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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

#261

Post by dmurray »

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%

Oil producers and distributors, airlines, power companies etc are major players in the oil futures markets. Much more so than, say, the gold markets where almost everyone's purpose is speculation, but less than agricultural futures like wheat and corn.

It's still probably <10% by volume, but maybe your .0000001% was hyperbole.

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

#262

Post by ISL »

ping_pong wrote: post #130
cletus wrote: post #108

Earlier quoted context omitted.

> Not really. Almost all contracts are cash settled. The parent comment is 100% correct. You're missing the nuance of how commodity futures trading works. Yes most are cash-settled but there is a date after which if you hold the contract you're promising to make or accept physical delivery. The commenter is saying we reach that point for the May oil contract tomorrow so anyone who wants to settle in cash has to do so…

Yes, this almost happened to me once when I was trading futures. My broker called me several times throughout the day and I couldn't take the call. When I finally did, he told me to roll my contract forward that day otherwise I would have to take delivery of 1000 bushels of corn.

My grandfather in Colorado did the opposite once in the 1970s. He needed some cattle, so he bought a small quantity of cattle futures of some form (I was too young when I heard the story to remember the details) from a broker/commodity trader in Chicago.

When the contract approached the settlement date, the broker called to ask him to sell. Trouble was, my grandfather just wanted cows, not cash. The broker was frustrated to no end.

Long story short, my grandfather got the cattle, as the contract required, but was asked by the broker never to do business with them again.

N.B. Don't do this unless you're interested in financial silliness, or if the futures are really badly mispriced. It is a lot easier, and you get to see the cattle first, if you buy through a local cattle auction.

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

#265

Post by selimthegrim »

DuskStar wrote: post #31
yur3i__ wrote: post #26

Earlier quoted context omitted.

UAE and Saudi Arabia imo will be ok. They are trying to build themselves into big entertainment and tourism hubs with their ventures into sports and investment in tourism etc I think though they will definitely suffer they may be able to weather the storm. Kuwait and Qatar on the other hand I'm not so sure about

Saudi Arabia is trying to build tourism? From where?

Ever heard of Mada’in Saleh? Saudi Aramco magazine actually used to have a number of articles on those sorts of sites. Plus the Red Sea beaches and diving used to be cool before House of Saud came to power. Just think of Jeddah as Mecca and Riyadh’s slightly stoned cousins.

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

#266

Post by [deleted] »

greenshackle2 wrote: post #249
tempsy wrote: post #232

Earlier quoted context omitted.

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.

> selling the June contract at the same time They would not be the one holding that particular bag.

[deleted]

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

#267

Post by OJFord »

kietdlam wrote: post #237
tempsy wrote: post #220

Earlier quoted context omitted.

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...

It might go negative - no, just has, as I write - if you were bag holding on Friday you might carry on in the hope of some recovery, but you don't want physical delivery so you were always going to sell today no matter what; closer it gets to expiry, or to $0, the more push has come to shove and you're finally closing your position.

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

#268

Post by timerol »

Faaak wrote: post #225
alach11 wrote: post #193

It's a great time to own a supertanker. You can get a 300% return on investment by buying a May contract and selling a contract for August.

You'd be a bad speculator. What if contracts in august are worse near the end ?

That doesn't matter. If you sell a contract for August now, the buyer of the contract is the person who has to worry about the price of the contract going down. As the seller, you just have to deliver the goods as specified by the contract. You've already been paid.

The relevant missing fact here is that the 300% ROI ignores the cost to operate a supertanker.

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

#269

Post by agseward »

tempsy wrote: post #254
greenshackle2 wrote: post #249

Earlier quoted context omitted.

> selling the June contract at the same time They would not be the one holding that particular bag.

if only arbitrage was that easy...

That's literally what futures contracts are for.

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

#270

Post by TMWNN »

lgleason wrote: post #208

[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..

There is no reason for the US government to pay to take oil out of the ground to put it into the ground elsewhere.

Fracking has made the US an oil exporter. As others mentioned, fracking has made the US the world's lowest cost producer.

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