SAJ-99
Well-known member
WOW. News says WTI May contract closed at -$37 per barrel. yes NEGATIVE $37. Something isn't right.
The financial impacts of 2020 events?
- Thread starter Glockster
- Start date
someone try and explain this to me.
i remember some article from a while back where an economist theorized the possibility of this happening this spring, it was generally disregarded as certainly theoretically possible but really just a good article for grabbing clicks
i can't imagine we'd stick to negative oil prices for very long? whatever the heck that even means in practicality
unreal, in any event
T Bone
Well-known member
May contract closes tomorrow.
Financial players have to balance their May portfolio. In this case, someone held their cards too long, hoping for a recovery.
As the deadline approaches liquidity typically decreases, bid/ask ask spreads push out, which leads to increased market volatility.
In this case, an extreme buyers' market.
i'm confused here
is it not also as simple as may contract closes tomorrow, and it's simply readily apparent that oil ain't worth jack (actually negative jack) for May?
who is it that was holding their cards for too long? the oil companies?
i'm hearing from friends in E&P, and that on the inside, this wasn't exactly a surprise....
bear with me here, i'm actually just asking, cause this ain't my area of expertise
BigHornRam
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So was New York.
npaden
Well-known member
Sometimes we forget that oil is physical commodity. A barrel of oil is 55 gallons. It is generally pretty useless without being transported, stored, refined, transported again, etc.
Some people have been using some ETF's to speculate on the price of oil in the future. Those ETF's don't ever actually plan on using the oil, they are just buying and selling contracts.
The contracts for May delivered oil expire tomorrow. You then have to actually accept delivery of the oil. The ETF's have no real way to even pretend to do that so they are currently dumping their contracts for whatever they can get for them.
June oil is still $22 a barrel and July is $28 and I think after that everything is $30+.
Another thing that is in play is that the folks that are actually going to use the May delivered oil already have purchased what they need by now. All that is left is the speculators dumping it for whatever they can get, or as was the case after lunch today, paying people to take it.
This same thing happened with Natural Gas last summer. Some of my clients were actually paid to take physical delivery of natural gas in June and July last summer.
It didn't get the same press coverage because we weren't in a full scale panic at that time though.
Some people have been using some ETF's to speculate on the price of oil in the future. Those ETF's don't ever actually plan on using the oil, they are just buying and selling contracts.
The contracts for May delivered oil expire tomorrow. You then have to actually accept delivery of the oil. The ETF's have no real way to even pretend to do that so they are currently dumping their contracts for whatever they can get for them.
June oil is still $22 a barrel and July is $28 and I think after that everything is $30+.
Another thing that is in play is that the folks that are actually going to use the May delivered oil already have purchased what they need by now. All that is left is the speculators dumping it for whatever they can get, or as was the case after lunch today, paying people to take it.
This same thing happened with Natural Gas last summer. Some of my clients were actually paid to take physical delivery of natural gas in June and July last summer.
It didn't get the same press coverage because we weren't in a full scale panic at that time though.
T Bone
Well-known member
Financial players in the market.
Tradewind
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$-40.32 is the new low on the front month of crude
Tradewind
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The short positions in the market, mostly are the producers. It's their hedge against cash prices, which are falling. so they will either deliver, if they have the wherewithall, or they will pick up their hedges at the last minute
and roll them forward. Your fund traders, for the most part were holding most of the long.
BigHornRam
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Cheap gas and I dont own real estate in New York. No hurt feelings here.
SAJ-99
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Anyone long the contract (users of oil) at the close of business tomorrow must take delivery. Players that are short the contract (producers selingl forward to hedge) make delivery. That sounds simple, but it isn't. If you hold the contract typically you are notified that you hold the quantity in barrels being held at a specific spot (Cushing, OK, Mildand, TX, etc) and your account is hit for the cash amount to buy that many barrels at the closing price. The reality is, very few of those contracts will get exercised regardless of who holds them. Producers don't want to deal with it, users (typically refiners) don't either, and most financial players like Hedge funds sure don't. Once the long holder takes delivery, they will have to pay the storage. Clearly if someone (the seller) is paying $37 for someone to take the long side of the contract, there is no available storage. Every product is backed up because demand has plummeted. Drillers should stop drilling, but they don't. Why the equities held up so well is a matter for debate.
Dont discount: Dumb Ass Luck. Last year in my infinite wisdom I decided we needed Pimco ETF TR/25 year in the portfolio
I am another that believes inflation is on the way. How much and how hard it hits --? But I personally think it will hit like a Tsunami
When I read your posts I wonder about your ages also. What might work for someone in their 30's, 40's, 50's, might not be as good for someone in their 80's
Since I can no longer hunt, and sailing and traveling are becoming more problematic I have moved toward setting up trusts for the great grand children so maybe they can graduate from college debt free
OR---maybe when I return, I will buy Harleys bike, ride it to Colorado and have Elkdudes take me Elk hunting on the Grand Mesa and then head north to see Bighornram and listen to some David Allen Coe while drinking two more bottles of wine--the heck with the great grand children
Decisions, Decisions ---this investing conversation is giving me a headache (-;
Seriously, I wish you all the best, but IMHO if your young enough and are invested in good stocks and bonds, you will be o.k. Just don't panic or be irrational. The one thing I preach to all who will listen ---NO DEBT
I am another that believes inflation is on the way. How much and how hard it hits --? But I personally think it will hit like a Tsunami
When I read your posts I wonder about your ages also. What might work for someone in their 30's, 40's, 50's, might not be as good for someone in their 80's
Since I can no longer hunt, and sailing and traveling are becoming more problematic I have moved toward setting up trusts for the great grand children so maybe they can graduate from college debt free
OR---maybe when I return, I will buy Harleys bike, ride it to Colorado and have Elkdudes take me Elk hunting on the Grand Mesa and then head north to see Bighornram and listen to some David Allen Coe while drinking two more bottles of wine--the heck with the great grand children
Decisions, Decisions ---this investing conversation is giving me a headache (-;
Seriously, I wish you all the best, but IMHO if your young enough and are invested in good stocks and bonds, you will be o.k. Just don't panic or be irrational. The one thing I preach to all who will listen ---NO DEBT
making sense. thanks. the inner workings of oil futures were something i've never researched, nor would have fully understood even if i did.
coming from the hard sciences, i've always struggled with economics - "the only science in the world where if enough people believe it to be true, it's true"
but supply and demand is simple enough for me - TOO MUCH DAMN OIL
for what it's worth i know OXY should have sidelined all their rigs earlier this month, i'm sure many others did as well
Tradewind
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forced delivery wil change that
Tradewind
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SAJ-99
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Change which part?
All delivery is "forced". Holders are just told they own 1,000 barrels at a delivery point, typically Cushing for oil. (having done this in a previous life,I can tell you the reaction from the trader usually involves a LOT of swear words). At that point they have to pay storage and deal with selling the inventory through the physical channels. It's a mess and no one will do it- hence the price of -$35 yesterday - the exception is a HF has found storage (rented a tanker or something) and can transfer ownership from Cushing to Galveston and is willing to sit on it for six months or sell it forward. Big bank trading desks did this a lot in 2008. We will see how many contracts are open at the end of today. At yesterday's close it was over 100k, now I look and it is 15k with a prices of $2.4/brl.
Interesting times. Who would have guessed that oil would trade negative before nat gas?
Tradewind
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I do it in this life. save the lecture
should have said forced load out
should have said forced load out
Tradewind ---- Exactly------Been there---done that -------and the expression on the cats face looks like the one on my brokers face when it happen --- "Get this crazy bitch away from me"--- (-;
anybody besides me remember the gas lines of the 1970's ?
The one thing that will happen ( or two things ) some will lose money and some will make money. I am not young enough or do I have the fortitude, at this stage of my life, but there is always money to be made in these types of situations.
Good Luck fellows
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