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?
The reserve is already 90% full.
I am curious, dohappen to have a source for that statement?
US oil prices turn negative as demand dries up
101–110 of 130 posts
Re: US oil prices turn negative as demand dries up
#102In 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.
Ex-trader at GS/MS here. PMs in this case are traders, requirements about trading systems come from traders b/c they have to dog-food it. Usually there is no separate PM in the tech world sense at banks, though there are project managers.
Re: US oil prices turn negative as demand dries up
#103Earlier 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.
When it costs you nothing to add a clause to a contract, you don't need to come up with a plausible scenario for how something could happen, you only need to foresee the logical possibility of it occurring for any reason whatsoever. Part of managing risk is understanding the world is much more creative at coming up with failure scenarios than you are.
Re: US oil prices turn negative as demand dries up
#104Earlier quoted context omitted.
> 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 n…
> EPA enforcement has been drastically relaxed to allow a bit more freedom
EPA enforcement has been relaxed because the toxic sludge dumpers with influence in the Trump Administration have always wanted to gut environmental regulations and avoid legal liability for giving their neighbors cancer, but now they have a convenient excuse.
Re: US oil prices turn negative as demand dries up
#105Earlier quoted context omitted.
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.
When it costs you nothing to add a clause to a contract, you don't need to come up with a plausible scenario for how something could happen, you only need to foresee the logical possibility of it occurring for any reason whatsoever. Part of managing risk is understanding the world is much more creative at coming up with failure scenarios than you are.
That sums up my intention. I shouldn't have provided an example, for precisely the reason you describe: it's not likely to be what causes the clause to be invoked.
Re: US oil prices turn negative as demand dries up
#106Earlier quoted context omitted.
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
There's lots of empty oil fields out there though. Many of them could hopefully be refilled just using gravity?
Reconfiguring wells to reverse flow is a lot of work, and would take a significant amount of time to setup. This can happen with old gas wells, excess gas can be compressed and reinjected into the well, but they are specially designed systems.
Re: US oil prices turn negative as demand dries up
#107So, where are all the arguments now about why speculators should be required take delivery? I mean, really, the oil producers got paid and consumers shall have copious supplies of oil.
Nobody out looking to find excuses to further regulate commodities markets when all the traders are losing their asses.
Re: US oil prices turn negative as demand dries up
#108So 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…
> since the tanker owners themselves are going to be using those trailers as temporary storage facilities.
Can the tanker just take the oil it's holding to the buyer, then replace it at profit?
Example:
Tanker is paid to hold Joe's oil
Bob needs a tanker to bring oil to Matt.
Tanker brings Joe's oil to Matt, and replaces the oil at a profit.
Re: US oil prices turn negative as demand dries up
#109Since oil is making the front page here, if you're interested in the history of American oil industry, "The History of the Standard Oil Company" by Ida Tarbell is a fantastic read. It's also a great example of investigative journalism. In early chapters of the book she covers the initial rush to pump oil in the Oil Regions and the history of pipelines and storage facilities as it all ties into business practices of R…
Ida Tarbell's father was an oilman who was ruined by Rockefeller and Standard Oil while she was a girl, which is important to keep in mind when contextualizing her work. She lived her life in part as a crusade against Standard Oil and Rockefeller. Obviously she was heavily biased, this being instilled in her early on.
For a less biased look at the history of the American oil industry by way of Rockefeller and Standard Oil, I strongly recommend Titan by Ron Chernow - author of Hamilton - which is an excellent account of Rockefeller and Standard Oil, both the good and the bad.
Re: US oil prices turn negative as demand dries up
#110If 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?
What would stop you from doing that with any unwanted garbage?