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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. The

by tempsy 7y 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 7y ago
You still haven't answered the question...
- bluGill 7y ago
  Most traders don't have any oil to sell. What is left are those who have storage space making a deal on the traders too stupid to get out already. This isn't many, but since there is no demand those with storage space can offer very low prices and get the rest of them.
- tempsy 7y ago
  things happen when you get closer to contract expiration. Today is closer than Friday.
- OJFord 7y ago
  It might go negative - no, just has, as I write - if you were bag holding on Friday you might carry on in the hope of some recovery, but you don't want physical delivery so you were always going to sell today no matter what; closer it gets to expiry, or to $0, the more push has come to shove and you're finally closing your position.
- ToFundorNot 7y ago
  I'm going to try and translate the simplest concept that tempsy is saying. The sellers were looking to sell for most of last week, however there fewer buyers as the contract approached its end, and those who were willing to buy wanted a lower price: Volume of transactions on Friday was 344k, Thursday was 111m, Wednesday was 147m. In the past 30 days, the low was 686k (ex Friday), and the high was 459m. Traders slowed their buying so the market became one sided.
  - cma 7y ago
    That still doesn't answer: why wasn't it anticipated and reflected in earlier pricing (even if volume-weighted it would be a much smaller drop, it still seems to have been missed even from futures options)?
    - andrewstuart2 7y ago
      If you have the answer to the question you are asking, you should change careers into oil contract trading; you'll probably make a bundle. In short, the reason nobody anticipated it is because the future is unknown. The reason any market is unpredictable is because there are too many variables to account for.
      - cma 7y ago
        I think he's asking why the market didn't have a better estimate of storage capacity and utilization and what changed in the estimate from yesterday to today.
        andrewstuart2 7y ago
        I think that has to do with how people sometimes do analysis for trading. There's fundamental analysis, which looks at exactly that when attempting to determine the price to bid for a security, but then there's the bubblier "technical analysis" which really just looks at historical and current trends and attempts to divine whether buying now means you might be able to sell in the future. I'd imagine people just assumed perfect liquidity here, and that they'd be able to sell even "at a small loss which is better than nothing," not realizing that nothing or negative (i.e. you're gonna pay somebody to take this oil off your hands or build your own tanks) is a valid outcome.
        gowld 7y ago
        > assumed perfect liquidity too bad the oil market is ... viscous.
        7y ago
- Digory 7y ago
  -$37.00 is a distress price, just for the unwitting investors who agreed to play “Hot Potato: Bloodsport.” By definition, you’re looking at the price for people who wouldn’t want to play, if they could avoid playing. They are literally over a barrel. If they don’t get out, the broker gets to screw them even worse at the deadline. Volume was up, because some people were going through heroics to close their position at all costs. But the end of day price is for those who got screwed: the truly unaware who didn’t realize they were out of time, or didn’t think about it going past $0. It’s probably relatively few people, despite today’s volume. When you lose control, someone agrees for you that you’ll pay $37/bb to get out.
CountSessine 7y ago
So does this mean that without bids there are potentially many traders, not refiners or tank farms, holding those contracts still? That those traders will get stuck with taking delivery because they couldn't unload their contracts?
- tempsy 7y ago
  Yes
  - mcv 7y ago
    People with just a paper office, used to deal in numbers rather than anything physical, and with no place to store physical goods, will now have to figure out where and how to store lots of oil?
    - simonh 7y ago
      They would if they didn’t offload the contracts somehow, hence the negative prices. They are paying to get rid of that obligation.
    - dmurray 7y ago
      No. Their prime brokers will force them to sell it at the low (negative) price.
    - riskneutral 7y ago
      They already know how to store lots of oil. They can and do rent supertankers for example.
    - hermitdev 7y ago
      Having worked in the finance industry my entire career, most (responsible) firms have means for dealing with taking physical delivery. Less responsible firms, not so much and may be royally screwed if they have to take delivery. I've heard anecdotally of a firm that had to take physical delivery of a shipment of coal. They didn't have plans in place, but because they had an address on a river, the coal arrived via barge. No, I don't recall the name of the firm, and yes, it's just an anecdote/hearsay.

by tempsy 7y ago

kietdlam 7y ago

You still haven't answered the question...

bluGill 7y ago
Most traders don't have any oil to sell. What is left are those who have storage space making a deal on the traders too stupid to get out already. This isn't many, but since there is no demand those with storage space can offer very low prices and get the rest of them.
tempsy 7y ago
things happen when you get closer to contract expiration. Today is closer than Friday.
OJFord 7y ago
It might go negative - no, just has, as I write - if you were bag holding on Friday you might carry on in the hope of some recovery, but you don't want physical delivery so you were always going to sell today no matter what; closer it gets to expiry, or to $0, the more push has come to shove and you're finally closing your position.
ToFundorNot 7y ago
I'm going to try and translate the simplest concept that tempsy is saying. The sellers were looking to sell for most of last week, however there fewer buyers as the contract approached its end, and those who were willing to buy wanted a lower price: Volume of transactions on Friday was 344k, Thursday was 111m, Wednesday was 147m. In the past 30 days, the low was 686k (ex Friday), and the high was 459m. Traders slowed their buying so the market became one sided.
- cma 7y ago
  That still doesn't answer: why wasn't it anticipated and reflected in earlier pricing (even if volume-weighted it would be a much smaller drop, it still seems to have been missed even from futures options)?
  - andrewstuart2 7y ago
    If you have the answer to the question you are asking, you should change careers into oil contract trading; you'll probably make a bundle. In short, the reason nobody anticipated it is because the future is unknown. The reason any market is unpredictable is because there are too many variables to account for.
    - cma 7y ago
      I think he's asking why the market didn't have a better estimate of storage capacity and utilization and what changed in the estimate from yesterday to today.
      - andrewstuart2 7y ago
        I think that has to do with how people sometimes do analysis for trading. There's fundamental analysis, which looks at exactly that when attempting to determine the price to bid for a security, but then there's the bubblier "technical analysis" which really just looks at historical and current trends and attempts to divine whether buying now means you might be able to sell in the future. I'd imagine people just assumed perfect liquidity here, and that they'd be able to sell even "at a small loss which is better than nothing," not realizing that nothing or negative (i.e. you're gonna pay somebody to take this oil off your hands or build your own tanks) is a valid outcome.
        gowld 7y ago
        > assumed perfect liquidity too bad the oil market is ... viscous.
      - 7y ago
Digory 7y ago
-$37.00 is a distress price, just for the unwitting investors who agreed to play “Hot Potato: Bloodsport.” By definition, you’re looking at the price for people who wouldn’t want to play, if they could avoid playing. They are literally over a barrel. If they don’t get out, the broker gets to screw them even worse at the deadline. Volume was up, because some people were going through heroics to close their position at all costs. But the end of day price is for those who got screwed: the truly unaware who didn’t realize they were out of time, or didn’t think about it going past $0. It’s probably relatively few people, despite today’s volume. When you lose control, someone agrees for you that you’ll pay $37/bb to get out.

CountSessine 7y ago

So does this mean that without bids there are potentially many traders, not refiners or tank farms, holding those contracts still? That those traders will get stuck with taking delivery because they couldn't unload their contracts?

tempsy 7y ago
Yes
- mcv 7y ago
  People with just a paper office, used to deal in numbers rather than anything physical, and with no place to store physical goods, will now have to figure out where and how to store lots of oil?
  - simonh 7y ago
    They would if they didn’t offload the contracts somehow, hence the negative prices. They are paying to get rid of that obligation.
  - dmurray 7y ago
    No. Their prime brokers will force them to sell it at the low (negative) price.
  - riskneutral 7y ago
    They already know how to store lots of oil. They can and do rent supertankers for example.
  - hermitdev 7y ago
    Having worked in the finance industry my entire career, most (responsible) firms have means for dealing with taking physical delivery. Less responsible firms, not so much and may be royally screwed if they have to take delivery. I've heard anecdotally of a firm that had to take physical delivery of a shipment of coal. They didn't have plans in place, but because they had an address on a river, the coal arrived via barge. No, I don't recall the name of the firm, and yes, it's just an anecdote/hearsay.