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US oil prices turn negative as demand dries up

bbc.com

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Re: US oil prices turn negative as demand dries up

#51

Post by baud147258 »

markdown wrote: post #40
User23 wrote: post #17

Earlier quoted context omitted.

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?

Doesn't the oil just come out of the oil well from its own pressure? Which would make pumping oil back in the oil field complicated

Re: US oil prices turn negative as demand dries up

#52

Post by firebird84 »

adventured wrote: post #48
markdown wrote: post #40

Earlier quoted context omitted.

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?

In an arrangement with the US Government it could be put into the ground, elsewhere. Doing it without state permission would be an entirely different matter however. I'm not aware of any very large, privately owned underground storage caverns (such that they could make a dent in absorbing the over-supply). This is being discussed: "The U.S. Energy Department is negotiating with nine companies to rent about 23 million…

Why don't we just take delivery of futures contracts directly? Isn't this a great time to fill the reserve?

Re: US oil prices turn negative as demand dries up

#53

Post by vkou »

perl4ever wrote: post #43

In one of the articles, it quoted someone from, I think, the CME, that said they were fully prepared in their trading systems to handle these negative prices with no hiccups. What I immediately thought, that I haven't seen anyone else mention yet, is that there are some admirable programmers!

As someone who worked on trading software, I'd reserve the praise for the PMs - who would explain to the programmers why all this stuff is important.

Re: US oil prices turn negative as demand dries up

#54

Post by EGreg »

propter_hoc wrote: post #10

So 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…

Well to be honest, although it may not be true for oil, it can definitely be true briefly for electricity, because it’s use it or lose it. Battery storage is still in its infancy.

Negative prices are definitely a thing when you can’t stop production and all of a sudden storage or middlemen are over capacity.

LOOK AT WHAT IS HAPPENING right now in the US food chain! The farmers have to euthanize cattle rather than sell them because the price they get is lower than upkeep. Yet the price of meat at the supermarket is going up and up. What’s going on? Well, the processing plants have shut because they’re sending employees home if anyone is infected, and so the capacity of the middlemen drops. And boom, there is a huge inefficiency now.

Someone in congress is working on a bill to let the farmers and supermarkets disintermediate... as usual, decentralization to the rescue.

Re: US oil prices turn negative as demand dries up

#55

Post by partiallypro »

pcurve wrote: post #3

anybody know how many barrels were actually sold at that price? $0 is one thing, but I'm shocked at the minus $38. It could not have been large.

It's entirely possible that no barrels will be effectively sold at a negative number. Because even after expiration you can negotiate OTC, it depends. At the very least, the final print likely will be renegotiated.

Re: US oil prices turn negative as demand dries up

#56

Post by kgwgk »

jliptzin wrote: post #42
cheald wrote: post #9

Earlier quoted context omitted.

You can look up the volume: https://www.marketwatch.com/investing/future/cl.1/charts -- between 2:20-2:25, EST, for example, volume was 748 contracts (748,000 barrels) at -$37.11.

Could be short covering

Long covering, actually. (Here is the long who is forced to sell at a negative price to get rid of their long position.)

Re: US oil prices turn negative as demand dries up

#58

Post by 9nGQluzmnq3M »

scarmig wrote: post #39
propter_hoc wrote: post #10

So 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.

There's another version of this involving a whole lotta coal:

https://thedailywtf.com/articles/special-delivery

Re: US oil prices turn negative as demand dries up

#59

Post by fiblye »

mensetmanusman wrote: post #57

It’s getting more likely that the fallout from the response will be worse than the virus would have been. For perspective, 800 000 people die every year in the world from suicide alone. Depression/anxiety/hopelessness has real consequences.

On the other hand, there’s some potential good that could come of it. Some people who’ve felt trapped in dead end jobs are getting new opportunities. Who knows if the good changes that result will outweigh the bad, though.

Re: US oil prices turn negative as demand dries up

#60

Post by [deleted] »

scarmig wrote: post #39
propter_hoc wrote: post #10

So 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.

[deleted]
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