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Note that this is for the May contract, which closes tomorrow, and anyone left with a contract then will have to actually take delivery of the physical product.

Note that this is for the May contract, which closes tomorrow, and anyone left with a contract then will have to actually take delivery of the physical product. Since we are in supercontango (oil storage is full, causing spot prices to be significantly lower than forward prices), I am guessing that traders who are still holding on to contracts and don’t have available storage have to unload contracts pretty quickly. The June contract, where most of the trading is happening, is at around $22, and the July contract is $28.

lonelappde 6y ago
Would they take delivery or would they pay the producers to dump it in the dirt or ocean? Oops into the ocean is cheap storage of useless oil.
- dsfyu404ed 6y ago
  The producers aren't gonna dump it (at least not in the US) because that is a surefire way to not only have the EPA bend them over but to have the EPA bend them over with the blessing of public opinion. Nobody wants to have their company be associated with pictures of oil soaked wildlife.
  - dd36 6y ago
    EPA isn’t enforcing right now.
    - kcolford 6y ago
      Doesn't matter when they enforce, no one's taking the risk of a change in administration.
    - koheripbal 6y ago
      This is obviously wrong. You cannot dump oil, and anyone found to be dumping will be prosecuted. READ THE EPA STATEMENT.. https://www.epa.gov/sites/production/files/2020-03/documents/oecamemooncovid19implications.pdf https://www.epa.gov/sites/production/files/2020-03/documents... > The enforcement discretion described in this temporary policy do not apply to any criminal violations or conditions of probation in criminal sentences. ... > This policy does not apply to imports. They are relaxing REPORTING requirements - not giving a free pass to anyone dumping whatever they want. Obviously.
      - xnyan 6y ago
        This is obviously wrong. The EPA has explicitly stated they will not be enforcing regulation. Source: https://thehill.com/policy/energy-environment/489753-epa-suspends-enforcement-of-environmental-laws-amid-coronavirus https://thehill.com/policy/energy-environment/489753-epa-sus...
        koheripbal 6y ago
        READ THE EPA STATEMENT.. https://www.epa.gov/sites/production/files/2020-03/documents/oecamemooncovid19implications.pdf https://www.epa.gov/sites/production/files/2020-03/documents... > The enforcement discretion described in this temporary policy do not apply to any criminal violations or conditions of probation in criminal sentences. ... > This policy does not apply to imports. They are relaxing REPORTING requirements - not giving a free pass to anyone dumping whatever they want. Obviously.
        singlow 6y ago
        From the memo that generated the news story you linked: > IV. Accidental Releases Nothing in this temporary policy relieves any entity from the responsibility to prevent, respond to, or report accidental releases of oil, hazardous substances, hazardous chemicals, hazardous waste, and other pollutants, as required by federal law, or should be read as a willingness to exercise enforcement discretion in the wake of such a release.
        tzs 6y ago
        If one wished to be nit-picky, one might note that the part you quote is explicitly about "accidental" releases, so arguably does not apply to the deliberate release that the originator of this thread branch was talking about. :-)
        dragonwriter 6y ago
        There is a separate note about criminal violations not facing “enforcement discretion”, which unless I'm mistaken covers pretty much any intentional release.
    - btian 6y ago
      What if Trump loses?
  - zozbot234 6y ago
    If you're an oil producer, you don't need to "dump" oil in the surrounding environment. You can just pump it back into the oilfield you've been extracting it from.
    - JamesBarney 6y ago
      This isn't really possible in the near term. You can't just hook up oil into your water injection system.
- deleted 6y ago
  [deleted]
- bluGill 6y ago
  It is hard to take delivery if you don't want to. These contracts have lots of safeguards to separate delivery from ownership. There are lots of ways to have a contract, but one example of why this is done is if you have oil and on a slow boat. When the oil is loaded onto the boat the well owner wants to be paid, while the ship owner doesn't want to buy it, and the destination does not doesn't want to pay for it. This the ship will pay for the oil by selling a contract, the ship already knows where it is going, but they don't want to have ownership of the oil. By selling the contract on the same day they get their money back and don't lose money if oil goes down. Then they sell the oil on the other end and pay off the contract. Of course in the real world it is more complex but in general the destination is already known what isn't known is how much the oil will be worth when it gets there. Note that I said hard to take delivery when you don't want it. Such things do happen despite safeguards. They are expensive mistakes for everyone (the ship delivering oil can't unload and so will miss the next dock while running for someplace that can take it), so there is a lot of checks in place but they can fail.
missedthecue 6y ago
>Note that this is for the May contract, which closes tomorrow, and anyone left with a contract then will have to actually take delivery of the physical product. Not really. Almost all contracts are cash settled.
- cletus 6y ago
  > Not really. Almost all contracts are cash settled. The parent comment is 100% correct. You're missing the nuance of how commodity futures trading works. Yes most are cash-settled but there is a date after which if you hold the contract you're promising to make or accept physical delivery. The commenter is saying we reach that point for the May oil contract tomorrow so anyone who wants to settle in cash has to do so by tomorrow.
  - bluGill 6y ago
    True, but there will be checking to ensure that you want oil if you are not normally a destination for oil. Trying to deliver oil to someone without a loading dock will be a problem that hurts many people trying to correct.
    - thoraway1010 6y ago
      100% false. Where are these facts coming from? The specs for delivery are always very clear because price depends on where it needs to be delivered! "Delivery shall be made free-on-board ("F.O.B.") at any pipeline or storage facility in Cushing, Oklahoma with pipeline access to Enterprise, Cushing storage or Enbridge, Cushing storage." What does it mean to be "normally not a destination for oil" and who is doing this checking (do you realize the volume of oil that is traded monthly? The futures market being discussed here uses standardized contracts.
      - bluGill 6y ago
        Not everyone is allowed to trade, there are rules if you don't have ability to accept oil they make it hard to get a contract that doesn't sell automatically. (not impossible, but a mistake guns up their processes so they have procedures to avoid it)
jjallen 6y ago
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.
- tempsy 6y ago
  It’s called super contango. And storage has not run out yet. Cushing is not full. The problem is traders are anticipating storage will become very expensive as remaining capacity decreases, so if you’re holding on to May contracts and you’re not using the oil because there’s a glut right now then you’re going to be paying a lot more to keep storing the oil for future months as storage costs go up. The huge discount reflects that cost.
  - jjallen 6y ago
    Sorry to miss it, but how does this answer my question? I asked why they weren't prepared on Friday. Storage has been expensive and getting more expensive for weeks. We've been in a massive contango for weeks. Why weren't they prepared on Friday for physical delivery?
    - tempsy 6y ago
      Most oil traders don’t actually want physical delivery. They are just trying to profit off price movements. Traders have moved on to June contracts already. There’s no volume on May contracts at this point. No one wants to actually pay for physical delivery so the price is tanking since there are no bids as we get closer to expiration tomorrow.
      - kietdlam 6y ago
        You still haven't answered the question...
        6y ago
SilasX 6y ago
>I am guessing that traders who are still holding on to contracts and don’t have available storage have to unload contracts pretty quickly. Good call! Now it’s about $5.30, and has dipped as low as $4.04. (Insert joke about “energy market not found”.) Edit: wow. Just wow. Below $1 a barrel and kissed $0.01 at one point! That’s gotta be a record.
- puranjay 6y ago
  I think it briefly went negative! Let's add that to the list "Things I never thought I'd see but 2020 happened"
  - SilasX 6y ago
    Not briefly, it’s still negative and hit -$40.
    - yxhuvud 6y ago
      I think one of you are talking futures and the other physical oil. The prices are very disconnected at the moment.
- tempsy 6y ago
  It’s not that there’s no storage capacity left, it’s that if you have May contracts you are going to pay a big premium to store oil in Cushing as capacity decreases in future months. The discount reflects the storage cost premium.
  - option_greek 6y ago
    Any idea how much it takes to store oil in Cushing during normal times ?
    - donarb 6y ago
      This article from March 25 states that rates at Cushing more than doubled from 20 cents per barrel per month to 50 cents since February. https://www.reuters.com/article/global-oil-storage/global-oil-storage-fills-to-the-brim-despite-leap-in-costs-idUSL8N2BH3AM https://www.reuters.com/article/global-oil-storage/global-oi...
tempsy 6y ago
It’s not full, it’s just getting closer to being full if demand remains low. The discount reflects a premium on storing unused oil at Cushing
deleted 6y ago
[deleted]
cwhiz 6y ago
The May contract was still selling at $22 as of last Tuesday. I don't know much about oil markets but my base assumption would be that we would do this whole thing over again in 30 days unless something significant happens in consumption or production? When do the output cuts begin?
- alkonaut 6y ago
  And can I somehow short these contracts a week before the next deadline?
  - kccqzy 6y ago
    If the same thing did happen again a month from now, you'd surely make a lot of profit. But it might not, and that's the risk.
  - cwhiz 6y ago
    I wouldn't touch this market with a 10 foot pole. It is absolutely ripe for government intervention and abuse. And if the fed does get involved they aren't going to be in there to bail out the short sellers.
Natsu 6y ago
I heard it wasn't funded, but can't the US strategic reserve take these contracts at a negative price and fill up on cheap oil? It would seem like a prudent thing to do because it can then be used to restart the economy later and make a decent profit to pay off things like all these Covid checks.
- stevenwoo 6y ago
  They had plans to make a purchase to fill the reserve last month before the price went negative today, and they only had about 10 percent of the reserve free at that time: https://www.fool.com/investing/2020/03/13/trump-announces-massive-oil-purchase-for-strategic.aspx https://www.fool.com/investing/2020/03/13/trump-announces-ma...
  - Natsu 6y ago
    I heard that was announced, but funding for that never materialized, so I'm not sure they got a chance to actually do that.
omgJustTest 6y ago
This is a case of understand your contracts.
hnick 6y ago
Is delivery included in the price or is there an extra fee on top? How far can it be diverted?

lonelappde 6y ago

Would they take delivery or would they pay the producers to dump it in the dirt or ocean? Oops into the ocean is cheap storage of useless oil.

dsfyu404ed 6y ago
The producers aren't gonna dump it (at least not in the US) because that is a surefire way to not only have the EPA bend them over but to have the EPA bend them over with the blessing of public opinion. Nobody wants to have their company be associated with pictures of oil soaked wildlife.
- dd36 6y ago
  EPA isn’t enforcing right now.
  - kcolford 6y ago
    Doesn't matter when they enforce, no one's taking the risk of a change in administration.
  - koheripbal 6y ago
    This is obviously wrong. You cannot dump oil, and anyone found to be dumping will be prosecuted. READ THE EPA STATEMENT.. https://www.epa.gov/sites/production/files/2020-03/documents/oecamemooncovid19implications.pdf https://www.epa.gov/sites/production/files/2020-03/documents... > The enforcement discretion described in this temporary policy do not apply to any criminal violations or conditions of probation in criminal sentences. ... > This policy does not apply to imports. They are relaxing REPORTING requirements - not giving a free pass to anyone dumping whatever they want. Obviously.
    - xnyan 6y ago
      This is obviously wrong. The EPA has explicitly stated they will not be enforcing regulation. Source: https://thehill.com/policy/energy-environment/489753-epa-suspends-enforcement-of-environmental-laws-amid-coronavirus https://thehill.com/policy/energy-environment/489753-epa-sus...
      - koheripbal 6y ago
        READ THE EPA STATEMENT.. https://www.epa.gov/sites/production/files/2020-03/documents/oecamemooncovid19implications.pdf https://www.epa.gov/sites/production/files/2020-03/documents... > The enforcement discretion described in this temporary policy do not apply to any criminal violations or conditions of probation in criminal sentences. ... > This policy does not apply to imports. They are relaxing REPORTING requirements - not giving a free pass to anyone dumping whatever they want. Obviously.
      - singlow 6y ago
        From the memo that generated the news story you linked: > IV. Accidental Releases Nothing in this temporary policy relieves any entity from the responsibility to prevent, respond to, or report accidental releases of oil, hazardous substances, hazardous chemicals, hazardous waste, and other pollutants, as required by federal law, or should be read as a willingness to exercise enforcement discretion in the wake of such a release.
        tzs 6y ago
        If one wished to be nit-picky, one might note that the part you quote is explicitly about "accidental" releases, so arguably does not apply to the deliberate release that the originator of this thread branch was talking about. :-)
        dragonwriter 6y ago
        There is a separate note about criminal violations not facing “enforcement discretion”, which unless I'm mistaken covers pretty much any intentional release.
  - btian 6y ago
    What if Trump loses?
- zozbot234 6y ago
  If you're an oil producer, you don't need to "dump" oil in the surrounding environment. You can just pump it back into the oilfield you've been extracting it from.
  - JamesBarney 6y ago
    This isn't really possible in the near term. You can't just hook up oil into your water injection system.
deleted 6y ago
[deleted]
bluGill 6y ago
It is hard to take delivery if you don't want to. These contracts have lots of safeguards to separate delivery from ownership. There are lots of ways to have a contract, but one example of why this is done is if you have oil and on a slow boat. When the oil is loaded onto the boat the well owner wants to be paid, while the ship owner doesn't want to buy it, and the destination does not doesn't want to pay for it. This the ship will pay for the oil by selling a contract, the ship already knows where it is going, but they don't want to have ownership of the oil. By selling the contract on the same day they get their money back and don't lose money if oil goes down. Then they sell the oil on the other end and pay off the contract. Of course in the real world it is more complex but in general the destination is already known what isn't known is how much the oil will be worth when it gets there. Note that I said hard to take delivery when you don't want it. Such things do happen despite safeguards. They are expensive mistakes for everyone (the ship delivering oil can't unload and so will miss the next dock while running for someplace that can take it), so there is a lot of checks in place but they can fail.

missedthecue 6y ago

>Note that this is for the May contract, which closes tomorrow, and anyone left with a contract then will have to actually take delivery of the physical product. Not really. Almost all contracts are cash settled.

cletus 6y ago
> Not really. Almost all contracts are cash settled. The parent comment is 100% correct. You're missing the nuance of how commodity futures trading works. Yes most are cash-settled but there is a date after which if you hold the contract you're promising to make or accept physical delivery. The commenter is saying we reach that point for the May oil contract tomorrow so anyone who wants to settle in cash has to do so by tomorrow.
- bluGill 6y ago
  True, but there will be checking to ensure that you want oil if you are not normally a destination for oil. Trying to deliver oil to someone without a loading dock will be a problem that hurts many people trying to correct.
  - thoraway1010 6y ago
    100% false. Where are these facts coming from? The specs for delivery are always very clear because price depends on where it needs to be delivered! "Delivery shall be made free-on-board ("F.O.B.") at any pipeline or storage facility in Cushing, Oklahoma with pipeline access to Enterprise, Cushing storage or Enbridge, Cushing storage." What does it mean to be "normally not a destination for oil" and who is doing this checking (do you realize the volume of oil that is traded monthly? The futures market being discussed here uses standardized contracts.
    - bluGill 6y ago
      Not everyone is allowed to trade, there are rules if you don't have ability to accept oil they make it hard to get a contract that doesn't sell automatically. (not impossible, but a mistake guns up their processes so they have procedures to avoid it)

jjallen 6y ago

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.

tempsy 6y ago
It’s called super contango. And storage has not run out yet. Cushing is not full. The problem is traders are anticipating storage will become very expensive as remaining capacity decreases, so if you’re holding on to May contracts and you’re not using the oil because there’s a glut right now then you’re going to be paying a lot more to keep storing the oil for future months as storage costs go up. The huge discount reflects that cost.
- jjallen 6y ago
  Sorry to miss it, but how does this answer my question? I asked why they weren't prepared on Friday. Storage has been expensive and getting more expensive for weeks. We've been in a massive contango for weeks. Why weren't they prepared on Friday for physical delivery?
  - tempsy 6y ago
    Most oil traders don’t actually want physical delivery. They are just trying to profit off price movements. Traders have moved on to June contracts already. There’s no volume on May contracts at this point. No one wants to actually pay for physical delivery so the price is tanking since there are no bids as we get closer to expiration tomorrow.
    - kietdlam 6y ago
      You still haven't answered the question...
      - 6y ago

SilasX 6y ago

>I am guessing that traders who are still holding on to contracts and don’t have available storage have to unload contracts pretty quickly. Good call! Now it’s about $5.30, and has dipped as low as $4.04. (Insert joke about “energy market not found”.) Edit: wow. Just wow. Below $1 a barrel and kissed $0.01 at one point! That’s gotta be a record.

puranjay 6y ago
I think it briefly went negative! Let's add that to the list "Things I never thought I'd see but 2020 happened"
- SilasX 6y ago
  Not briefly, it’s still negative and hit -$40.
  - yxhuvud 6y ago
    I think one of you are talking futures and the other physical oil. The prices are very disconnected at the moment.
tempsy 6y ago
It’s not that there’s no storage capacity left, it’s that if you have May contracts you are going to pay a big premium to store oil in Cushing as capacity decreases in future months. The discount reflects the storage cost premium.
- option_greek 6y ago
  Any idea how much it takes to store oil in Cushing during normal times ?
  - donarb 6y ago
    This article from March 25 states that rates at Cushing more than doubled from 20 cents per barrel per month to 50 cents since February. https://www.reuters.com/article/global-oil-storage/global-oil-storage-fills-to-the-brim-despite-leap-in-costs-idUSL8N2BH3AM https://www.reuters.com/article/global-oil-storage/global-oi...

tempsy 6y ago

It’s not full, it’s just getting closer to being full if demand remains low. The discount reflects a premium on storing unused oil at Cushing

deleted 6y ago

[deleted]

cwhiz 6y ago

The May contract was still selling at $22 as of last Tuesday. I don't know much about oil markets but my base assumption would be that we would do this whole thing over again in 30 days unless something significant happens in consumption or production? When do the output cuts begin?

alkonaut 6y ago
And can I somehow short these contracts a week before the next deadline?
- kccqzy 6y ago
  If the same thing did happen again a month from now, you'd surely make a lot of profit. But it might not, and that's the risk.
- cwhiz 6y ago
  I wouldn't touch this market with a 10 foot pole. It is absolutely ripe for government intervention and abuse. And if the fed does get involved they aren't going to be in there to bail out the short sellers.

Natsu 6y ago

I heard it wasn't funded, but can't the US strategic reserve take these contracts at a negative price and fill up on cheap oil? It would seem like a prudent thing to do because it can then be used to restart the economy later and make a decent profit to pay off things like all these Covid checks.

stevenwoo 6y ago
They had plans to make a purchase to fill the reserve last month before the price went negative today, and they only had about 10 percent of the reserve free at that time: https://www.fool.com/investing/2020/03/13/trump-announces-massive-oil-purchase-for-strategic.aspx https://www.fool.com/investing/2020/03/13/trump-announces-ma...
- Natsu 6y ago
  I heard that was announced, but funding for that never materialized, so I'm not sure they got a chance to actually do that.

omgJustTest 6y ago

This is a case of understand your contracts.

hnick 6y ago

Is delivery included in the price or is there an extra fee on top? How far can it be diverted?