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The negative price has to do with the short delivery date, and the lack of storage at the (landlocked) delivery point. June 2020 WTI is still over $20/barrel.

by Digory 6y ago

The negative price has to do with the short delivery date, and the lack of storage at the (landlocked) delivery point. June 2020 WTI is still over $20/barrel. If anyone had storage to bring online in the next few weeks, in Cushing, Oklahoma, they'd make a killing. At this point, they're going to need to ship it to a port, to get on a tanker.

foota 6y ago
Anyone got a spare oil tanker? :-) I only slightly kid, makes me wonder how quickly I could acquire a number of oil storage units. edit: this tanker is off the gulf coast right now... https://horizonship.com/ship/274m-suezmax-crude-oil-carrier-2002-dwt-159453/ https://horizonship.com/ship/274m-suezmax-crude-oil-carrier-...
- rhizome 6y ago
  Just with a cursory "oil tanker for sale" search, they appear to be for sale in the $10-20MM range.
  - ldoughty 6y ago
    If the oil tanker can hold 2,000,000 barrels at -$35/ barrel you are being paid $70 million to store the oil for a few months... Of course, the next question is who pays for transport to/from the tanker, labor, dock fees, employees in ship (unless you can simply "park" it for a fee)
    - foota 6y ago
      Yeah, I was wondering. I think if someone had the experience needed to put this together quickly it would likely be profitable. It looks like most tankers are ~200,000 metric tons which at ~8 barrels per metric ton is roughly 1.6 million barrels. You also really only need to store it for a month, I think June futures are around $20 still, and so it's a diff of ~$60/barrel.
      - BloominOnion 6y ago
        Ran some basic figures for 6 months: Barrels 2000000 lease cost / day $350,000.00 Barrel cost -$37 Take delivery profit $74,000,000.00 After 180 days storage $63,000,000.00 Sell/barrel $20 Net $51,000,000.00
      - bluGill 6y ago
        Better yet you can play hedging games with your oil. Sell a june delivery contract to lock in your profit now. If June prices collapse buy a contract to take delivery in June and sell one to deliver in July. You never have to get to Port until prices are high enough to be worth actually making a delivery, and you make money every month. Details of the above are important to get just right. It works out if you get all the details right.
  - entangledqubit 6y ago
    Just make sure they don't sell it to you already filled with "thank you" oil...
    - foota 6y ago
      I mean... Free oil is still free oil, and worth something in the future. Just not as much as being paid to take oil :)
- jcranmer 6y ago
  That's one of the reasons why spot prices are crashing: we've used up the supply of spare oil tankers to store the oil we're not using.
- downerending 6y ago
  Actually, I think the real players have already been doing this for a few weeks. If there's a buck to be made, you can bet someone is on it. I was wondering whether they couldn't rapidly build some new storage (cost-effectively), but probably the answer is no.
  - selectodude 6y ago
    I'm not sure there's much of anything that will get the NIMBYs riled up more than a million barrels of crude.
    - perl4ever 6y ago
      Who does want a million barrels of crude in their back yard? As a very rough estimate, you'd have to stack them the better part of a mile high in mine.
      - hedora 6y ago
        I don’t think space is the issue. Shipping and safety (dealing with the one barrel that leaks) could easily eat $40/barrel if you’re not already set up for it.
    - dsfyu404ed 6y ago
      Add blue collar people to the mix and it acts like a NIMBY rage multiplier. I'm picturing the movie plot now: A bunch of gulf coast fisherman, effectively unemployed by Corona hatch a plan to make a buck by taking advantage of the negative price of oil futures. They pool their resources and somehow get their hands on a derelict Venezuelan tanker, cheap because of favorable exchange rates, in order to take delivery of some obscene amount of crude as part of a scheme to make money on futures. Being on a budget of course they crew the thing themselves, it's a ship after all, just a little bigger than the ones they usually handle. Things don't exactly go as planned when they travel to Venezuela to take possession of the ship. Their journey from there to the Port of Houston to pick up their cargo is mired by an incompetent coast guard, environmental activists and a vengeful ex-wife turned local politician.
scurvy 6y ago
Did you read the part where I wrote, "there's no place to put the stuff?" I also specifically said "front month contract". June oil is barely over $20 today and will probably drop under that mark by week's end.
- hectormalot 6y ago
  The point of futures is that I could sell my oil _today_ to be delivered in June for $20. Any change in June oil prices from that point onwards doesn’t matter once I’ve sold the contract.
  - bluGill 6y ago
    If the price collapses for June you buy a june pick up contract, trade it for your June delivery contract, and sell a July delivery contract. So long as you have the oil and can deliver you can make money on it until prices return to where it doesn't work out at which time you deliver your oil.

by Digory 6y ago

foota 6y ago

Anyone got a spare oil tanker? :-) I only slightly kid, makes me wonder how quickly I could acquire a number of oil storage units. edit: this tanker is off the gulf coast right now... https://horizonship.com/ship/274m-suezmax-crude-oil-carrier-2002-dwt-159453/ https://horizonship.com/ship/274m-suezmax-crude-oil-carrier-...

rhizome 6y ago
Just with a cursory "oil tanker for sale" search, they appear to be for sale in the $10-20MM range.
- ldoughty 6y ago
  If the oil tanker can hold 2,000,000 barrels at -$35/ barrel you are being paid $70 million to store the oil for a few months... Of course, the next question is who pays for transport to/from the tanker, labor, dock fees, employees in ship (unless you can simply "park" it for a fee)
  - foota 6y ago
    Yeah, I was wondering. I think if someone had the experience needed to put this together quickly it would likely be profitable. It looks like most tankers are ~200,000 metric tons which at ~8 barrels per metric ton is roughly 1.6 million barrels. You also really only need to store it for a month, I think June futures are around $20 still, and so it's a diff of ~$60/barrel.
    - BloominOnion 6y ago
      Ran some basic figures for 6 months: Barrels 2000000 lease cost / day $350,000.00 Barrel cost -$37 Take delivery profit $74,000,000.00 After 180 days storage $63,000,000.00 Sell/barrel $20 Net $51,000,000.00
    - bluGill 6y ago
      Better yet you can play hedging games with your oil. Sell a june delivery contract to lock in your profit now. If June prices collapse buy a contract to take delivery in June and sell one to deliver in July. You never have to get to Port until prices are high enough to be worth actually making a delivery, and you make money every month. Details of the above are important to get just right. It works out if you get all the details right.
- entangledqubit 6y ago
  Just make sure they don't sell it to you already filled with "thank you" oil...
  - foota 6y ago
    I mean... Free oil is still free oil, and worth something in the future. Just not as much as being paid to take oil :)
jcranmer 6y ago
That's one of the reasons why spot prices are crashing: we've used up the supply of spare oil tankers to store the oil we're not using.
downerending 6y ago
Actually, I think the real players have already been doing this for a few weeks. If there's a buck to be made, you can bet someone is on it. I was wondering whether they couldn't rapidly build some new storage (cost-effectively), but probably the answer is no.
- selectodude 6y ago
  I'm not sure there's much of anything that will get the NIMBYs riled up more than a million barrels of crude.
  - perl4ever 6y ago
    Who does want a million barrels of crude in their back yard? As a very rough estimate, you'd have to stack them the better part of a mile high in mine.
    - hedora 6y ago
      I don’t think space is the issue. Shipping and safety (dealing with the one barrel that leaks) could easily eat $40/barrel if you’re not already set up for it.
  - dsfyu404ed 6y ago
    Add blue collar people to the mix and it acts like a NIMBY rage multiplier. I'm picturing the movie plot now: A bunch of gulf coast fisherman, effectively unemployed by Corona hatch a plan to make a buck by taking advantage of the negative price of oil futures. They pool their resources and somehow get their hands on a derelict Venezuelan tanker, cheap because of favorable exchange rates, in order to take delivery of some obscene amount of crude as part of a scheme to make money on futures. Being on a budget of course they crew the thing themselves, it's a ship after all, just a little bigger than the ones they usually handle. Things don't exactly go as planned when they travel to Venezuela to take possession of the ship. Their journey from there to the Port of Houston to pick up their cargo is mired by an incompetent coast guard, environmental activists and a vengeful ex-wife turned local politician.

scurvy 6y ago

Did you read the part where I wrote, "there's no place to put the stuff?" I also specifically said "front month contract". June oil is barely over $20 today and will probably drop under that mark by week's end.

hectormalot 6y ago
The point of futures is that I could sell my oil _today_ to be delivered in June for $20. Any change in June oil prices from that point onwards doesn’t matter once I’ve sold the contract.
- bluGill 6y ago
  If the price collapses for June you buy a june pick up contract, trade it for your June delivery contract, and sell a July delivery contract. So long as you have the oil and can deliver you can make money on it until prices return to where it doesn't work out at which time you deliver your oil.