Oil Plunges BELOW Zero for First Time With May Contract Ending

[DamianTV]

https://news.slashdot.org/story/20/...-zero-for-first-time-with-may-contract-ending

Oil futures collapsed to below zero for the first time ever as the deepening economic turmoil caused by the coronavirus crisis left traders desperate to avoid taking delivery of physical crude. From a report:

In an unprecedented day of trading, the price for the May contracts wiped out all value, breaking every low for oil prices since 1946. The exchange where WTI futures trade said the contract would be allowed to price below zero. The extreme move showed just how oversupplied the U.S. oil market has become with industrial and economic activity grinding to a halt as governments around the globe extend shutdowns due to the swift spread of the coronavirus. An unprecedented output deal by OPEC and allied members a week ago to curb supply is proving too little too late in the face a one-third collapse in global demand. On Monday, a technical oddity exacerbated the price plunge as traders fled the May futures contract ahead of its expiration tomorrow. The following month's contract fell 12% to $22.05 a barrel, making the spread between the two months blow out more than $20.​

Further reading: There's Nowhere to Put the Oil.

How does that even work? Where's Zippy? Is he still around?

 

[acptulsa]

Good. Let the oil companies get mad at Washington.

Yo. Oil cartel. We've got some candidates for you to throw money at! They may not send the armed forces to stand guard for you in Kuwait, but they won't slice your market out from under you!

 

[devil21]

https://news.slashdot.org/story/20/...-zero-for-first-time-with-may-contract-ending



How does that even work? Where's Zippy? Is he still around?

It kinda sucks that Zip is gone since events that I, and others, predicted long ago are now happening. Events that he said were impossible and crazy. He's not here to take his medicine.

How does that happen? Congratulations! You witnessed a "no bid" market. The futures contract holders were willing to pay a buyer to take delivery of the oil so they weren't stuck with delivery of physical oil that they have nowhere to store.

 

[DamianTV]

So it costs them more to store it than to slow down production? Uh, hate to say it but wouldnt it be a good time for the govts to stock up so there is a reserve?

 

[devil21]

So it costs them more to store it than to slow down production? Uh, hate to say it but wouldnt it be a good time for the govts to stock up so there is a reserve?

It costs speculators more to store it, yes, but available storage capacity is practically non-existent. It was the May delivery contract. Most commodity futures contracts are just bets on the price of oil, not intended for physical delivery, but a lot of speculators were stuck with expiring futures contracts and had no intention or capability to take delivery of the physical oil, so they put in sell orders on the last day to unload the contracts....but found no buyers. AKA "no bid". The only way they could sell the contracts was to offer to sell the contract at a NEGATIVE price, essentially offering to pay the buyer to take the contract off the speculator's hands.

But bigger picture this is the killing of the petrodollar standard under the cover story of covid. It's very possible that the eventual buyer was fed.gov, since Trump announced a planned 75m barrel add to the SPR that same day.

https://www.marketwatch.com/story/t...-reserve-amid-historic-price-crash-2020-04-20

 

[r3volution 3.0]

It's a short term situation, with the virus.

I wouldn't count on oil being anything like this cheap for the next decade, at least in nominal terms; think 70s.

 

[oyarde]

It's a short term situation, with the virus.

I wouldn't count on oil being anything like this cheap for the next decade, at least in nominal terms; think 70s.

This was the first time below 15.00 since 1999 so most likely it will never be that cheap again .

 

[pmbug]

Global demand destruction from covid19 economic/social shutdown + Saudi/Russia oil price war (record production) = no more storage.

Tank farms are full. Tankers are full.

This isn't likely to be just a short term issue. There is a supply glut and production (both extraction and refining) is shutting down.

 

[r3volution 3.0]

This was the first time below 15.00 since 1999 so most likely it will never be that cheap again .

So I'm betting.

 

[Aratus]

Oil futures right now are inside a deflationary glut on the market? IMOHO this decision, not to travel, not to utilize cars etc too often, on a global scale... is giving us more gas for twenty bucks, and better air to breathe. We are on the cusp of a major recession/depression. its like DJT is being hit with an epidemic equal to the one Woodrow Wilson faced in the last year of his presidency.... and has no idea how to go about things. He wants our TWENTIES to "roar" with the glee that Fred Trump's generation had, but he might go down as being more bollixed up than poor Herbert Hoover ever was. The presidency can be the best/worst job...ever. It is very lonely. Isolated. Even when in the middle of a crowd, POTUS is often alone. LBJ knew this....