Oil Hits "$0"

As people get use to telecommuting the demand may never rise.

...for which the atmosphere might be everlastingly grateful...

True, except that I gather most existing tanks are filling up rapidly, and building new ones takes way too long. Hopefully, by the time those new tanks could be built, we'll be in some kind of recovery, and demand will be surging, although it may never reach the previous levels.

Doesn't the US government have underground strategic reserves? Time to fill those to capacity!

I wonder if we can reverse the pumps and start pumping oil back down as a reserve?

Why get it out in the first place?

Great question. I spoke to a friend of mine a few weeks ago, when oil in Canada went negative. He said that it's not easy to shut off an oil well. Engineers need to calculate the pressure that will build when it's shut off. They also need to figure out where the oil will go (underground).

My friend told me that it's easier and safer to just let the oil flow, because the negative price is only a short term event.

What can be done is for the drillers/frackers to stop work until the prices go up.

That's what I was trying to figure out today, right before the market closed. How can I store the oil? I even thought about hiring oil tanker trucks to bring the oil to LA and either sell it to refiners or have them refine it for me, then sell it to gas stations.

A fortune was lost yesterday and was made from the market close to now.

This was a once in a lifetime opportunity. We will never see oil at -$37.63 per bbl or anywhere close to that. The Wall Street guys now have a plan to take advantage of negative oil prices.

Does the negative price mean they will pay you that much to take it?

That's exactly what it means. But with this being a futures market price the purchaser of the product is not allowed to take delivery until the date of the futures. They have ten days to figure out what to do with this volume of crude.

This post is out of date! This morning UK radio reported that US oil prices have gone negative. The producers have run out of storage capacity and are now paying customers to take it off their hands.

Many years ago as cracking capacity increased to satisfy petrol demand created by the automobile boom excess quantities of bitumen were generated and the oil companies paid companies to us it. The oil companies waited for the markets for road tar and roofing felt to increase and then started charging for the bitumen and last time I checked it was selling at about $300 per metric tonne.

As electric vehicles take an increasing market share the new surpluses will be in the petrol and diesel fractions of the cracking process. This minor disruption to oil prices is a foretaste of what the oil industry faces in the next 20 years.

Oil is not used exclusively for transportation, it is also used for heating and other products...about 70% is used for transportation...

..."The U.S. market share of plug-in electric passenger cars increased from 0.14% in 2011 to 0.62% in 2013; reached 0.75% in 2014 and fell to 0.66% in 2015.^[6][7][8][9] Then climbed to 0.90% in 2016, to 1.13% in 2017, and achieved a record market share of 2.1% in 2018."...

Electric vehicles have a long way to go before they make any impact on the market at all...

https://en.wikipedia.org/wiki/Plug-in_electric_vehicles_in_the_United_States

https://www.eia.gov/energyexplained/oil-and-petroleum-products/use-of-oil.php

I think it's more about transportation as a whole being down.

1. People are driving less - Pre CV, I would fill my tank every 4-5 days. Now it's every 3+ weeks.

2. Less air travel. Airplanes use a lot of jet fuel, but many are grounded.

3. Less people riding public transportation.

4. Fewer trucks on the road. All those shipping container trailers that are sitting in China.

5. Fewer trains due to fewer shipping containers.

And on and on!

So the storage facility at Cushing, OK (where our US crude is stored) is near capacity with no end in sight.

As I understand it the negative price is for taking physical delivery on 1st May from hub in Oklahoma. The refineries are all stacked up as with demand though the floor they are running on turn down so their input tanks are near capacity. The strategic reserve was designed for interruption of supply of crude oil (from days when US was a net importer) so is kept pretty full there's just nowhere to store it.

Building tanks takes time - levelling land, pouring and allowing concrete foundations to cure before you try and build a tank while maintaining social distancing!

Apparently Jun / July futures are still mid $20s a barrel (still crazy low) but as we come to the end of May we may see the same bottleneck. Also amount actually traded at this price is pretty small

Not had a chance to double check all the data yet but seems a credible analysis

It was actually a panic sell. Take a look at the chart and watch how it started to fall and just kept going down, accelerating to the close.

The futures market usually doesn't have crazy stuff like this happen. Futures traders normally don't get scared off, but today they did. If someone had the cojones to buy as the market closed, they would've made a fortune!

For stocks, you don't want to try to catch a falling knife. For futures, you use common sense and when something crazy happens, you jump in and buy.

In 2008-09, we had the same thing happen with residential real estate in parts of Los Angeles County. Fear overwhelmed people - what if nobody buys these homes and prices keep falling. When a 4br/2ba home with a garage fell below $80K, it was time to buy. It actually bottomed at $40K. If you bought anywhere under $100K, you've made a nice profit. At $80K, you put 20% down, so $20K with closing costs. Put $5K into repairs and rent it out for $1200/mo. Mortgage is $408 + ins and taxes. Fast forward to 2020 and the house is in the $250 range and rent is up to $1,800/mo. And I feel it still has a lot of legs - $350K is my selling range.

May futures closed at -$37.63 per bbl today for WTI - light sweet crude.

As of right now, it's at -$1.58/bbl. This is 2:22 am on the west coast.

That's a $36.05 increase from the close today! Nobody makes that much money in oil in one day! And the market isn't even open yet!

Makes sense,

https://www.forbes.com/sites/sarahhansen/2020/04/20/oil-prices-plummet-and-may-futures-fall-more-than-90-as-american-storage-tanks-fill-up/#4287093f1433

I found out today, that even if I wanted to buy May oil futures earlier this week, I couldn't. They won't let you trade unless you have $1M in your account. An oil trader said that on CNBC this morning!

This is wrong! A contract is 1000 barrels, so at $17, that's $17,000/contact of cash price. And you buy on margin, so it's a fraction of that amount.

So, even if we wanted to get paid to take 1000 barrels of West Texas Crude at $37K, we couldn't.

Like I say, the rich have rigged the game so you will NEVER be rich. I can finally afford to play in oil speculation but I am not a member of the millionaire club so I don't get to play. It doesn't get any more obvious than that.

There's your sign.

Agreed!

One of the safest ways to make money in the stock market is to sell options against your long positions. Why? Because it's a bet. As the seller of the option, you're the house - analogy with Las Vegas. Most people don't sell options, because they're told it's too risky. But the big guys love selling options to the dreamers (gamblers).

Another excellent way to make money in the market is to buy low. How do you buy lower than the bid? You sell naked puts. For instance, let's say I want to buy TSLA at $750 per share. Closed at $811 today. So, how can buy TSLA at $750? Sell the Jun 19th $825 put for $77.50 (hit the bid). You put $75,000 in your account which is used if you are forced to buy TSLA at $825. From selling the put, you get $77.50 x 100 in your account or $7,750.00 added to your account today (or when the trade settles). Add that to $75K and you have $82,750 in your account. If the stock drops below $825 as of close of business on Jun 19th, you will be forced to buy 100 shares of TSLA. You still have $750 - commissions in the account. You have 100 shares of TSLA. Your out of pocket cost is $75,000 or 750/share. If TSLA stays at $825 of over, then you keep the $7,750 and you do the same thing next month. You keep this up month after month until you get the shares or you figure that you no longer want to own TSLA.

People don't use this strategy, because they've been told that it's only for the pros. If TSLA goes to $0, you could be out $82,000!!!. But you're out $75K, because that's what you brought in. And that's IF the stock goes to $0 in a little over a month. And remember that your analysis showed that you wanted to buy the shares at $750. In contrast, if you bought the stock today, you'd pay $811 or $81,100 for 100 shares.