Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Oil plunges below zero for first time with May contract ending

bloomberg.com

Post reply on HN
Print view View original

411–420 of 546 posts

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

#411

Post by IAmGarrett »

nugget wrote: post #171
bdcravens wrote: post #163

Earlier quoted context omitted.

You'll also see the economy in the fourth largest city in the US - Houston - collapse. It's not just the large energy companies here, but the entire ecosystem of companies that support the energy industry here.

Are there any signs of this starting to happen given how low prices have gone?

Currently over 20% of Houston office space sits empty (compare to Denver/Chicago ~13%). That’s because we haven’t even absorbed the empty office space left from the 2015 oil downturn. Office owners are now doing very favorable deals for new tenants as they brace for the coming bankruptcies, rent relief letters, and space reductions. This is likely to be painful for many more months in Houston, even if there is a quick recovery from COV-19.

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

#412

Post by magicalhippo »

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...

I'm not at all familiar with the industry.

Is the deal here that someone said to someone with an oil well "brah, I'll pay you X to pick up N barrels of oil on the day that is Y", but the buyer doesn't actually have any place to store it, instead planned to sell the oil to others later? And Y-day is approaching fast and nobody wants the oil, so the middleman has to take a loss by trying to pay someone to pick up the oil, to avoid penalty fees from the oil well company I presume (as they'd have to shut down if they run out of storage I imagine).

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

#413

Post by willturman »

Tuna-Fish wrote: post #325
sdffdsfdsfsddsf wrote: post #307

Earlier quoted context omitted.

What about tankers?

Also full. The proportion of the global tanker fleet that is just full of oil sitting off coast near refineries is at an all time high. A lot of speculators were betting that oil prices were going to go up and had rented ships and filled them with oil they though was cheap, before COVID-19 even hit. Since then, oil prices have absolutely cratered.

How do these tanker contracts work?

Are speculators leasing the tankers on a month to month basis? What happens when/if the tanker isn't offloaded at the end of a contract?

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

#414

Post by Faaak »

timerol wrote: post #268
Faaak wrote: post #225

Earlier quoted context omitted.

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.

Indeed. Thanks

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

#415

Post by ncallaway »

colinmhayes wrote: post #317
aguyfromnb wrote: post #260

Earlier quoted context omitted.

> 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? Good question. The answer is because they don't think it will be profitable. Why aren't you ?

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 feel like it should be possible to build a big tank in a week or two.

When is the physical settlement of the contract? My understanding is that physical settlement of the May futures contract is 21 April (that is, tomorrow).

So you don't have a week or two to build your big tank. It needs to be finished tonight.

https://www.cmegroup.com/trading/energy/crude-oil/light-swee...

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

#416

Post by hailwren »

xoa wrote: post #379
bluGill wrote: post #165

Earlier quoted context omitted.

Nice to imagine, but the speed of light is too slow for a lot of low latency applications. After you allow the infrastructure some latency. A dedicated line might work, but without the network that is expensive.

> Nice to imagine, but the speed of light is too slow for a lot of low latency applications. Is it? Looking around, it seems average visual reaction times (VRTs) are on the order of 250 ms, and even the fastest VRTs are well over 100 ms. A study looking specifically at medical students for auditory and visual reaction times ( "A comparative study of visual and auditory reaction times on the basis of gender and physic…

I think you've mixed up your logic a bit. A slow visual reaction time means that surgeons are already reacting slower in the real world. Any latency added (!!) by a network further adds to the delay between surgeon reaction and real world stimulus.

You argued that when we compare the average VRT additional latency is not large. But you should have argued that there was enough buffer between average VRTs and the time needed for a surgeon to react to allow adding to average VRT.

i.e. If we imagine driving a car with a video camera, we don't really care about latency vs reaction time. We care whether latency + reaction < accident threshold.

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

#417

Post by 0x8BADF00D »

lordnacho wrote: post #406
jjallen wrote: post #205

Earlier quoted context omitted.

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 o…

A really risky (but I think worth the risk) bet is to buy the front and sell the back. You will receive a huge credit, and as long as you close out the back leg below what you sold for, you’re in the clear.

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

#418

Post by mlrtime »

pas wrote: post #284
frankchn wrote: post #147

Earlier quoted context omitted.

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?)

Of course there are market makers, but they aren't going to buy contracts if they can't deliver.

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

#419

Post by bmelton »

gridlockd wrote: post #387
bmelton wrote: post #357

Earlier quoted context omitted.

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?

Assuming you can transport a 100+ pound liquid filled drum to a disposal facility that meets federal guidelines for less than that cost, and don't care about the environment, absolutely... but the real trick here is in knowing that the people who are already using oil and have the capacity to store it ... are... so other than just burning it, for a couple hundred million, you could probably supplant your stationary oil consumption with a non-petroleum alternative.

It is ironically the portability of oil-refined products (gasoline, diesel) that makes it so appealing for things that aren't stationary -- planes, cars, etc.

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

#420

Post by simonh »

mcv wrote: post #407
tempsy wrote: post #248

Earlier quoted context omitted.

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?

They would if they didn’t offload the contracts somehow, hence the negative prices. They are paying to get rid of that obligation.
Post reply on HN