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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

#81

Post by SilasX »

User23 wrote: post #17
jliptzin wrote: post #15

Earlier 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.

>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.

That sounds incorrect. The whole point of having standardized, commodified units trading on organized exchanges is that you don’t have to reinvent the dispute-resolution wheel — or turn it over to super slow courts — for every foreseeable thing that can go wrong. So there should be a specific procedure and penalty you can look up.

I asked the same question and got this answer that seems more correct and along the lines of my intuition, that the exchange holds it (or rather, directs others to home it) and bills your account for the cost:

https://news.ycombinator.com/item?id=22929334

Re: US oil prices turn negative as demand dries up

#82

Post by RobLach »

User23 wrote: post #13
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…

> cost of storing that oil is getting really high If anything, this is a wild understatement. Each contract represents 1000 barrels of toxic waste. You can't just have that stored in a shed or something. And all the commercial regulation compliant storage is gone. I'd be willing to bet you will have a hard time even finding a tanker truck to take it to a buyer, since the tanker owners themselves are going to be using…

In the USA at least, EPA enforcement has been drastically relaxed to allow a bit more freedom in regard to this issue in exchange of public safety and environmental stability.

I wouldn't be surprised if someone doesn't see the opportunity to just dump oil from their tankers to take on an additional lucrative storage contract from a speculator caught off guard.

ELPC just released this report for example claiming the number of facilities regulated by the EPA that are out of compliance have doubled in the last year.

http://elpc.org/wp-content/uploads/2020/04/Region5Report_FIN...

Re: US oil prices turn negative as demand dries up

#83

Post by csense »

If you owned an oil ship, what stops you from getting paid $25 a barrel to fill your ship up with oil, sailing to international waters, dumping it all in the sea, then go right back to port and do it again and again getting paid $25 a barrel each time?

Re: US oil prices turn negative as demand dries up

#89

Post by [deleted] »

User23 wrote: post #13
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…

> cost of storing that oil is getting really high If anything, this is a wild understatement. Each contract represents 1000 barrels of toxic waste. You can't just have that stored in a shed or something. And all the commercial regulation compliant storage is gone. I'd be willing to bet you will have a hard time even finding a tanker truck to take it to a buyer, since the tanker owners themselves are going to be using…

[deleted]

Re: US oil prices turn negative as demand dries up

#90

Post by joecool1029 »

burfog wrote: post #70
firebird84 wrote: post #52

Earlier quoted context omitted.

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

Pelosi blocked that. The workaround is to cheaply rent out the reserve as storage space, with the hope that someday a better congress will allow purchasing the oil.

>Pelosi blocked that.

Why should the American people pay to fill it when they can now be paid instead to store the oil? The market's decided that the toxic asset needs to go somewhere and the speculators that bought it (not the producers) will pay.

>The workaround is to cheaply rent out the reserve as storage space

Cheaply? They took a risk in speculating and it didn't work out. The solution is to give them a choice: surrender their oil to the USG (to avoid paying storage fees) or pay the USG for the service of storing it.

No bailouts, fuck that.

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