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Oil plunges below zero for first time with May contract ending

bloomberg.com

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Re: Oil plunges below zero for first time with May contract ending

#201

Post by eatmyshorts »

MrGilbert wrote: post #63

I'm a software developer, which translates to being somehow smart, but I'm not that into economics: Will this have a rubber band effect? E.g., the price will skyrocket in the next 2 - 5 years, because of this?

It would have before fracking became common in the US. Now, production can be turned on or off relatively quickly in the US--just start/stop fracking in existing wells. Since it requires no capital investment (only operational expenses), very little lead time is needed. Production from fracked wells drops off very quickly once fracking ends, so overproduction tends to self-correct very quickly, also.

In the days before fracking, there would be a ~10 year delay between additional investment and additional production output. With fracking, it's more like weeks, not years, before production adjusts. That's why the oil price seems to have a price ceiling these days--any time prices go up, producers increase fracking and production. Overproduction is slightly different--fracked wells continue producing for about 12-18 months after fracking stops, so overproduction still occurs. But underproduction will be compensated for very quickly.

Re: Oil plunges below zero for first time with May contract ending

#203

Post by [deleted] »

chki wrote: post #119
unexpected wrote: post #111

Earlier quoted context omitted.

Saudi makes up shit when they say their extraction costs are $3/barrel. A lot of clever accounting in that one. Actual extraction costs are roughly $10-$15/barrel.

Why do they or why would they make up extraction costs? (Genuinely interested)

[deleted]

Re: Oil plunges below zero for first time with May contract ending

#204

Post by paxys »

bluedino wrote: post #103
bob33212 wrote: post #20

What happens when Saudi Arabia collapses? Does the royalty get the fuck out of town on their private jets with as many gold bars as they can carry?

"My grandfather rode a camel, my father rode a camel, I drive a Mercedes, my son drives a Lamborghini, his son will drive a Lamborghini, but his son will ride a camel"

People (justifiably) criticize the middle-eastern countries for a lot of things, but they are all aware that all the oil revenue is eventually going to dry up. Most of them have been hard at work transforming their economies for decades, not an easy thing to do when you're in the middle of a desert.

Re: Oil plunges below zero for first time with May contract ending

#205

Post by jjallen »

frankchn wrote: post #50

Note that this is for the May contract, which closes tomorrow, and anyone left with a contract then will have to actually take delivery of the physical product. Since we are in supercontango (oil storage is full, causing spot prices to be significantly lower than forward prices), I am guessing that traders who are still holding on to contracts and don’t have available storage have to unload contracts pretty quickly.…

What I don't understand is why the sudden move today? Did the longs think they had a place to put the oil on Friday but found out over the weekend they had no place to put it? Just seems like you would know what to do with the oil on Friday. Note this is not a rhetorical question, I would sincerely like an answer.

Re: Oil plunges below zero for first time with May contract ending

#206

Post by SilasX »

frankchn wrote: post #50

Note that this is for the May contract, which closes tomorrow, and anyone left with a contract then will have to actually take delivery of the physical product. Since we are in supercontango (oil storage is full, causing spot prices to be significantly lower than forward prices), I am guessing that traders who are still holding on to contracts and don’t have available storage have to unload contracts pretty quickly.…

>I am guessing that traders who are still holding on to contracts and don’t have available storage have to unload contracts pretty quickly.

Good call! Now it’s about $5.30, and has dipped as low as $4.04. (Insert joke about “energy market not found”.)

Edit: wow. Just wow. Below $1 a barrel and kissed $0.01 at one point! That’s gotta be a record.

Re: Oil plunges below zero for first time with May contract ending

#207

Post by tempsy »

jjallen wrote: post #205
frankchn wrote: post #50

Note that this is for the May contract, which closes tomorrow, and anyone left with a contract then will have to actually take delivery of the physical product. Since we are in supercontango (oil storage is full, causing spot prices to be significantly lower than forward prices), I am guessing that traders who are still holding on to contracts and don’t have available storage have to unload contracts pretty quickly.…

What I don't understand is why the sudden move today? Did the longs think they had a place to put the oil on Friday but found out over the weekend they had no place to put it? Just seems like you would know what to do with the oil on Friday. Note this is not a rhetorical question, I would sincerely like an answer.

It’s called super contango.

And storage has not run out yet. Cushing is not full. The problem is traders are anticipating storage will become very expensive as remaining capacity decreases, so if you’re holding on to May contracts and you’re not using the oil because there’s a glut right now then you’re going to be paying a lot more to keep storing the oil for future months as storage costs go up. The huge discount reflects that cost.

Re: Oil plunges below zero for first time with May contract ending

#208

Post by lgleason »

[edited for typos/grammar] The US was going to top up the strategic reserves, but that was stopped in congress. Seems like an ideal time to make that happen with such low prices. Irregardless of environmental concerns, nobody is at a point where they are not dependent on oil and a supply disruption that this is designed to address currently would have dire consequences without it. IE: food shortages etc..

Re: Oil plunges below zero for first time with May contract ending

#209

Post by wonderwonder »

protomyth wrote: post #58
bob33212 wrote: post #20

What happens when Saudi Arabia collapses? Does the royalty get the fuck out of town on their private jets with as many gold bars as they can carry?

Well, Saudi started this mess when they decided to declare economic war on Russia and take out oil production in North America as a nice bonus. As long as Saudi can pay the people in Saudi they should be able to weather the storm they started. The huge demand drop for oil just makes it quite a bit nastier.

One of those strange conflicts where both sides are the bad guy.

Re: Oil plunges below zero for first time with May contract ending

#210

Post by tempsy »

SilasX wrote: post #206
frankchn wrote: post #50

Note that this is for the May contract, which closes tomorrow, and anyone left with a contract then will have to actually take delivery of the physical product. Since we are in supercontango (oil storage is full, causing spot prices to be significantly lower than forward prices), I am guessing that traders who are still holding on to contracts and don’t have available storage have to unload contracts pretty quickly.…

>I am guessing that traders who are still holding on to contracts and don’t have available storage have to unload contracts pretty quickly. Good call! Now it’s about $5.30, and has dipped as low as $4.04. (Insert joke about “energy market not found”.) Edit: wow. Just wow. Below $1 a barrel and kissed $0.01 at one point! That’s gotta be a record.

It’s not that there’s no storage capacity left, it’s that if you have May contracts you are going to pay a big premium to store oil in Cushing as capacity decreases in future months. The discount reflects the storage cost premium.
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