Price of Oil hits $0 and at times -$40 Good news for bus companies?

[overthewater]

The price of Oil has crashed big time, but could this be Golden egg for the bus companies? Most companies have to buy oil supply for one year, yet would a company speculate and say were buy 1-2 years worth right now? Thus could this help bus company cut its costs for the coming year while this crisis is ongoing?

 

[Tetchytyke]

If they can hedge, maybe, but I'm not sure fuel suppliers would agree at that price. It also depends if the operators can rustle up the cash.

 

[freetoview33]

If they can hedge, maybe, but I'm not sure fuel suppliers would agree at that price. It also depends if the operators can rustle up the cash.

And storage!

 

[Volvodart]

They may have been doing it before now anyway, so may not be able to do it now. That price is for domestic US oil because of no storage. North Sea Brent is still at $26.

 

[carlberry]

The large groups do hedge the price however they're unlikely to be doing it very dynamically, more likely to be many months in advance. It's quite possible that they're actually losing out big time because they've committed to volumes they cant take. Also bus companies will be hedging the price of a refined product, the product that nobody can get rid of at the moment is crude oil which needs somewhere to go to be refined which nobody can do because nobody can take the refined product. Without you have a storage location that can take a ship worth, don't expect the price to fall much!

 

[TheGrandWazoo]

Is it the golden egg....whatever that is?

No

For the reasons that @carlberry has eloquently explained, bus companies tend to hedge well in advance. Also, it's the crude price though there will be a reflection in the refined price.

More pertinently, the retail price will be (and is) reduced as well, so reducing the cost of car travel.

 

[David M]

It isn't bad news for bus companies although many will have signed contracts where they have agreed to pay a certain price at some point in the future - their assumption would have been that use would have been as normal and that prices were likely to rise. It's a bit like taking out a fixed price gas and electricity contract - assuming it has exit fees then your gamble is that the price doesn't drop below what you have agreed to and, indeed, you might hope the price elsewhere increases. The apparent $1 a barrel price is as a result of 'people' buying oil but who no longer any space to store it due to the recent drop in use worldwide. I was sent this explanation earlier today which might be helpful.
It is important to note why the media are (incorrectly) saying that oil is down to $1 a barrel. The May contracts expire today so if you have a May contract at expiration, you must take physical delivery of the oil you have gambled on and bought.
Oil traders that still have contracts are selling at whatever price they can get because they do not all have the ability to take physical delivery. Storage and refineries are not buying. The $1 a barrel is a trading dynamic when there are many sellers and limited buyers.
The contract for June delivery is still at $22 a barrel and July is at $27 a barrel. The number of actual physical barrels being traded at $1 a barrel is very limited. Most of May delivery barrels are contracted at around $25.

 

[Llandudno]

I am not convinced that a drop in the oil price is necessarily good news for stage carriage bus operators (or rail operators?) as the cost of filling up the tank of your motor car drops significantly making driving more economical than travelling by public transport.

I wonder if bus operators will reduce fares if the oil price remains low.....

For coach operators reliant mainly on school contracts and private hire then a reduction in oil prices can only be a good thing.

 

[carlberry]

I am not convinced that a drop in the oil price is necessarily good news for stage carriage bus operators (or rail operators?) as the cost of filling up the tank of your motor car drops significantly making driving more economical than travelling by public transport.

I wonder if bus operators will reduce fares if the oil price remains low.....

For coach operators reliant mainly on school contracts and private hire then a reduction in oil prices can only be a good thing.

Without an operator has a large fuel storage facility that's nearly empty then the low oil price is going to make zero difference to them. No bus operator is going to be making money with the kind of loadings that social distancing is going to force, so there wont be any price reductions. Private hire isnt going to start again until people can go to places and, once people can go places, the oil price will go up again.

 

[TheGrandWazoo]

Without an operator has a large fuel storage facility that's nearly empty then the low oil price is going to make zero difference to them. No bus operator is going to be making money with the kind of loadings that social distancing is going to force, so there wont be any price reductions. Private hire isnt going to start again until people can go to places and, once people can go places, the oil price will go up again.

Also, which operator will have sufficient financial resources to tie up that much capital..... very, very few.

This will not benefit operators half as much as it benefits the private motorist.

 

[alangla]

Also the larger operators with depot bunkers have probably ordered fuel for delivery months into the future but are burning hardly any just now. The tanks in the depots (both bus & rail) are going to be getting pretty full. If anyone’s benefiting, it’s probably the smaller operators that refuel in petrol stations as the pump price has gone down dramatically recently