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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

#281

Post by cascom »

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.

By definition all open futures contracts have to either a) be Physically delivered Or b) be closed (remember that for futures contracts there is someone on each side (prepared to deliver 1,000 bbl and prepared to receive 1,000 bbl)

Now if you are a financial participant you need to close out your position as you are not in a position to either deliver/receive physical oil - so you need to essentially pay whatever it takes to close out the contract. In normal times there is plenty of storage and physical participants that are willing to provide liquidity as the contracts come to maturity. Now imagine you are a physical participant, and now space is limited/storage is expensive/ natural buyers aren’t buying (refiners) - you are not going to pay much to buy the oil of a financial participant who needs to sell the May contract to roll into June/July...

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

#283

Post by puranjay »

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.

I think it briefly went negative!

Let's add that to the list "Things I never thought I'd see but 2020 happened"

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

#284

Post by pas »

frankchn wrote: post #147
missedthecue wrote: post #126

Earlier quoted context omitted.

Yes, but a very very low percentage of the contracts that expire result in delivery. Delivery is expensive. It's cheaper to get oil through a supplier.

That’s true but not really relevant here. if traders are holding on to any open contracts for May past tomorrow, then I believe they will have to take physical delivery. Thus, traders who still have contracts open but cannot take physical delivery will have to close their positions out today or tomorrow, thus causing the dip we are seeing.

Are there market makers for those contracts? (So can they sell them at all?)

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

#285

Post by symplee »

symplee wrote: post #244
altcognito wrote: post #175

Earlier quoted context omitted.

I have to imagine you are being facetious. "good oil" peaked a long time ago, and while it is still being produced, the only reason we have oil at all is because of all the dirty fracking, shale and sand oil out there.

The comment was to lightheartedly point out the incorrect doom and gloom predictions over the last 100 years, where people have been predicting that we're going to run out of oil "soon." Now we have so much we can't get rid of it. For example: https://paleofuture.gizmodo.com/weve-been-incorrectly-predic...

Really not sure why both of my comments are getting down-voted into oblivion, but case and point, oil is now trading at -$37.00 (negative thirty seven dollars)

https://www.marketwatch.com/investing/future/crude%20oil%20-...

Can someone explain the down-votes?

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

#286

Post by jefftk »

dsalzman wrote: post #216

“ The upcoming May contract’s expiry means traders are shifting their positions to June as they try to avoid taking deliveries of cargoes because of the lack of space to store them. That has opened up an unprecedented discount of more than $10 between the two nearest contracts. This situation—in which the price of the June contract is far above that of the May one—apparently delights in the name “super contango.” Peo…

> In ordinary economics, things do not have negative prices: If nobody wants a thing, if you’d have to pay them to take the thing, you just don’t make it.

I think it's more that when something consistently has a negative price we reframe it as a positive one. Garbage has a "negative price", but we normally call it a landfill fee. Some kinds of grad school have "negative tuition" but we call it a stipend.

It's things switching signs that breaks this way of talking.

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

#287

Post by puranjay »

jobu wrote: post #150
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?

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.

Oil in most countries pays the producers and some subsidies to farmers, truckers, etc.

Oil in Saudi Arabia pays the entire country

$8.98 might be the breakeven price for Saudi Aramco, but for the country, the breakeven point is, iirc, $80/barrel

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

#288

Post by lalaithion »

refurb wrote: post #279
jliptzin wrote: post #231

Earlier quoted context omitted.

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?

Just a guess, but maybe the consensus is that June is going to be the same (or worse) as May and they are going to have trouble unloading those contracts? It may come to the point that you're paying some to take the contract.

But then the price in June should also be down.

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

#290

Post by symplee »

joosters wrote: post #148

Western Canadian oil was -$0.15 today, i.e. you can be paid to take oil from the producers! https://twitter.com/zeroshorts/status/1252108066843054097 n.b. you'll still have to also pay the cost of piping the oil to somewhere that might want it...

Now trading at -$37.00.

That's right. Negative thirty seven dollars. Today: -54.67, -299.23%.

https://www.marketwatch.com/investing/future/crude%20oil%20-...

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