3 ms·

That's not a stupid question it's an excellent one. If you don't take delivery you're in breach of contract. The penalties for that are going to depend on how t

by User23 7y ago

That's not a stupid question it's an excellent one. If you don't take delivery you're in breach of contract. The penalties for that are going to depend on how the judicial process works out. This has never happened before, so I don't know how it will play out other than that it's going to be wildly messy. Probably far messier than anyone, myself included, is imagining.

SilasX 7y ago
>That's not a stupid question it's an excellent one. If you don't take delivery you're in breach of contract. The penalties for that are going to depend on how the judicial process works out. That sounds incorrect. The whole point of having standardized, commodified units trading on organized exchanges is that you don’t have to reinvent the dispute-resolution wheel — or turn it over to super slow courts — for every foreseeable thing that can go wrong. So there should be a specific procedure and penalty you can look up. I asked the same question and got this answer that seems more correct and along the lines of my intuition, that the exchange holds it (or rather, directs others to home it) and bills your account for the cost: https://news.ycombinator.com/item?id=22929334 https://news.ycombinator.com/item?id=22929334
- User23 7y ago
  The contract[1] assumes that Cushing has storage capacity. IANAL so I don't know how material that will be, but I continue to expect that lawyers will get involved and this will be a mess. [1] https://www.cmegroup.com/content/dam/cmegroup/rulebook/NYMEX/2/200.pdf https://www.cmegroup.com/content/dam/cmegroup/rulebook/NYMEX...
markdown 7y ago
At the risk of sounding stupid, I have to ask... Would it be possible to simply pump the oil back into the ground wherever the closest oil field is?
- saagarjha 7y ago
  That sounds like it'd get the EPA involved if you just dumped it, and I would expect that putting oil into an actual oil well is not easy.
- adventured 7y ago
  In an arrangement with the US Government it could be put into the ground, elsewhere. Doing it without state permission would be an entirely different matter however. I'm not aware of any very large, privately owned underground storage caverns (such that they could make a dent in absorbing the over-supply). This is being discussed: "The U.S. Energy Department is negotiating with nine companies to rent about 23 million barrels of oil storage capacity in its Strategic Petroleum Reserve as part of a Trump administration bid to help drain the country’s growing glut of crude." https://www.worldoil.com/news/2020/4/14/doe-working-to-lease-out-23-mmbbl-of-strategic-petroleum-reserve-capacity https://www.worldoil.com/news/2020/4/14/doe-working-to-lease... Here is what the US Strategic Petroleum Reserve looks like (it can absorb some of our over-supply briefly): > Four underground salt caverns on the coast of the Gulf of Mexico store the oil. That's a central location. The oil can be distributed to nearly half of the U.S. oil refineries either through interstate pipelines or via barges. It only takes 13 days for the oil to enter the U.S. market from the time the president first gives the order. > There are two cavern locations in Texas. As of September 30, 2018, Bryan Mound held 235.3 million barrels in 20 caverns. Big Hill held 153.4 million barrels in 14 caverns. The other two are in Louisiana. West Hackberry held 199.5 million barrels in 22 caverns. Bayou Choctaw held 71.88 million barrels in 6 caverns. > The maximum capacity of all four caverns is 727 million barrels. There is also a good FAQ on it: https://www.energy.gov/fe/services/petroleum-reserves/strategic-petroleum-reserve/spr-quick-facts-and-faqs https://www.energy.gov/fe/services/petroleum-reserves/strate...
  - firebird84 7y ago
    Why don't we just take delivery of futures contracts directly? Isn't this a great time to fill the reserve?
    - glofish 7y ago
alasdair_ 7y ago
I'm surprised that someone didn't just corral some bankruptcy-proof people together and offer them some cash each to be the holder of record.
- ThrustVectoring 7y ago
  The position is collateralized, all this does is lose you money.

by User23 7y ago

SilasX 7y ago

>That's not a stupid question it's an excellent one. If you don't take delivery you're in breach of contract. The penalties for that are going to depend on how the judicial process works out. That sounds incorrect. The whole point of having standardized, commodified units trading on organized exchanges is that you don’t have to reinvent the dispute-resolution wheel — or turn it over to super slow courts — for every foreseeable thing that can go wrong. So there should be a specific procedure and penalty you can look up. I asked the same question and got this answer that seems more correct and along the lines of my intuition, that the exchange holds it (or rather, directs others to home it) and bills your account for the cost: https://news.ycombinator.com/item?id=22929334 https://news.ycombinator.com/item?id=22929334

User23 7y ago
The contract[1] assumes that Cushing has storage capacity. IANAL so I don't know how material that will be, but I continue to expect that lawyers will get involved and this will be a mess. [1] https://www.cmegroup.com/content/dam/cmegroup/rulebook/NYMEX/2/200.pdf https://www.cmegroup.com/content/dam/cmegroup/rulebook/NYMEX...

markdown 7y ago

At the risk of sounding stupid, I have to ask... Would it be possible to simply pump the oil back into the ground wherever the closest oil field is?

saagarjha 7y ago
That sounds like it'd get the EPA involved if you just dumped it, and I would expect that putting oil into an actual oil well is not easy.
adventured 7y ago
In an arrangement with the US Government it could be put into the ground, elsewhere. Doing it without state permission would be an entirely different matter however. I'm not aware of any very large, privately owned underground storage caverns (such that they could make a dent in absorbing the over-supply). This is being discussed: "The U.S. Energy Department is negotiating with nine companies to rent about 23 million barrels of oil storage capacity in its Strategic Petroleum Reserve as part of a Trump administration bid to help drain the country’s growing glut of crude." https://www.worldoil.com/news/2020/4/14/doe-working-to-lease-out-23-mmbbl-of-strategic-petroleum-reserve-capacity https://www.worldoil.com/news/2020/4/14/doe-working-to-lease... Here is what the US Strategic Petroleum Reserve looks like (it can absorb some of our over-supply briefly): > Four underground salt caverns on the coast of the Gulf of Mexico store the oil. That's a central location. The oil can be distributed to nearly half of the U.S. oil refineries either through interstate pipelines or via barges. It only takes 13 days for the oil to enter the U.S. market from the time the president first gives the order. > There are two cavern locations in Texas. As of September 30, 2018, Bryan Mound held 235.3 million barrels in 20 caverns. Big Hill held 153.4 million barrels in 14 caverns. The other two are in Louisiana. West Hackberry held 199.5 million barrels in 22 caverns. Bayou Choctaw held 71.88 million barrels in 6 caverns. > The maximum capacity of all four caverns is 727 million barrels. There is also a good FAQ on it: https://www.energy.gov/fe/services/petroleum-reserves/strategic-petroleum-reserve/spr-quick-facts-and-faqs https://www.energy.gov/fe/services/petroleum-reserves/strate...
- firebird84 7y ago
  Why don't we just take delivery of futures contracts directly? Isn't this a great time to fill the reserve?
  - glofish 7y ago

alasdair_ 7y ago

I'm surprised that someone didn't just corral some bankruptcy-proof people together and offer them some cash each to be the holder of record.

ThrustVectoring 7y ago
The position is collateralized, all this does is lose you money.