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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

#381

Post by snarf21 »

billfruit wrote: post #321

Why wasn't the oils producers reducing their production fast enough to prevent the price from crashing. This to me looks like a lag and inelasticity in how the oil producers are responding to demand.

I was listening to some a podcast when oil first dropped and they were saying the issue is that a lot of the small producers are on leases and then may have to pump at a loss just to keep it and try to make it up later. Or burn everything they already spent. A lot went all in and levered up and are now stuck.

Additionally, if SA stops pumping, then Russia gets all their revenue (even if it is lower per barrel). It is a great big game of chicken.

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

#382

Post by NullPrefix »

darkwizard42 wrote: post #355
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?

Many have answered about storage costs. Easy way to think about it might be a grocery store. You hear about a sale on cereal for $0.01 a box. Great deal but then you find out that you can't walk there, you can only take Lyft/Uber and it costs $100 each way to get to the store. So in reality its not as good a deal as it sounds.

>you can only take Lyft/Uber and it costs $100 each way to get to the store

Hard to follow this analogy

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

#383

Post by y-c-o-m-b »

chasd00 wrote: post #197
lonelappde wrote: post #45

Earlier quoted context omitted.

Does the Saudi kleptocracy have any reason to distrust the US klpetocracy? After 9/11/2001 the US was quite loyal in a difficulty time.

Without a stable government in SA the Middle East would be even more chaotic than it is now. I think that's why after 9/11 a priority was made to keep the SA monarchy stable and in power.

If that were true, wouldn't it be counterproductive to destabilize the rest of the region (Afghanistan, Iraq, Iran, Libya to name a few) at the same time? I think the stability or instability of the Middle East is a function of how the US leaches resources off of it; in that if destabilizing the region gives U.S. interests more $$$, then so be it, chaos be damned.

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

#384

Post by hvis »

wonderwonder wrote: post #209
protomyth wrote: post #58

Earlier quoted context omitted.

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.

All sides, actually.

https://edition.cnn.com/2020/02/18/politics/us-sanctions-ven...

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

#386

Post by Natsu »

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 heard it wasn't funded, but can't the US strategic reserve take these contracts at a negative price and fill up on cheap oil?

It would seem like a prudent thing to do because it can then be used to restart the economy later and make a decent profit to pay off things like all these Covid checks.

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

#387

Post by gridlockd »

bmelton wrote: post #357
colinmhayes wrote: post #317

Earlier quoted context omitted.

I've never been to Cushing Oklahoma. I feel like it should be possible to build a big tank in a week or two. Why isn't available storage space skyrocketing?

I honestly don't even know if I can fathom how you could get permitted to build such a tank in a couple of weeks, but the answer to why that isn't happening _right now_ is probably because nobody wants to lay out a bunch of capital for a business that might do well contemporaneously but that has no future. Either things settle back down to normal at some point, in which case you've made some revenue, but probably not…

Great answer! Now let's forget about storing to sell later at a profit, at negative 37$, can't you just burn it for a profit?

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

#388

Post by cma »

ToFundorNot wrote: post #313
kietdlam wrote: post #237

Earlier quoted context omitted.

You still haven't answered the question...

I'm going to try and translate the simplest concept that tempsy is saying. The sellers were looking to sell for most of last week, however there fewer buyers as the contract approached its end, and those who were willing to buy wanted a lower price: Volume of transactions on Friday was 344k, Thursday was 111m, Wednesday was 147m. In the past 30 days, the low was 686k (ex Friday), and the high was 459m. Traders slowed…

That still doesn't answer: why wasn't it anticipated and reflected in earlier pricing (even if volume-weighted it would be a much smaller drop, it still seems to have been missed even from futures options)?

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

#389

Post by eitally »

NullPrefix wrote: post #382
darkwizard42 wrote: post #355

Earlier quoted context omitted.

Many have answered about storage costs. Easy way to think about it might be a grocery store. You hear about a sale on cereal for $0.01 a box. Great deal but then you find out that you can't walk there, you can only take Lyft/Uber and it costs $100 each way to get to the store. So in reality its not as good a deal as it sounds.

>you can only take Lyft/Uber and it costs $100 each way to get to the store Hard to follow this analogy

The part about depending on only semi-reliable third parties for your logistics, or the part about the supply chain costs being 1000x your material cost?

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

#390

Post by sand_castles »

throwaway_USD wrote: post #352
greenshackle2 wrote: post #341

Earlier quoted context omitted.

WTI was at -36.25$ just now. I hope you didn't put your money where your mouth is.

>Usually by the time you see commodities activity hitting the front page of HN the bets are in... My bet was already in...however, I do think once we start seeing the news like this proliferate we will see an odd swing by Wednesday or Friday. Still my question was sincere, if we see a swing, I don't know what the markets rationale would be...that said where can it go from negative but up

Commodity markets are not Elon Musk tweets.

Oil gult takes 3-4 years to clear.

Now is a good time to bet on consumption, not on commodities.

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