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

#481

Post by MR4D » Mon, Apr 20, 2020, 10:16 PM UTC

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.

> 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?

No, the Friday longs had a place to put it. But given it's late in the month, the people buying on Friday were probably finishing up their orders for the prompt month. Today, by comparison, there were no buyers, only sellers. Hence the drastic change in price. If there had been more buyers, the price would have been significantly higher (this is why next month's contract price is so much higher (in the $20's).

> Just seems like you would know what to do with the oil on Friday.

To be clear, they did. The people who had oil for sale and were holding out for a higher selling price who did not sell what they needed to sell last Friday are eating their shirts today. Their "greed" (relative, not necessarily Gordon Gecko style greed) caused them to lose a lot of money. Somebody will be firing oil traders this week. Not sure if that will make headlines. But somebody's book definitely blew up because they tried to get a higher price last week and ran into today's sale. Could be a hedge fund, could be an oil producer. But definitely look for this news soon.

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

#482

Post by loa_in_ » Mon, Apr 20, 2020, 10:17 PM UTC

semi-extrinsic wrote: post #470

HighPlainsDrftr wrote: post #453

Earlier quoted context omitted.

If you have an old oil field that is at end of life, couldn't you pick this stuff up at $-40.00/barrel and pump it back into the empty reservoirs? I'm sure there is regulation against it, but if it was once a production reservoir, why couldn't you store it there? You would have to drill. You wouldn't have to do much at all.

You would need a suitable formation in terms of geological properties and then you'd need to drill and complete an injector and a producer well. Best case, you would probably lose half the stuff you're trying to store due to multiphase flow in reservoirs being a total drag. Worst case, the oil you're storing isn't compatible solubility-wise with the residual oil left in the reservoir, and you cause massive asphaltene…

The fact that such precipitation is a known fact tells me it has been tried before.

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

#483

Post by MR4D » Mon, Apr 20, 2020, 10:18 PM UTC

hermitdev wrote: post #456

lordnacho wrote: post #406

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. Guys like myself, an ex fund manager, could be tourists in the oil market. I know I was, speculating o…

This reminds me of Brian Hunter [0] of Amaranth fame. He was on the wrong side of a huge (multi billion USD) long trade on Natural Gas. When faced with losing it all, he doubled down. Blew up Amaranth. $9B USD hedge fund blew up basically overnight. Margin calls, etc, etc. Disclaimer: I worked for the hedge fund at the time that bought Amaranth's holdings for pennies on the dollar. Was supposed to be a joint buyout w…

One thing is clear to me - somebody is getting fired this week. Not sure if it's a hedge fund or producer, or a trader or a team, but someone is getting fired.

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

#484

Post by fredophile » Mon, Apr 20, 2020, 10:24 PM UTC

eru wrote: post #380

shadowgovt wrote: post #373

Earlier quoted context omitted.

Yes, it was predicted successfully (by everyone who is no longer holding a contract). It was also not predicted successfully (by everyone paying through the nose so they won't have to find a place to stash some barrels of a volatile compound).

It wasn't predicted successfully on average. Otherwise Friday would have already anticipated today's price.

How far do you want to take that argument? If successfully predicting it would mean that prices dropped to zero on Friday then shouldn't that have also been successfully predicted and impacted the price on Thursday? What about Wednesday, Tuesday, Monday?

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

#485

Post by gowld » Mon, Apr 20, 2020, 10:27 PM UTC

andrewstuart2 wrote: post #405

cma wrote: post #396

Earlier quoted context omitted.

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 assum…

> assumed perfect liquidity

too bad the oil market is ... viscous.

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

#486

Post by stevenwoo » Mon, Apr 20, 2020, 10:29 PM UTC

Natsu wrote: post #386

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.

They had plans to make a purchase to fill the reserve last month before the price went negative today, and they only had about 10 percent of the reserve free at that time: https://www.fool.com/investing/2020/03/13/trump-announces-ma...

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

#487

Post by [deleted] » Mon, Apr 20, 2020, 10:33 PM UTC

SilasX wrote: post #404

tempsy wrote: post #226

Earlier quoted context omitted.

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?

[deleted]

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

#488

Post by Natsu » Mon, Apr 20, 2020, 10:35 PM UTC

stevenwoo wrote: post #486

Natsu wrote: post #386

Earlier quoted context omitted.

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.

They had plans to make a purchase to fill the reserve last month before the price went negative today, and they only had about 10 percent of the reserve free at that time: https://www.fool.com/investing/2020/03/13/trump-announces-ma...

I heard that was announced, but funding for that never materialized, so I'm not sure they got a chance to actually do that.

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

#489

Post by hermitdev » Mon, Apr 20, 2020, 10:39 PM UTC

yingw787 wrote: post #422

oldsklgdfth wrote: post #400

Earlier quoted context omitted.

> mecheng offices running simulation jobs in the cloud or an on-premises instead of each having a workstation, and being able to cluster that compute together that's totally a thing. worked on low-latency, high resolution remoting software for this purpose exactly. Buy a bunch of beefy servers and have scientists remote in from a laptop to run graphic intensive simulations, rather than buy a workstation for everyone.

I never understood why as a company you wouldn't prefer an on-premises computer cluster with some overhead and give employees thin clients, rather than give everybody MacBook Pros. Thin clients + servers make much more sense to me from a business perspective. They seem much easier to secure (just revoke some keys if you need to fire somebody), much easier to give everybody a reproducible dev env and avoid a lot of sh…

I worked for a financial company that ran a private cloud. They provided everyone with beefy workstations (16 physical cores, 32 GB of RAM). 3/4 of those resources were allocated to a VM that ran a custom compute platform that took jobs off of a queue. The explanation was simple. it was easier/cheaper to leverage the workstations than it was to build out the same compute in the datacenter. Granted, there was about a 5 degree temperature differential between under and over my desk, but I didn't complain. Kept me nice and toasty while I worked. This was +10 years ago. Each workstation had 2 Intel Xeons plus an nVidia Quadro for GPU work. Not sure if they've kept up with the tech, but I imagine they have. $10k/workstation wasn't a problem then, and from what I hear, it's probably not a problem now.

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

#490

Post by hermitdev » Mon, Apr 20, 2020, 10:45 PM UTC

nopinsight wrote: post #356

asdfman123 wrote: post #329

Earlier quoted context omitted.

But a key part of this is simply how much Russia and Saudi Arabia want to pump. The whole purpose of the price war was to drive high cost producers out of business, but that combined with the severe drop in demand sent the price to oblivion. Also, this could catalyze a shift to people doing more things remotely. But will that reduce oil consumption significantly? Don't forget about induced demand. Right now, I can he…

Low traffic won't persist long-term, so most people with a job in a city will not move, unless they and their partner both get stable remote jobs. Increased use for transporting goods is plausible, but generally it is more efficient than transporting people. For most products, lower oil price might not contribute much to lowering its manufacturing cost, only for logistics, so it's unclear how much induced demand will…

Not to mention people that can't relocate. I, for one, cannot relocate on account of proximity to my step children (whom I've not seen for months due to quarantine). I'd be perfectly happy to work remotely from a site in Montana, given I had decent internet. But, because of my step children, I can't for at least another 7 years. Until all of my step kids are in college, at least, I'm stuck being in the Chicago area (otherwise, my wife would divorce me if she couldn't see her kids).