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US oil prices turn negative as demand dries up
- bevshel 6y agothis is insane
- pcurve 6y agoanybody know how many barrels were actually sold at that price? $0 is one thing, but I'm shocked at the minus $38. It could not have been large.
- ochoseis 6y ago“oil firms have resorted to renting tankers to store the surplus supply and that has forced the price of US oil into negative territory”
- irrational 6y agoHow long until we run out of tankers?
- blhack 6y agoHow out of date do you think this list is? https://horizonship.com/ship-category/tankers-for-sale/crude-oil-tankers-for-sale/ https://horizonship.com/ship-category/tankers-for-sale/crude...
- huac 6y agoI like this entry (https://horizonship.com/ship/250m-aframax-tanker-2004-124258-cbm-dwt-115635/ https://horizonship.com/ship/250m-aframax-tanker-2004-124258...), listed at $11.9 million and includes the following line: "As brokers try mid/high US$ 11 Mio's."
- irrational 6y agoSo, almost 200 for sale. That is interesting.
- godzillabrennus 6y agoNo demand, surplus inventory already out there, so taking possession in May requires storing them indefinitely. Investors decided to factor that cost in when buying these.
- lubos 6y agoYou can close your position by buying the month after futures. This will require you to store crude oil for just one month. I think the issue is that storage facilities are almost booked out and the remaining capacity is just so expensive.
- cheald 6y agoYou can look up the volume: https://www.marketwatch.com/investing/future/cl.1/charts https://www.marketwatch.com/investing/future/cl.1/charts -- between 2:20-2:25, EST, for example, volume was 748 contracts (748,000 barrels) at -$37.11.
- partiallypro 6y agoIt's entirely possible that no barrels will be effectively sold at a negative number. Because even after expiration you can negotiate OTC, it depends. At the very least, the final print likely will be renegotiated.
- fennecfoxen 6y agoMore specifically, West Texas Intermediate Crude futures for early May delivery are sub-zero. Late-May delivery is more expensive. This is in part a reflection of the fact that the oil producers have already been paid for the output and are contractually obligated to deliver it, but no one actually really has a use for it once it is there, and it will cost money to transport or store it.
- nshepperd 6y agoIt can't just be producers being contractually obligated to deliver it, can it? If that was the case, couldn't they close out their obligation by buying back some of these futures (at a profit), and "delivering" it to themselves by reducing production? So it must be that reducing production itself is not possible or too expensive for this to make sense.
- new_time 6y agoFutures prices are significantly higher than $0. This is less noteworthy than it seems. https://www.marketwatch.com/investing/future/crude%20oil%20-%20electronic https://www.marketwatch.com/investing/future/crude%20oil%20-...
- JshWright 6y agoJust because the situation is complex doesn't mean it isn't newsworthy. This is certainly an unprecedented and significant event.
- dmix 6y agoIt still appears more significant by the way futures trading works and the way it all bulked up to the last trading day, since there was no buyers after a certain point - because (certain) buyers were incentivized to wait until the last minute to submit orders, to get the cheapest price. In a "real" market with physical oil wells + storage, wouldn't that decline in consumption -> storage normally happen far more gradually over time? (A drop over a week is less exciting than a down spike within 24hrs) I know it's less efficient that way and all of that, but this seems to make it appear like this drop in the market happened all at once. A lot of non-experts will see the news this way regardless - it's slightly less exciting in context but still historic.
- ycombobreaker 6y agoFutures prices were indeed negative, specifically the soon-to-expire May contract. June and beyond stayed positive, but this is the first time in history that the contract (any expiry) has traded at negative prices. This is a noteworthy event.
- dchest 6y agoMatt Levine's explainer https://www.bloomberg.com/opinion/articles/2020-04-20/there-s-nowhere-to-put-the-oil https://www.bloomberg.com/opinion/articles/2020-04-20/there-...
- propter_hoc 6y agoSo they start off the article with this statement: "That means oil producers are paying buyers to take the commodity off their hands over fears that storage capacity could run out in May." This statement is actually totally false. Producers already got paid for this production a long time ago when they initially sold the futures contract. What has actually happened is that as the expiry of the May futures contracts arrives, the traders who bought those contracts are now trying to unload them at all costs. This is because if they're stuck holding the contract at expiry, they have to take physical delivery (each futures contract represents 1000 barrels of oil), and the cost of storing that oil is getting really high since the storage facilities are nearly full. Later they kind of explain this in the article: "The severe drop on Monday was driven in part by a technicality of the global oil market. Oil is traded on its future price and May futures contracts are due to expire on Tuesday. Traders were keen to offload those holdings to avoid having to take delivery of the oil and incur storage costs." But I think it's pretty irresponsible journalism to kick off the article the way they did, and imply that producers are paying you to take their oil today.
- User23 6y ago> cost of storing that oil is getting really high If anything, this is a wild understatement. Each contract represents 1000 barrels of toxic waste. You can't just have that stored in a shed or something. And all the commercial regulation compliant storage is gone. I'd be willing to bet you will have a hard time even finding a tanker truck to take it to a buyer, since the tanker owners themselves are going to be using those trailers as temporary storage facilities. Anyone stuck taking delivery of barrels right now is in for a world of hurt. The legal fees alone are going to be ruinous.
- RobLach 6y agoIn the USA at least, EPA enforcement has been drastically relaxed to allow a bit more freedom in regard to this issue in exchange of public safety and environmental stability. I wouldn't be surprised if someone doesn't see the opportunity to just dump oil from their tankers to take on an additional lucrative storage contract from a speculator caught off guard. ELPC just released this report for example claiming the number of facilities regulated by the EPA that are out of compliance have doubled in the last year. http://elpc.org/wp-content/uploads/2020/04/Region5Report_FINAL_April2020.pdf http://elpc.org/wp-content/uploads/2020/04/Region5Report_FIN...
- Vomzor 6y agoHow long would it take to build new storage tanks?
- fennecfoxen 6y agoWith regulatory approvals? Probably years. The smart equivalent is to get a tanker ship and just float it out at sea until someone wants the oil (usually just west of Africa, where you can easily dispatch it to whoever ends up needing it.) Not sure if it works quite as well with WTI instead of Brent crude, though.
- core-questions 6y agoIt is probably a fair and terrible assumption that others have thought of this already and that, in fact, tanker ships are filling up all over the place right now. Statistically, this means we're more likely for a spill, somewhere.
- fennecfoxen 6y agoThe Wall Street Journal writes today: "Lease rates have soared for very large crude carriers, the 2-million-barrel high-seas behemoths known as VLCCs. The average day rate for a VLCC on a six-month contract is about $100,000, up from $29,000 a year ago, according to Jefferies analyst Randy Giveans. Yearlong contracts are about $72,500 a day, compared with $30,500 a year ago. Spot charter rates have risen sixfold, to nearly $150,000 a day. Day rates rise as the spread between oil-futures contracts widens. The basic math is that every dollar in the six-month spread equates to an additional $10,000 a day that can be paid for a VLCC over that time without wiping out all the oil-price gains, Mr. Giveans said." But there's plenty of Saudi oil going in as well. I'm not sure that they're materially more at risk of a major spill than during normal operations.
- ycombobreaker 6y agoOn top of raw counts, we'll surely discover that somebody is using a tanker "unfit for purpose" because of the high demand for tankers.
- maxehnert 6y agoSince oil is making the front page here, if you're interested in the history of American oil industry, "The History of the Standard Oil Company" by Ida Tarbell is a fantastic read. It's also a great example of investigative journalism. In early chapters of the book she covers the initial rush to pump oil in the Oil Regions and the history of pipelines and storage facilities as it all ties into business practices of Rockefeller. Oil storage facilities were an interesting startup idea back then, in the beginning producers would pump the oil into open pits where it would seep back into the ground if it wasn't transferred fast enough, then of course new ways of storing and transporting the oil were experimented with. It also goes into how much supply/demand were at odds in the beginning leading to several collapses in the price of oil when there wasn't such a diverse market. Again some of the issues we still see where land locked areas of producers struggled to get their product out of the region and how local economies caused drastic prices differences that we're seeing right now. https://en.wikipedia.org/wiki/The_History_of_the_Standard_Oil_Company https://en.wikipedia.org/wiki/The_History_of_the_Standard_Oi...
- CPLX 6y agoAlso recommend "The Prize" which is incredible.
- mistrial9 6y agorecommend -- The Taking of Getty Oil by Steve Coll; written in a readable way, many situational details
- new_time 6y agoIda Tarbell's father was an oilman who was ruined by Rockefeller and Standard Oil while she was a girl, which is important to keep in mind when contextualizing her work. She lived her life in part as a crusade against Standard Oil and Rockefeller. Obviously she was heavily biased, this being instilled in her early on. For a less biased look at the history of the American oil industry by way of Rockefeller and Standard Oil, I strongly recommend Titan by Ron Chernow - author of Hamilton - which is an excellent account of Rockefeller and Standard Oil, both the good and the bad.
- dntbnmpls 6y agodupe. https://news.ycombinator.com/item?id=22923025 https://news.ycombinator.com/item?id=22923025
- saadalem 6y agoOil costs $ to store. Due to the economic collapse, oil isn't being used much. So all the storage facilities are filled up. So nobody who can store it will buy it from you. If you want to get rid of oil, you have to pay someone.
- csense 6y agoIf you owned an oil ship, what stops you from getting paid $25 a barrel to fill your ship up with oil, sailing to international waters, dumping it all in the sea, then go right back to port and do it again and again getting paid $25 a barrel each time?
- deleted 6y ago[deleted]
- bouncycastle 6y agoThese are only the prices of the "futures contracts". i.e. oil that hasn't been produced yet, as far as I understand. Actual physical oil still has a price > 0. (Spot price) Here is a page that includes some spot prices https://oilprice.com/oil-price-charts https://oilprice.com/oil-price-charts
- bradjohnson 6y agoWhat would stop you from doing that with any unwanted garbage?
- nimchimpsky 6y agoethics ?
- NamTaf 6y agoProbably various international treaties signed by the nation under which you're flagged.
- zw123456 6y agoCould you just take it and they pay you to take it and dump it into dry wells in Texas and Oklahoma, seems like a reasonable gamble ? Shrug....
- comicjk 6y agoOil deposits are permeable rock with a mix of oil and water in the pores. Pumping oil down into such a formation would be slow and expensive. It would also take different equipment from that which is there at the wellheads now, so you couldn't get started right away.
- perl4ever 6y agoIn one of the articles, it quoted someone from, I think, the CME, that said they were fully prepared in their trading systems to handle these negative prices with no hiccups. What I immediately thought, that I haven't seen anyone else mention yet, is that there are some admirable programmers!
- vkou 6y agoAs someone who worked on trading software, I'd reserve the praise for the PMs - who would explain to the programmers why all this stuff is important.
- jhwang5 6y agoEx-trader at GS/MS here. PMs in this case are traders, requirements about trading systems come from traders b/c they have to dog-food it. Usually there is no separate PM in the tech world sense at banks, though there are project managers.
- ycombobreaker 6y agoAny futures market provides calendar spreads as well, which represent a price differential between two dates (think: CLK0 is the May contract, CLMO is the June contract, and CLK0-CLM0 is the difference between the two). CME's systems should trivially handle negative prices because they already have spreads, which are frequently negative.
- talentedcoin 6y agoThere seems to be lots of confusion on how this could have happened. Long story short — it may be because of the USO ETF: https://www.forbes.com/sites/jimcollins/2020/04/20/the-us-oil-etf-uso-is-the-culprit-behind-oils-massive-plunge/ https://www.forbes.com/sites/jimcollins/2020/04/20/the-us-oi...
- mensetmanusman 6y agoIt’s getting more likely that the fallout from the response will be worse than the virus would have been. For perspective, 800 000 people die every year in the world from suicide alone. Depression/anxiety/hopelessness has real consequences.
- fiblye 6y agoOn the other hand, there’s some potential good that could come of it. Some people who’ve felt trapped in dead end jobs are getting new opportunities. Who knows if the good changes that result will outweigh the bad, though.
- mensetmanusman 6y agoTrue, it was cool to see how much solar production has spiked in Germany because of smog reduction.
- throw_m239339 6y agoYes it will, this thing is far from over. It will have huge consequences on civilization as we know it. It also demonstrated how weak all our economic systems are.
- stevespang 6y agoSame as saying: "You gotta pay us to store your oil"
- myth_buster 6y agoRelevant: That Time I Tried to Buy an Actual Barrel of Crude Oil https://www.bloomberg.com/news/articles/2015-11-03/that-time-i-tried-to-buy-some-crude-oil https://www.bloomberg.com/news/articles/2015-11-03/that-time...
- aazaa 6y agoAlthough this is largely a paper phenomenon, the thing to pay attention to now is ripple effects. A few weeks ago, Capital One was granted a regulatory waiver from the CFTC over its oil derivatives positions - a waiver it since declined to use: > The registration is related to Capital One’s commercial lending to the oil and gas industry, a relatively small part of its overall business. The bank enters into commodity swaps with energy clients to help them mitigate the risk of energy price swings and the related borrowing risks. https://www.reuters.com/article/us-health-coronavirus-capitalone-cftc/capital-one-says-it-wont-use-cftc-waiver-related-to-oil-lending-idUSKBN21M0TS https://www.reuters.com/article/us-health-coronavirus-capita... Most people don't immediately think of Cap One as an oil futures player. But its lending business caused it to enter the market to hedge some of its loan portfolio. Given the highly unusual nature of what happened today, it wouldn't be surprising to see future announcements of banks or other financial institutions getting into trouble over commodities derivatives bets going pear-shaped.
- S_A_P 6y agoThere should be a meme: 75 year old baby boomer: I remember when gas was less than a dollar a gallon 45 year old son: me too! 15 year old grandson: me three!!
- JetBen 6y agoWhen China launched their Coronavirus bioweapon against the world, it was with the intent to destabilize everyone so that China could grab more power. They are a murderous communist regime, so it probably seemed like a good idea at the time. We must punish them for their crime against humanity and make them pay for what they have taken from us!
- anonu 6y agoIt should really be "US WTI front month futures negative for the first time" There's a big distinction between that and "oil prices"
- xyst 6y agoI might be in minority, but I think this is great for the clean energy sector and environment. The oil is not being used and thus not being consumed and converted into toxic products (carbon dioxide, and various other vehicle emissions) which are leaked into the environment. I hope these oil companies dissolve over this unprecedented event.
- toomuchtodo 6y agoLots of silver linings from COVID (oil demand destruction, air pollution reduction, natural work from home experiment at scale).
- generalpass 6y agoSo, where are all the arguments now about why speculators should be required take delivery? I mean, really, the oil producers got paid and consumers shall have copious supplies of oil. Nobody out looking to find excuses to further regulate commodities markets when all the traders are losing their asses.