re: Oil suffers record plunge below $11 amid historic glut

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Deliver it to your address?

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I bet the bill for a su0pertanker full of oil might come to that address.

Storage is not full yet but it is likely totally booked out. I know purchasers have been pre booking for some of their producers for the last couple of months now. Any excess is probably committed. May was always expected to be the squeeze month but June could be rough also. That said I have a lot of empty frac tanks that could use some fluid and it would be lovely to stick it to some of these NY hedge funds.

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o what happens to offshore production? Do they just shut in everything?

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Some platforms will have to shut in. Others that have more options with their pipelines, etc can keep going a little longer and hopefully wait out this mess.

Yep, and EIA data that comes out is retroactive to the prior week. So storage is going to fill faster than reported until we get huge cuts in production

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So now you are paying someone else to store that oil. Hence the negative price.

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My only follow-up question to that good explanation is this part, the people buying the contracts at negative prices don't just store the oil for contract holders, but actually take ownership of the product, right?

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What are they going to do in the event that you don't come pick up the oil? Deliver it to your address? Take you to court?

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That’s actually a good question.

I think that typically, failure to take delivery on a crude oil future would mean that the seller gets to keep their money and re-sell the oil for additional profits. But if they can’t re-sell it, I would think they have some way to recoup any cost impacts.

At their core, crude oil futures are contracts for delivery despite the day-trading. My guess is that the penalties for failing to accept delivery are higher than what the traders are paying to get out of the contracts right now.

What I’m not so sure about is who ultimately bears the cost of those contracts are broken. Since a lot of this activity comes from ETF’s, maybe the folks running the fund? I also know that you have to have a margin account to trade in futures - maybe this is why. If the price goes negative and the investor holds the contract, presumably they would ultimately have to accept delivery or pay whatever that negative price is.

I’m curious to hear from some of the finance or midstream baws because it’s an interesting question.

I just got laid off. This is horrible and there will be many more layoffs coming.

Some of the small E&Ps I covered were told by the refineries that they are not taking any more oil. This was last week. A lot of the west Texas and south Texas guys are shutting down wells.

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This was my thought. How long until the US Gov tries to prop up US companies by buying oil to put in the SPR? Not that I necessarily agree with the move, but the precedent has been set with respect to bailing out industries.

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Forgive my ignorance but why wouldn’t you agree with this? The government buying at all time lows (the cheapest ever to the taxpayer and helping out American companies) to fill up a necessary reserve would be the smartest move in the history of government no?

Not necessarily, "trading paper" means I buy and sell contracts without ever intending to physically execute, or even have the setup to handle physical deliveries. Anyone that handles a commodity is likely going to be slightly long, even, or slightly short on the nearby month because I have actual commitments to other customers. Paper speculators can take much larger positions to try and play the markets, and looks like a bunch got caught with their pants down at expiry and liquidated because they cannot physically execute