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

#291

Post by fragmede » Mon, Apr 20, 2020, 6:45 PM UTC

marcosdumay wrote: post #256

ardy42 wrote: post #174

Earlier quoted context omitted.

> If the pandemic lasts longer than 6 months, which is quite likely, many high-cost oil producers might not survive. Some would argue this could lead to shortage and a much higher price later on, but long-term oil demand could also be affected. Even if they all declared bankruptcy, their infrastructure would still be there. I'd imagine someone would buy it and bring it back online if/when prices recover.

Depreciation exists, and for mining investments, it's quite fast. Without extra investments, in 3 years most of that infrastructure won't be there anymore.

Fascinating. Is crude oil extra corrosive or is it something in the environment? Ocean salt water is highly corrosive but then what about equipment on land? Is there something that could be done to make an idled investment last longer?

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

#292

Post by lozaning » Mon, Apr 20, 2020, 6:47 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.

I thought that had been called off no?

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

#293

Post by rechristened » Mon, Apr 20, 2020, 6:49 PM UTC

exhilaration wrote: post #141

yaitsyaboi wrote: post #105

Earlier quoted context omitted.

Interesting. Russia is less oil dependent than SA, but the Saudi's have more oil per capita.

Russia is less oil dependent than SA... Are you sure? Everything I've read has said some variation of _Russia is heavily dependent on oil exports_ [1]. Russia has a massive cash reserve to weather this crisis but they're still being hurt just as badly as KSA. [1] https://www.npr.org/2020/03/12/814824039/how-russia-is-react...

They didn't say Russia wasn't heavily dependent on oil. They said KSA was even more dependent.

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

#294

Post by giarc » Mon, Apr 20, 2020, 6:49 PM UTC

Anyone with insight what we will see tomorrow when the May contract issue isn't in play?

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

#295

Post by typon » Mon, Apr 20, 2020, 6:49 PM UTC

symplee wrote: post #290

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-...

I wonder if that negative int broke a bunch of code in software around the world

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

#296

Post by freefal » Mon, Apr 20, 2020, 6:52 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?

This is a good question. The fact that people are not buying the May future at -$37/bbl and selling the June contract at $20/bbl tells you that Cushing storage must effectively be full and that the theoretical storage figures quoted in research are not practically usable (at least at short notice). It's very hard to imagine any practical means of storage that isn't wildly profitable to utilize for $57/bbl/month.

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

#297

Post by cgh » Mon, Apr 20, 2020, 6:52 PM UTC

enkid wrote: post #128

ccozan wrote: post #48

Earlier quoted context omitted.

After the WW2 House of Saud made an agreement [1] with USA that in exchange for the US Army support of Saud, they will pump any amount of oil that is needed. Now not sure how long this will last, since the current price war is directly affecting the US producers. Time will tell. [1] https://www.vox.com/2016/1/6/10719728/us-saudi-arabia-allies

The US is currently a net exporter of oil, or at least was until the recent price drop. Saudi Arabia's capacity of pumping oil is completely based on what they view as their best interest in making money while maintaining market share. That's why they tried to take US Shale oil out, and why they tried over producing recently to get Russia to come to the table for a production cut. They've also embargoed the US in the…

At the end of the day, US shale companies going under could benefit Canadian oil most of all, especially now that Enbridge has US approval.

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

#298

Post by keanebean86 » Mon, Apr 20, 2020, 6:53 PM UTC

typon wrote: post #295

symplee wrote: post #290

Earlier quoted context omitted.

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-...

I wonder if that negative int broke a bunch of code in software around the world

Why is oil trading for $4 billi.. oh no

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

#299

Post by option_greek » Mon, Apr 20, 2020, 6:55 PM UTC

greenshackle2 wrote: post #276

tempsy wrote: post #254

Earlier quoted context omitted.

if only arbitrage was that easy...

You still have to store the oil for a month. Which is expensive right now. Which is precisely why the May future is so cheap in the first place. I'm just rebutting that you will be stuck with the oil after June . Since they specifically said, they would sell a June contract immediately.

It just implies that any profit made by arbitraging June contract with May by taking physical delivery doesn't cover the storage costs (which is hard to believe at $22 difference but that's what market seems to indicate).

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

#300

Post by cerberusss » Mon, Apr 20, 2020, 6:55 PM UTC

ISL wrote: post #262

ping_pong wrote: post #130

Earlier quoted context omitted.

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 frustr…

Marvelous story, thanks for sharing.