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The other issue here is that there IS an economic justification: everybody bid up the price of storage. If it costs me $60 to store a barrel I can sell for $10

The other issue here is that there IS an economic justification: everybody bid up the price of storage. If it costs me $60 to store a barrel I can sell for $10 later, then I'll pay someone $40 to take it off my hands now. An asset became a liability, hardly a rare concept to anyone who has owned a car they had to pay someone to tow away... CEO is just passing blame.

elliekelly 6y ago
Interesting point. Have we commoditized and securitized the storage of commodities yet? Can someone purchase oil storage futures contracts to mitigate this risk?
- darkwizard42 6y ago
  I think there might be a market for that but probably not as formal as the trading of oil futures themselves. Basically a more private transaction on a marketplace that isn't as visible or as liquid as the futures.
  - hchz 6y ago
    OTC-traded contracts are just as formal. I’d say that these markets are generally more formal in practice due to the lack of retail actors who don’t understand the microstructure, sources of risk, or how to price their assets individually and across their book.
- bsdz 6y ago
  You can buy FFAs
- jldugger 6y ago
  Go betweens exist and on Planet Money one was interviewed: https://www.npr.org/2020/04/22/842095406/episode-993-negative-oil https://www.npr.org/2020/04/22/842095406/episode-993-negativ... Their website: https://www.thetanktiger.com https://www.thetanktiger.com > The objective of the Tank Tiger is to serve as a clearinghouse and a single point of contact for parties who desire terminal tank services or utilization of midstream assets and to bring them together with the companies who own these assets and seek further utilization. It also provides for tenants who are leasing storage to find subleasing opportunities, when it makes sense for them to do so. Our expertise in this field provides a fast and efficient connection so that the uncertainty of storage availability is eliminated from the supply and trading equation. The Tank Tiger can facilitate and reduce market inefficiencies and illiquidity by providing this service.
  - pathseeker 6y ago
    Yep, but it's worth pointing out that this firm just connects you up with people and you have to deal with individual storage owners to buy something. Very high friction to firing up your brokerage app and going long /CL.

elliekelly 6y ago

Interesting point. Have we commoditized and securitized the storage of commodities yet? Can someone purchase oil storage futures contracts to mitigate this risk?

darkwizard42 6y ago
I think there might be a market for that but probably not as formal as the trading of oil futures themselves. Basically a more private transaction on a marketplace that isn't as visible or as liquid as the futures.
- hchz 6y ago
  OTC-traded contracts are just as formal. I’d say that these markets are generally more formal in practice due to the lack of retail actors who don’t understand the microstructure, sources of risk, or how to price their assets individually and across their book.
bsdz 6y ago
You can buy FFAs
jldugger 6y ago
Go betweens exist and on Planet Money one was interviewed: https://www.npr.org/2020/04/22/842095406/episode-993-negative-oil https://www.npr.org/2020/04/22/842095406/episode-993-negativ... Their website: https://www.thetanktiger.com https://www.thetanktiger.com > The objective of the Tank Tiger is to serve as a clearinghouse and a single point of contact for parties who desire terminal tank services or utilization of midstream assets and to bring them together with the companies who own these assets and seek further utilization. It also provides for tenants who are leasing storage to find subleasing opportunities, when it makes sense for them to do so. Our expertise in this field provides a fast and efficient connection so that the uncertainty of storage availability is eliminated from the supply and trading equation. The Tank Tiger can facilitate and reduce market inefficiencies and illiquidity by providing this service.
- pathseeker 6y ago
  Yep, but it's worth pointing out that this firm just connects you up with people and you have to deal with individual storage owners to buy something. Very high friction to firing up your brokerage app and going long /CL.