8 ms·

You still haven't answered the question...

bluGill 6y 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 6y ago
things happen when you get closer to contract expiration. Today is closer than Friday.
OJFord 6y 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 6y 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 6y 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 6y 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 6y 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 6y 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 6y ago
        > assumed perfect liquidity too bad the oil market is ... viscous.
      - Izkata 6y ago
        Based on a vague memory from years ago - so I could be totally wrong here - you're assuming knowledge he doesn't have. Correct me if I'm wrong, but: The people doing the trading are middlemen, and have no capacity period. They expected to be able to sell it all off to the energy companies, even at a loss, so they normally don't accept any physical product. But the energy companies ran out of capacity - something the middlemen (traders) don't have direct knowledge of - so got caught unexpected with contracts they can't sell, and now have to accept the physical product.
- thedudeabides5 6y ago
  Because trading is hard and sometimes humans are dumb. -Former dumb oil trader
  - hermitdev 6y ago
    > -Former dumb oil trader +1 just for admitting it. :)
Digory 6y 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.

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 6y ago

things happen when you get closer to contract expiration. Today is closer than Friday.

OJFord 6y 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 6y 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 6y 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 6y 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 6y 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 6y 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 6y ago
        > assumed perfect liquidity too bad the oil market is ... viscous.
    - Izkata 6y ago
      Based on a vague memory from years ago - so I could be totally wrong here - you're assuming knowledge he doesn't have. Correct me if I'm wrong, but: The people doing the trading are middlemen, and have no capacity period. They expected to be able to sell it all off to the energy companies, even at a loss, so they normally don't accept any physical product. But the energy companies ran out of capacity - something the middlemen (traders) don't have direct knowledge of - so got caught unexpected with contracts they can't sell, and now have to accept the physical product.
thedudeabides5 6y ago
Because trading is hard and sometimes humans are dumb. -Former dumb oil trader
- hermitdev 6y ago
  > -Former dumb oil trader +1 just for admitting it. :)

Digory 6y 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.