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Big Oil Trading Co. Goes Under, as U.S. Shale Sector Down for Good

April 20, 2020 (EIRNS)—The price for West Texas crude oil fell below $11 for May futures markets Sunday night and this morning, despite global production being reduced more than 10% by the recent Russian-Saudi negotiation with the Presidents of the United States and Mexico. Price cutting by Saudi Aramco seems, again, to have led the price down to this completely uneconomical level. But the oil shale basins in the United States will not return to anywhere near the production levels of recent years, for reasons of technological inefficiency which demands artificially high price levels compared to traditional drilling.

An immense amount of oil is now in “floating storage.” One of the biggest physical oil trading companies in the world, Hin Leong Trading (Pte) Ltd. in Singapore, has gone bankrupt, due to its futures and derivatives losses. These were $800 million, and had been hidden; their revelation brought the company down, according to Bloomberg News.

Reuters reported April 15 that as many as 240,000 oil industry jobs are likely to disappear in the United States in 2020, citing an analysis by Rystad Energy. Large numbers of shale oil basin workers have been sent home over several weeks, and if they are called back for a few months later in 2020, it will be only because their employer companies are elaborately hedged against the drop in the oil price to a level at which they cannot produce. When the hedges expire they will shut.

The Washington Examiner on April 14 reported one extraordinarily frank testimony by the CEO of a large shale drilling company, to the state of Texas, admitting that the shale oil production boom of the last 10 years has not been technologically viable, and had to end. “Texas Debates Production Cuts” is the headline; the witness before the Texas Railroad Commission April 14 was Scott Sheffield, CEO of Pioneer Natural Resources. He argued that the state should force companies to hold back their production in order to “save” a significantly lower level of shale production than over the past decade.

Sheffield said shale producers simply have too much debt, and did before the coronavirus hit.

“No one wants to give us capital, because we have all destroyed capital and created economic waste,” he said.

Only one other producer, Parsley Energy, supported the idea; there is overwhelming opposition from large oil majors, refiners, and the trade groups that represent them.

UPDATE: Later Monday April 20, oil for delivery Tuesday was priced at −$50.27 (a negative amount, for the first time in history). This meant that whoever wanted to deliver oil Tuesday, and be paid, had zero demand for it anywhere, and speculators were now betting on the expenses to store it. Showing the insanity of this speculation—which should be shut down—the futures price for “June” oil, for delivery May 19, was $20.47 at the same time.

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