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Posted on 4/20/20 at 1:55 pm to rocket31
quote:
can someone ELI5 why this is happening wtf
Keep in mind the negative prices being referenced are futures, not spot prices. When someone buys crude oil futures, they are buying oil to be delivered at a later date (May, in this case).
Producers and consumers of crude oil buy and sell futures to lock in pricing ahead of delivery. Investors can also buy and sell crude futures. So if crude futures for August delivery are selling at $30/bbl and you think the price is going to go up between now and then, you can buy the future, hold on to it, then sell it at a later date for a gain. If the price goes down, you take a loss.
The problem is that you don’t actually have to have any way to transport, store, or use crude oil to trade in futures. So what happens if, for example, you buy crude oil futures for May delivery, but then there’s no market to sell that crude oil as you get closer to May? The producer has already sold that oil and plans to deliver it in May per the contract. If you are an investor with no way to store that crude oil, you’re fricked. So now you are paying someone else to store that oil. Hence the negative price.
ETA: This type of scenario is why I think speculation is a problem for the industry. You’ve got investors buying contracts that they have no way of actually fulfilling.
This post was edited on 4/20/20 at 2:04 pm
Posted on 4/20/20 at 1:57 pm to lostinbr
Posted on 4/20/20 at 1:58 pm to TheeRealCarolina
It it’s way easier to just downvote.
Posted on 4/20/20 at 1:59 pm to Major Dutch Schaefer
Welp looks like I'll be at home for a little longer than planned
Posted on 4/20/20 at 2:02 pm to PipelineBaw
On the bright side natural gas is up 19 cents today. That helps out all you midstream baws.
Posted on 4/20/20 at 2:03 pm to JudgeHolden
quote:
$36.20 is a blended average
That's the price that makes it profitable to drill a new well and make a profit. Facilities that have already paid off the initial drilling and infrastructure generally have lift costs in the single digits, often around the $2.00 mark.
But that is not a sustainable cost because you need to continually drill for oil to replace declining reserves.
Posted on 4/20/20 at 2:03 pm to Ed Osteen
quote:
Barrels of what? Do you have a well in your backyard?
I wasn't honestly suggesting buying barrels of oil from the Saudos and hoarding them in the garage just like the other guy didn't seriously find a few barrels of oil hiding in his couch cushions but thanks for setting us straight.
Posted on 4/20/20 at 2:04 pm to dukke v
quote:
The oil companies are gonna want to get theirs after what they are losing now.
That’s not how this works.
Posted on 4/20/20 at 2:04 pm to lostinbr
Holeee frick. Thanks for the explanation.
Posted on 4/20/20 at 2:05 pm to PipelineBaw
quote:
PipelineBaw
Regrettable username at this particular juncture
Posted on 4/20/20 at 2:07 pm to MrLSU
I think a couple big ones got caught long with their pants down and said eff it. The VAST majority of commodity traders and obviously hedge funds have no intention of physically executing on contracts, which is why I have no idea who the hell is holding until expiry day
This post was edited on 4/20/20 at 2:10 pm
Posted on 4/20/20 at 2:11 pm to LeClerc
So what happens to offshore production? Do they just shut in everything?
Posted on 4/20/20 at 2:12 pm to LeClerc
quote:
So what happens to offshore production? Do they just shut in everything?
Louisiana Light and Mars are up, I think.
The Shelf is on its last legs anyway.
Posted on 4/20/20 at 2:13 pm to lostinbr
quote:
Keep in mind the negative prices being referenced are futures, not spot prices. When someone buys crude oil futures, they are buying oil to be delivered at a later date (May, in this case).
Producers and consumers of crude oil buy and sell futures to lock in pricing ahead of delivery. Investors can also buy and sell crude futures. So if crude futures for August delivery are selling at $30/bbl and you think the price is going to go up between now and then, you can buy the future, hold on to it, then sell it at a later date for a gain. If the price goes down, you take a loss.
The problem is that you don’t actually have to have any way to transport, store, or use crude oil to trade in futures. So what happens if, for example, you buy crude oil futures for May delivery, but then there’s no market to sell that crude oil as you get closer to May? The producer has already sold that oil and plans to deliver it in May per the contract. If you are an investor with no way to store that crude oil, you’re fricked. So now you are paying someone else to store that oil. Hence the negative price.
ETA: This type of scenario is why I think speculation is a problem for the industry. You’ve got investors buying contracts that they have no way of actually fulfilling.
I’m like 99% certain that this was how Bernie Madoff’s castle went crashing.
Posted on 4/20/20 at 2:15 pm to lostinbr
quote: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?
The producer has already sold that oil and plans to deliver it in May per the contract. If you are an investor with no way to store that crude oil, you’re fricked.
Posted on 4/20/20 at 2:15 pm to redstick13
quote:
The three big producers, KSA, Russia, US got into a production war of sorts and the US never stood a chance to compete.
I’ve not heard of the US being involved in the production war. All the reports I’ve seen said it was Saudi Arabia and Russia and all we have done is try to get them to negotiate with one another.
Posted on 4/20/20 at 2:20 pm to notiger1997
Wrong most locked in at beginning of year
Posted on 4/20/20 at 2:21 pm to bayoubengals88
So if I buy stock right now do I get a check?
Posted on 4/20/20 at 2:22 pm to Darth_Vader
quote:
I’ve not heard of the US being involved in the production war.
Gotta go back about 6 years to really understand the United States involvement.
- Thanksgiving of 2014: prices collapsed from $100+ to roughly $69. OPEC had the chance to cut production, decided not to, which dumped prices to ultimately $26 in February 2016.
- Eventually OPEC cuts, prices go up, and marginal producers (i.e. US shale) can finally sorta make the economics work again. Cue the fast and furious drilling.
- OPEC realizes they lost market share last time they cut, so in February/March when they met (god that feels like a lifetime ago), they decided, "NO DEAL HOWIE!" With the goal of not giving up market share and driving some US producers out of the game. "We are very very comfortable with prices in the 20s!" they said.
You know the rest of the story from here. A little virus happened, prices tanked further, OPEC had an emergency meeting and agreed to a nominal cut. Didn't work. Saudis are lying motherfrickers, but I can guarantee you they aren't comfortable with prices at -$35 or whatever. They need something like $80-$90 to pay for all dem programs.
This post was edited on 4/20/20 at 2:24 pm
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