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I tried to buy an actual barrel of crude oil (2015)

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Re: I tried to buy an actual barrel of crude oil (2015)

#111

Post by juped »

smnrchrds wrote: post #105
anonobviosly wrote: post #35

This reminded me of the opposite story: https://thedailywtf.com/articles/Special-Delivery Tldr- commodities trader accidentally specified physical delivery for several thousand tons of coal; very surprised when the barges show up at their waterfront office.

I think the story is fiction. I don't think commodities are sent wherever your office is. Isn't the location of delivery set as a part of the futures contract?

Yes (e.g., if you buy CL futures, delivery is in Oklahoma).

QL coal doesn't trade anymore (all the active coal futures I can find now are cash-settled) but delivery seems to have historically been at the discretion of the parties, so the story is at least plausible.

Re: I tried to buy an actual barrel of crude oil (2015)

#112

Post by juped »

scurvy wrote: post #10

Considering that the front-month oil contracts went negative today (paid to buy a barrel of oil), I think more (well funded and adept) players will try to hastily arrange more storage facilities. There's just no place to put the stuff right now. It's quite difficult to turn-off an active well. Deep-water wells are all but impossible to stop.

Paid to take on the futures contract obligation. If you happened to need or want physical oil delivered in Oklahoma a month from today, you got a good deal as futures traders unloaded their contracts.

Re: I tried to buy an actual barrel of crude oil (2015)

#113

Post by juped »

bhl wrote: post #76
A4ET8a8uTh0 wrote: post #15

Earlier quoted context omitted.

Does it happen often that future contract falls into negative territory?

The technical term for this is contango [1]. Last time this happened to crude oil was after the GFC, as mentioned in the article. [1] https://en.wikipedia.org/wiki/Contango#Description

Contango means that futures prices further out are higher than futures prices in the nearer term, and is normal for oil futures; what's notable is the extreme slope of the futures curve we're seeing.

Re: I tried to buy an actual barrel of crude oil (2015)

#116

Post by 542458 »

juped wrote: post #111
smnrchrds wrote: post #105

Earlier quoted context omitted.

I think the story is fiction. I don't think commodities are sent wherever your office is. Isn't the location of delivery set as a part of the futures contract?

Yes (e.g., if you buy CL futures, delivery is in Oklahoma). QL coal doesn't trade anymore (all the active coal futures I can find now are cash-settled) but delivery seems to have historically been at the discretion of the parties, so the story is at least plausible.

Everything I’ve read seems to say it’s very, very difficult to accidentally take delivery, but it’s not quite impossible.

In related news, there is a Planet Money Podcast (episode called the Eddie Murphy Rule) where they interview the trader who took possession of a bunch of cattle by mistake IIRC.

Re: I tried to buy an actual barrel of crude oil (2015)

#118

Post by takinola »

scurvy wrote: post #10

Considering that the front-month oil contracts went negative today (paid to buy a barrel of oil), I think more (well funded and adept) players will try to hastily arrange more storage facilities. There's just no place to put the stuff right now. It's quite difficult to turn-off an active well. Deep-water wells are all but impossible to stop.

The reason wells are hard to shut in has nothing to do with the actual turning off the tap. All wells are designed to turned off with BOPs (blow out preventers, etc). The problem is that if you shut in a well for an extended period of time, you damage the reservoir and will have to do remedial work to get it back to its production rate (if ever). This is why producers are not keen to shut down production. They have to weigh the short term cost of the current prices against the cost of future losses over the lifetime of the reservoir

Re: I tried to buy an actual barrel of crude oil (2015)

#119

Post by ShorsHammer »

TomGullen wrote: post #95
wefarrell wrote: post #66

Earlier quoted context omitted.

Sure, I bought a Delta Airlines bond with a 3.4% coupon for 93 cents on the dollar due in a year from now. Provided Delta doesn't go bankrupt in a year I will make 10%. They have a pretty healthy balance sheet compared to their peers and I don't expect the government to let the sector fail in such a way that bondholders get wiped out.

I would of thought holding Delta stock would have more than 10% upside if they don’t go bankrupt

Guess who gets paid first if the company collapses.

Re: I tried to buy an actual barrel of crude oil (2015)

#120

Post by juped »

542458 wrote: post #116
juped wrote: post #111

Earlier quoted context omitted.

Yes (e.g., if you buy CL futures, delivery is in Oklahoma). QL coal doesn't trade anymore (all the active coal futures I can find now are cash-settled) but delivery seems to have historically been at the discretion of the parties, so the story is at least plausible.

Everything I’ve read seems to say it’s very, very difficult to accidentally take delivery, but it’s not quite impossible. In related news, there is a Planet Money Podcast (episode called the Eddie Murphy Rule) where they interview the trader who took possession of a bunch of cattle by mistake IIRC.

If you're a normal retail trader, your broker will probably intervene before then.
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