Oil costs $ to store. Due to the economic collapse, oil isn't being used much. So all the storage facilities are filled up. So nobody who can store it will buy it from you. If you want to get rid of oil, you have to pay someone.
US oil prices turn negative as demand dries up
31–40 of 130 posts
Re: US oil prices turn negative as demand dries up
#32Earlier quoted context omitted.
“oil firms have resorted to renting tankers to store the surplus supply and that has forced the price of US oil into negative territory”
How long until we run out of tankers?
How out of date do you think this list is? https://horizonship.com/ship-category/tankers-for-sale/crude...
Re: US oil prices turn negative as demand dries up
#33Earlier quoted context omitted.
This sort of refusal would likely has contractual penalties associated with it. Drillers and pipeline operators can't just shut down infrastructure by flipping a switch like it's nothing; it costs real money to perform shutdown procedures or restart pipeline pumps.
I bet all the lawyers who put such clauses in futures contracts are feeling pretty smug right now. I can imagine an oil producer going "Why on earth do we need to put this in the contract? Of course they'll accept delivery. If they don't then that's great for us."
Eh, they probably thought it (however unlikely) could happen for reasons other than a pandemic. Like unprecedented green energy incentives leading to everyone suddenly driving an EV.
Re: US oil prices turn negative as demand dries up
#34Earlier quoted context omitted.
I bet all the lawyers who put such clauses in futures contracts are feeling pretty smug right now. I can imagine an oil producer going "Why on earth do we need to put this in the contract? Of course they'll accept delivery. If they don't then that's great for us."
Eh, they probably thought it (however unlikely) could happen for reasons other than a pandemic. Like unprecedented green energy incentives leading to everyone suddenly driving an EV.
That example is a bit implausible. This is only a problem when oil prices fall very low very quickly. Manufacturing constraints prevent mass EV adoption on those timescales.
On the other hand, people who draft contracts for big corporations get to talk to risk analysts and ask "if we agree to this, what might go wrong that causes us to lose money?" and write clauses that generally protect them from that risk.
Re: US oil prices turn negative as demand dries up
#35Earlier quoted context omitted.
I bet all the lawyers who put such clauses in futures contracts are feeling pretty smug right now. I can imagine an oil producer going "Why on earth do we need to put this in the contract? Of course they'll accept delivery. If they don't then that's great for us."
Eh, they probably thought it (however unlikely) could happen for reasons other than a pandemic. Like unprecedented green energy incentives leading to everyone suddenly driving an EV.
That could happen over a span of decades or longer, not like 3 weeks.
Re: US oil prices turn negative as demand dries up
#36So they start off the article with this statement: "That means oil producers are paying buyers to take the commodity off their hands over fears that storage capacity could run out in May." This statement is actually totally false. Producers already got paid for this production a long time ago when they initially sold the futures contract. What has actually happened is that as the expiry of the May futures contracts a…
> Producers already got paid for this production a long time ago Nothing requires a broker to be involved. Drillers can sell futures to "get paid now" for future production, and likely did so to cover expenses in these chaotic times. If they issued a contract for 1000 barrels on the 1st of the month, produced that 1000 barrels on the 10th, and have an unsold contract on the last day of the month - they are screwed.
I'm confused, isn't issuing a contract bearish? They would be able to make a large profit but closing their position, wouldn't they?
Re: US oil prices turn negative as demand dries up
#37Earlier quoted context omitted.
How long until we run out of tankers?
How out of date do you think this list is? https://horizonship.com/ship-category/tankers-for-sale/crude...
I like this entry (https://horizonship.com/ship/250m-aframax-tanker-2004-124258...), listed at $11.9 million and includes the following line: "As brokers try mid/high US$ 11 Mio's."
Re: US oil prices turn negative as demand dries up
#38Could you just take it and they pay you to take it and dump it into dry wells in Texas and Oklahoma, seems like a reasonable gamble ?
Shrug....
Re: US oil prices turn negative as demand dries up
#39So they start off the article with this statement: "That means oil producers are paying buyers to take the commodity off their hands over fears that storage capacity could run out in May." This statement is actually totally false. Producers already got paid for this production a long time ago when they initially sold the futures contract. What has actually happened is that as the expiry of the May futures contracts a…
It reminds me of a funny story in Options, Futures, and Other Derivatives, where some newbie trader mistakenly bought a contract on live cattle futures to close out a long position. The trader spent a couple weeks traveling thousands of miles and figuring out housing and food for hundreds of cattle until a buyer for them could be found.
Re: US oil prices turn negative as demand dries up
#40Earlier quoted context omitted.
Forgive me if this is a stupid question but they can’t hold a gun to your head to force you to take the oil, right? Can’t you just refuse the delivery if you have nowhere to store it? Is there language in the contract for this kind of situation?
That's not a stupid question it's an excellent one. If you don't take delivery you're in breach of contract. The penalties for that are going to depend on how the judicial process works out. This has never happened before, so I don't know how it will play out other than that it's going to be wildly messy. Probably far messier than anyone, myself included, is imagining.
At the risk of sounding stupid, I have to ask...
Would it be possible to simply pump the oil back into the ground wherever the closest oil field is?