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Oil plunges below zero for first time with May contract ending

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Re: Oil plunges below zero for first time with May contract ending

#471

Post by hermitdev »

SilasX wrote: post #404
tempsy wrote: post #226

Earlier quoted context omitted.

Not really. If you hold contracts at expiration (May expires tomorrow) then you are forced to take physical delivery of oil. No one wants oil right now, and if you take physical delivery you’re going to have to pay big premiums to store oil at Cushing. The discount reflects the premium storage costs. Most oil traders just want to profit off price movements and not actually own physical oil. There’s no volume on May c…

Do you know what happens if you can’t take physical delivery? As in the financial consequences including penalties assigned by the exchange?

My understanding is you still take delivery. It might be in the form of a fleet of tankers or barges arriving at your office. But, you will take delivery, whether you like it or not. Any responsible trading firm that deals in futures should have mechanisms in place to deal with physical delivery.

Re: Oil plunges below zero for first time with May contract ending

#472

Post by 205guy »

sjwright wrote: post #138
NicoJuicy wrote: post #71

Earlier quoted context omitted.

It's artificial. You are forgetting the costs of running a city in the middle of a dessert.

Indeed it would be no mere trifle to run a city in the middle of a dessert.

More of a truffle?

Re: Oil plunges below zero for first time with May contract ending

#473

Post by agumonkey »

slg wrote: post #275
umeshunni wrote: post #142

Earlier quoted context omitted.

Actual quote was by the Sheikh of Dubai: "My grandfather rode a camel, my father rode a camel, I drive a Mercedes, my son drives a Land Rover, his son will drive a Land Rover, but his son will ride a camel" https://en.wikipedia.org/wiki/Rashid_bin_Saeed_Al_Maktoum

For interesting context, the man who said that was born in 1912, his eldest son was born in 1943, and his eldest grandchild that I can find in 30 seconds of research was born in 1976. That is were the Wikipedia articles stop but the child predicted to ride a camel is certainly alive today and they might even already know how to drive.

You need lessons to drive a camel ?

Re: Oil plunges below zero for first time with May contract ending

#474

Post by ccozan »

philjohn wrote: post #433
paxys wrote: post #204

Earlier quoted context omitted.

People (justifiably) criticize the middle-eastern countries for a lot of things, but they are all aware that all the oil revenue is eventually going to dry up. Most of them have been hard at work transforming their economies for decades, not an easy thing to do when you're in the middle of a desert.

Sounds like a great place to put massive solar farms ...

...to power desalinization plants.

Re: Oil plunges below zero for first time with May contract ending

#476

Post by dharmab »

slg wrote: post #275
umeshunni wrote: post #142

Earlier quoted context omitted.

Actual quote was by the Sheikh of Dubai: "My grandfather rode a camel, my father rode a camel, I drive a Mercedes, my son drives a Land Rover, his son will drive a Land Rover, but his son will ride a camel" https://en.wikipedia.org/wiki/Rashid_bin_Saeed_Al_Maktoum

For interesting context, the man who said that was born in 1912, his eldest son was born in 1943, and his eldest grandchild that I can find in 30 seconds of research was born in 1976. That is were the Wikipedia articles stop but the child predicted to ride a camel is certainly alive today and they might even already know how to drive.

The man who said that used that quote as a rhetorical device to promote development of other industries such as finance.

Re: Oil plunges below zero for first time with May contract ending

#477

Post by greenshackle2 »

agseward wrote: post #269
tempsy wrote: post #254

Earlier quoted context omitted.

if only arbitrage was that easy...

That's literally what futures contracts are for.

In a discussion about negative future prices no less. If buyers could refuse physical delivery, that's what they would be doing now, not selling at negative prices.

Re: Oil plunges below zero for first time with May contract ending

#478

Post by hermitdev »

HighPlainsDrftr wrote: post #453
mcv wrote: post #421

Earlier quoted context omitted.

If storage rate is cents per barrel and barrels cost negative dollars per barrel, is sounds like storage is still very affordable.

If you have an old oil field that is at end of life, couldn't you pick this stuff up at $-40.00/barrel and pump it back into the empty reservoirs? I'm sure there is regulation against it, but if it was once a production reservoir, why couldn't you store it there? You would have to drill. You wouldn't have to do much at all.

Can't reply to semi-extrinsic, but it would seem to me, it'd be cheaper to just shut down the originating well.

Re: Oil plunges below zero for first time with May contract ending

#479

Post by loa_in_ »

hermitdev wrote: post #456
lordnacho wrote: post #406

Earlier quoted context omitted.

> What I don't understand is why the sudden move today? Did the longs think they had a place to put the oil on Friday but found out over the weekend they had no place to put it? Just seems like you would know what to do with the oil on Friday. Note this is not a rhetorical question, I would sincerely like an answer. Guys like myself, an ex fund manager, could be tourists in the oil market. I know I was, speculating o…

This reminds me of Brian Hunter [0] of Amaranth fame. He was on the wrong side of a huge (multi billion USD) long trade on Natural Gas. When faced with losing it all, he doubled down. Blew up Amaranth. $9B USD hedge fund blew up basically overnight. Margin calls, etc, etc. Disclaimer: I worked for the hedge fund at the time that bought Amaranth's holdings for pennies on the dollar. Was supposed to be a joint buyout w…

That man is one of a very small group according to this list:

https://en.wikipedia.org/wiki/Category:Rogue_traders

Re: Oil plunges below zero for first time with May contract ending

#480

Post by VLM »

SilasX wrote: post #404
tempsy wrote: post #226

Earlier quoted context omitted.

Not really. If you hold contracts at expiration (May expires tomorrow) then you are forced to take physical delivery of oil. No one wants oil right now, and if you take physical delivery you’re going to have to pay big premiums to store oil at Cushing. The discount reflects the premium storage costs. Most oil traders just want to profit off price movements and not actually own physical oil. There’s no volume on May c…

Do you know what happens if you can’t take physical delivery? As in the financial consequences including penalties assigned by the exchange?

Chapter 200 doesn't go into much detail but chapter 7 (for metals) explains how the exchange will facilitate an independent middleman to store until arrangements are made and they will bill you for that service.

I have not been involved in chapter 200 operations but I've heard socially this occasionally happens relating to substandard product. "We agreed on light sweet crude in the contract but you tried to deliver sour tar". The exchange knows its all going to get dragged into court eventually, so they try to be fair and transparent and well documented. There are plenty of people renting tank space as a normal business operation.

I don't think you're going to get Force Majeure protection. That's for something neutral to all parties like a hurricane, not one side of the contract didn't feel like closing out and doesn't have tank space lined up.

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