Oil plunges below zero for first time with May contract ending • Hacker News Board

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

#231

Post by jliptzin » Mon, Apr 20, 2020, 5:40 PM UTC

tempsy wrote: post #207

jjallen wrote: post #205

Earlier quoted context omitted.

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 r…

If cushing is not full, why aren't people buying at $2 a barrel now and storing for one month, selling the June contract at the same time and collecting a $20k profit per contract?

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

#232

Post by tempsy » Mon, Apr 20, 2020, 5:44 PM UTC

jliptzin wrote: post #231

tempsy wrote: post #207

Earlier quoted context omitted.

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 r…

If cushing is not full, why aren't people buying at $2 a barrel now and storing for one month, selling the June contract at the same time and collecting a $20k profit per contract?

What are you going to do with the oil after one month?

No one needs oil right now so if you take physical delivery it’s going to be sitting there for longer than a month.

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

#233

Post by tempsy » Mon, Apr 20, 2020, 5:46 PM UTC

caleb1666 wrote: post #199

Do we know what percentage of futures participants are speculators just at the casino? It seems like the percent of players actually making/taking physical delivery is like 0.0000001%

Almost all of them. No one is trading May anymore.

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

#234

Post by [deleted] » Mon, Apr 20, 2020, 5:46 PM UTC

koheripbal wrote: post #159

jobu wrote: post #150

Earlier quoted context omitted.

Saudi Arabia still has the cheapest oil production costs in the world at $8.98/barrel ( https://en.wikipedia.org/wiki/Price_of_oil#Comparative_cost_... ) They probably aren't making enough right now to pay for all of their commitments, but they definitely aren't losing money and they can likely borrow in the short term.

Not to mention they just had an IPO on their state oil company and raised a shot load of money.

[deleted]

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

#235

Post by unexpected » Mon, Apr 20, 2020, 5:46 PM UTC

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)

exactly what exhilaration says below! I work in the oil and gas business. U.S. independent oil companies are survivors. If I have to pick between the U.S. shale producer or Saudi kingdrom, I'll pick the U.S. shale producer every time.

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

#236

Post by zeusk » Mon, Apr 20, 2020, 5:47 PM UTC

jliptzin wrote: post #231

tempsy wrote: post #207

Earlier quoted context omitted.

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 r…

If cushing is not full, why aren't people buying at $2 a barrel now and storing for one month, selling the June contract at the same time and collecting a $20k profit per contract?

Because of storage costs and uncertainties, it wasn't only the saudi-russia fallout that caused this - demand has literally flatlined comparatively due to lockdowns everywhere.

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

#237

Post by kietdlam » Mon, Apr 20, 2020, 5:48 PM UTC

tempsy wrote: post #220

jjallen wrote: post #213

Earlier quoted context omitted.

Sorry to miss it, but how does this answer my question? I asked why they weren't prepared on Friday. Storage has been expensive and getting more expensive for weeks. We've been in a massive contango for weeks. Why weren't they prepared on Friday for physical delivery?

Most oil traders don’t actually want physical delivery. They are just trying to profit off price movements. Traders have moved on to June contracts already. There’s no volume on May contracts at this point. No one wants to actually pay for physical delivery so the price is tanking since there are no bids as we get closer to expiration tomorrow.

You still haven't answered the question...

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

#238

Post by unexpected » Mon, Apr 20, 2020, 5:49 PM UTC

mrow84 wrote: post #131

unexpected wrote: post #49

Earlier quoted context omitted.

Qatar makes 95% of their revenue on LNG. These are long-term contracts at fixed prices. Kuwait and Qatar also have the fewest amount of actual citizens that it would need to "pay off". Ex: During the Arab Spring, Kuwait handed out $500k checks to all Kuwaiti males above 18 years old. He also told the citizenry that he would forgive all car loans - population went and bought ferraris, range rovers, etc. and got the lo…

> During the Arab Spring, Kuwait handed out $500k checks to all Kuwaiti males above 18 years old. Do you have a reference for this? I had a look, but it's one of those things that is a bit difficult to search for.

I wish I could find a news source for this, but english newspapers suck in their coverage. I was actually in Kuwait as this happened, so I know it's 100% true. I spent that day being driven around at 130 mph in some guys's new porsche 911 turbo s. Energy industry is wild.

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

#239

Post by bluGill » Mon, Apr 20, 2020, 5:49 PM UTC

thoraway1010 wrote: post #196

bluGill wrote: post #125

Earlier quoted context omitted.

True, but there will be checking to ensure that you want oil if you are not normally a destination for oil. Trying to deliver oil to someone without a loading dock will be a problem that hurts many people trying to correct.

100% false. Where are these facts coming from? The specs for delivery are always very clear because price depends on where it needs to be delivered! "Delivery shall be made free-on-board ("F.O.B.") at any pipeline or storage facility in Cushing, Oklahoma with pipeline access to Enterprise, Cushing storage or Enbridge, Cushing storage." What does it mean to be "normally not a destination for oil" and who is doing this…

Not everyone is allowed to trade, there are rules if you don't have ability to accept oil they make it hard to get a contract that doesn't sell automatically. (not impossible, but a mistake guns up their processes so they have procedures to avoid it)

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

#240

Post by Rury » Mon, Apr 20, 2020, 5:49 PM UTC

eric_khun wrote: post #187

someone can explain me why they just don't stop pumping?

I'm also just an outsider, but I'd imagine there's risks and costs also involved in stopping/starting production that have to be considered.

Shutting off oil fields probably isn't as simple as turning a tap. It's likely a complicated process that could potentially harm a site's future production. There might be problems or it might take months to get things operating again...