.

    OPEC has to get smarter. They have to find a way to control the growth of reserves. They need to find a price for oil that sustains the good shale oil drillers and sheds the poor producers and poor plays. If they lower the price to put the American shale oil drillers out of business, they lose money. If they cut production too much, the price of oil goes up and shale oil development takes off, just like in the early 1980’s. They need to develop a sensitivity curve that maximizes their profits. They should have come to the realization based on what happened to the price of oil in the late 1980’s. Oil is a commodity. They cannot raise the price of oil artificially without hurting themselves and the industry for a long time. If they would take a look at reserves rather than daily production, they would do themselves a favor. Its more complicated than that, but you have to be smarter than just thinking you can control price with daily production.

  16. If we pull back our critical manufacturing back to North America the United States could easily tell the rest of the world to fly a kite. Even critical resources like lithium can be mined here (it would require taking down the environmental organizations who would truly prefer humanity to die off)

  17. Price fixing never works. It always creates either shortages or gluts. Just relax and let the free market work. Production will decline while prices are low, and eventually demand will pick back up when this is over. In the meantime, low energy prices are a good thing. It helps the rest of the economy outside the energy sector. Why do you think low energy prices is bad? Is solar being expensive a good thing or a bad thing? You’re falling for a fallacious argument.

    • It’s not as black and white as you paint it WR2 (and, indeed your view is rather short-sighted). Low (or high) prices are not universally good or bad. They’re good for some, bad for others. Consumers want the lowest prices they can get, producers not only want the highest prices they can get, they need the prices to be at a certain level in order to stay in business
      (IE if they’re constantly selling below their cost to make, they’ll eventually find themselves out of businesses).

      Prices that are too low, resulting in the US oil companies going out of business, is ultimately bad for the consumer over the long term, regardless of how good it may be for the consumer short term. Because once the US companies are gone, we’ll be dependent on the whims of a foreign cartel for our vital energy needs, see the 1970s oil embargo and energy crisis for how well that works. Do you really trust Putin and the Middle Eastern Oil Sheiks to have total control of your oil and gas supplies? I certainly don’t.

  18. Normally, price-fixing in the USA is illegal. I am not sure how we could do so even at the federal level without repealing some long-standing laws that have been used to convict people. I am not sure how Texas can control oil production without running afoul of anti-cartel laws. Just because my state does it doesn’t make it legal or constitutional.

    • If you go back well over 50 years ago you would have seen price manipulation taking place by the Texas RR Commission. It was the Texas RRC that set the price of oil and gas for the world by limiting production within the boundaries of Texas. Production from newly drilled wells was limited to keep the price stable. Texas was the major producer of oil in the world. By controlling the production of oil in Texas, they were controlling world prices.

  19. Sorry, David but you are just wrong about American production. The shale myth was made possible by the Fed and Securities and Exchange Commission. It is obvious that there were some shale areas in a few of the shale formations that were very prolific. A well would produce a great deal of oil that would justify the investment. But shale is heterogeneous and those core areas were a tiny fraction of most formations.

    You cannot build a Ponzi scheme by developing a tiny fraction of the area held by the shale companies unless you change the reporting rules so that was what the SEC did. It allowed shale companies to claim PROVED Undeveloped Reserves (PUDs) without proving anything. Shale companies can claim that the unproductive and uneconomic holdings between the core areas held reserves without any proof via the drill bit. This would be like the Canadian government eliminating the need for junior miners to do infill drilling before they claimed how many ounces of gold were in their reserves.

    The insiders in the sector got rich. They reported growing production by borrowing money and issuing shares. Nobody cared about the negative free cash flows or the massive losses because the rising production was driving prices higher. Now we see that most of the players are down more than 90% from the peak. As the core areas are tapped out, American shale production will need for companies to develop areas that make zero economic sense. As I noted, outside of those areas, shale is a scam. There is no miracle. And your question makes no sense. Should America join the production cut? All decisions should be on the basis of economic rationality. American shale companies should have gone under a decade ago because they made no sense.

    Note that it is easy for you to prove me wrong. Take a look at the top 20 shale producers and show me that they have been able to generate free cash flow and profits for the past decade. If you can’t, I suggest stopping with the mythology.

    • Unmitigated horst schist. Very few oil companies generated free cash flow in 2015-2016.

    • Furthermore, very few, if any, oil companies will generate free cash flow at $30/bbl.

      https://www.hartenergy.com/exclusives/oil-price-plunge-crush-eps-free-cash-flow-goals-186567

      However…

      LOW OIL PRICE? NO PROBLEM. US SHALE FIRMS ARE SET TO SAVE UP BILLIONS IN RECORD-HIGH HEDGING GAINS

      March 13, 2020

      Even though oil prices plunged to as low as $30 per barrel this week and are likely to go even lower as OPEC+ plans to increase production from April, US shale oil operators expect to save billions in record-high hedging gains in 2020, a Rystad Energy impact assessment shows.

      Rystad Energy’s assessment is based on an analysis of a representative peer group of 30 dedicated US light tight oil firms with a combined output of about 38% of the total expected US oil production in 2020, excluding royalties.

      Looking at the hedging positions of the considered companies, we conclude that they hedged almost 50% of their guided 2020 output at an average price floor of $56 per barrel.

      The analysis shows that we might see a record-high cumulative hedging gain in the industry if the West Texas Intermediate (WTI) oil price stays below $40 per barrel.

      […]

      https://www.rystadenergy.com/newsevents/news/press-releases/low-oil-price-no-problem-us-shale-firms-are-set-to-save-up-billions-in-record-high-hedging-gains/

      We’re not a “shale” player. We’re a very successful Gulf of Mexico conventional player. We have 70% of our 2020 production hedged at $45-57/bbl… We still have to slash our capital budget to remain cash flow-positive… But we won’t generate free cash flow this year, and probably not in 2021 either. And our production will decline due to a vastly reduced operational tempo.

  20. Too bad the Scientific American article shows only correlation and not causation. Got any hard data on suicides versus recession/depression?

  21. Can we rely on OPEC prices to stay low forever? I don’t. I don’t know if it is possible to limit the oil production temporarily – but OPEC seems to be doing it. Let’s not ruin an industry just because it’s product can be bought today more cheaply from an unreliable – even hostile – source.

    • The Fed can’t purchase oil. Congress won’t authorize funds to top off the SPR. So DOE is leasing storage space to oil companies.

      • The Fed added distressed mortgage assets to its balance sheet during the financial crisis from banks. Those assets had been erroneously rated at AAA for fixed income holdings. They had not disposed of those before this new crisis hit and were debating how to deleverage or let the mortgages roll off with time.

      • The Fed can’t, but the military can. They could do worse in purchasing oil cheap now and performing cost avoidance later by using their reserves when oil prices go up. The problem of course, is where to store such quantities. They would have to build a new underground reserve, likely near west Texas or the Dakotas. They would want good access through pipelines and so might get behind an oil pipeline project – declare it a national emergency priority and arrest any protestors that show up.

        There is all sorts of infrastructure we could be working on this day and age if we just had the political will. None of it would sit nicely with Green Activists – which makes it more agreeable to pursue – more fun.

        I can’t wait for the tax bill to arrive for all of this spending we are already doing. It is going to be a shock to some. (Hint: Stock up on pain killers if you are a middle class American)

  22. Here’s a great way to save money and increase demand for oil at the same time – revoke the ethanol mandate. This would increase our demand for oil by close to 10%, reduce maintenance costs for our cars, increase our mpg, and help the engines run better. As a side effect, all that grain could be sent to Africa to help the countries currently battling a plague of locust.

    • all that grain could be sent to Africa to help the countries currently battling a plague of locust.
      Not initially. The corn that is used to make ethanol is not suitable for human consumption. I strongly support removing ethanol mandates as that land can be used for food crops. In the next decade or so, in the developing world, that extra capacity will be critical.

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