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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

#401

Post by [deleted] »

altcognito wrote: post #395
symplee wrote: post #285

Earlier quoted context omitted.

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?

"Running out of oil" and "peak oil" would be two completely different things. Lightheartedly pointing out something as if it didn't happen when in fact it did happen, will get you downvoted. It is easy to agree that "running out of oil" sometimes was conflated with "peak oil", but alas, that's just ignorance.

[deleted]

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

#402

Post by colinmhayes »

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…

7 million barrels * $30 a barrel = 210 million just to take the oil. Plus $20 a barrel when you sell it brings you to $350,000,000 in revenue on a 7 million barrel tank. What am I missing, other than not being able to build the tank fast enough?

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

#403

Post by Animats »

Great time to fill up the US strategic oil reserve. Congress didn't fund Trump's plan to have the Government buy up excess oil to prop up the price. But with prices negative, the Department of Energy can go ahead and fill up the underground storage anyway. Might need it someday.

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

#404

Post by SilasX »

tempsy wrote: post #226
selectodude wrote: post #223

Earlier quoted context omitted.

It's only a paper loss until you sell. Everybody was hoping and praying things would change and now that it's abundantly clear that it's not changing, they're desperately trying to unwind their positions.

Not really. If you hold contracts at expiration (May expires tomorrow) then you are forced to take physical delivery of oil. No one wants oil right now, and if you take physical delivery you’re going to have to pay big premiums to store oil at Cushing. The discount reflects the premium storage costs. Most oil traders just want to profit off price movements and not actually own physical oil. There’s no volume on May c…

Do you know what happens if you can’t take physical delivery? As in the financial consequences including penalties assigned by the exchange?

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

#405

Post by andrewstuart2 »

cma wrote: post #396
andrewstuart2 wrote: post #394

Earlier quoted context omitted.

If you have the answer to the question you are asking, you should change careers into oil contract trading; you'll probably make a bundle. In short, the reason nobody anticipated it is because the future is unknown. The reason any market is unpredictable is because there are too many variables to account for.

I think he's asking why the market didn't have a better estimate of storage capacity and utilization and what changed in the estimate from yesterday to today.

I think that has to do with how people sometimes do analysis for trading. There's fundamental analysis, which looks at exactly that when attempting to determine the price to bid for a security, but then there's the bubblier "technical analysis" which really just looks at historical and current trends and attempts to divine whether buying now means you might be able to sell in the future.

I'd imagine people just assumed perfect liquidity here, and that they'd be able to sell even "at a small loss which is better than nothing," not realizing that nothing or negative (i.e. you're gonna pay somebody to take this oil off your hands or build your own tanks) is a valid outcome.

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

#406

Post by lordnacho »

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.

> 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.

Guys like myself, an ex fund manager, could be tourists in the oil market. I know I was, speculating occasionally on oil without knowing a whole lot about the details. Plenty of macro guys are similar, they bet on the large movements as the opportunites present themselves and don't worry about the details.

So what has probably happened is some of these tourists have had a few contracts left over that they forgot about or didn't discover in their position keeping until their prime brokers phoned them, and they had to dump into a market under very special conditions. Hopefully not very many contracts.

In normal times if you screwed up and had to do delivery, it stil wouldn't be a big problem, because the storage is available and you essentially just buy it (by trading with a guy who actually knows how to organize it), costing relatively little.

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

#407

Post by mcv »

tempsy wrote: post #248
CountSessine wrote: post #242

Earlier quoted context omitted.

So does this mean that without bids there are potentially many traders, not refiners or tank farms, holding those contracts still? That those traders will get stuck with taking delivery because they couldn't unload their contracts?

Yes

People with just a paper office, used to deal in numbers rather than anything physical, and with no place to store physical goods, will now have to figure out where and how to store lots of oil?

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

#408

Post by omgJustTest »

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.…

This is a case of understand your contracts.

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

#409

Post by hkmurakami »

gezh wrote: post #360
caseysoftware wrote: post #143

Earlier quoted context omitted.

I'd love to hear from someone that got stuck with the 1000 bushels of corn (or similar). What do you do? How in the world do you manage that?

If I remember correctly, in contrast to WTI, you will get assigned a shipping/warehouse certificate for wheat/corn in a designated elevator somewhere. You'll have to pay the warehouse a daily carry cost but don't actually have to take it out of that warehouse (you can if you want to).

That reminds me of the GS Aluminum storage warehouse story.

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

#410

Post by gbear605 »

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...

From their Wikipedia pages, 40% of SA's GDP is oil[1] versus 16% of Russia's[2], also 90% of SA's exports versus 70% of Russia's. Certainly both countries are disastrously hurt by a collapse in oil prices, but SA seems to be worse off.

[1]: https://en.wikipedia.org/wiki/Economy_of_Saudi_Arabia [2]: https://en.wikipedia.org/wiki/Economy_of_Russia

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