So they start off the article with this statement:<p>"That means oil producers are paying buyers to take the commodity off their hands over fears that storage capacity could run out in May."<p>This statement is actually totally false. Producers already got paid for this production a long time ago when they initially sold the futures contract. What has actually happened is that as the expiry of the May futures contracts arrives, the traders who bought those contracts are now trying to unload them at all costs. This is because if they're stuck holding the contract at expiry, they have to take physical delivery (each futures contract represents 1000 barrels of oil), and the cost of storing that oil is getting really high since the storage facilities are nearly full.<p>Later they kind of explain this in the article:<p>"The severe drop on Monday was driven in part by a technicality of the global oil market. Oil is traded on its future price and May futures contracts are due to expire on Tuesday. Traders were keen to offload those holdings to avoid having to take delivery of the oil and incur storage costs."<p>But I think it's pretty irresponsible journalism to kick off the article the way they did, and imply that producers are paying you to take their oil today.
Since oil is making the front page here, if you're interested in the history of American oil industry, "The History of the Standard Oil Company" by Ida Tarbell is a fantastic read. It's also a great example of investigative journalism.<p>In early chapters of the book she covers the initial rush to pump oil in the Oil Regions and the history of pipelines and storage facilities as it all ties into business practices of Rockefeller.<p>Oil storage facilities were an interesting startup idea back then, in the beginning producers would pump the oil into open pits where it would seep back into the ground if it wasn't transferred fast enough, then of course new ways of storing and transporting the oil were experimented with. It also goes into how much supply/demand were at odds in the beginning leading to several collapses in the price of oil when there wasn't such a diverse market. Again some of the issues we still see where land locked areas of producers struggled to get their product out of the region and how local economies caused drastic prices differences that we're seeing right now.<p><a href="https://en.wikipedia.org/wiki/The_History_of_the_Standard_Oil_Company" rel="nofollow">https://en.wikipedia.org/wiki/The_History_of_the_Standard_Oi...</a>
More specifically, West Texas Intermediate Crude futures for early May delivery are sub-zero. Late-May delivery is more expensive.<p>This is in part a reflection of the fact that the oil producers have already been paid for the output and are contractually obligated to deliver it, but no one actually really has a use for it once it is there, and it will cost money to transport or store it.
If you owned an oil ship, what stops you from getting paid $25 a barrel to fill your ship up with oil, sailing to international waters, dumping it all in the sea, then go right back to port and do it again and again getting paid $25 a barrel each time?
Although this is largely a paper phenomenon, the thing to pay attention to now is ripple effects.<p>A few weeks ago, Capital One was granted a regulatory waiver from the CFTC over its oil derivatives positions - a waiver it since declined to use:<p>> The registration is related to Capital One’s commercial lending to the oil and gas industry, a relatively small part of its overall business. The bank enters into commodity swaps with energy clients to help them mitigate the risk of energy price swings and the related borrowing risks.<p><a href="https://www.reuters.com/article/us-health-coronavirus-capitalone-cftc/capital-one-says-it-wont-use-cftc-waiver-related-to-oil-lending-idUSKBN21M0TS" rel="nofollow">https://www.reuters.com/article/us-health-coronavirus-capita...</a><p>Most people don't immediately think of Cap One as an oil futures player. But its lending business caused it to enter the market to hedge some of its loan portfolio.<p>Given the highly unusual nature of what happened today, it wouldn't be surprising to see future announcements of banks or other financial institutions getting into trouble over commodities derivatives bets going pear-shaped.
Relevant: That Time I Tried to Buy an Actual Barrel of Crude Oil<p><a href="https://www.bloomberg.com/news/articles/2015-11-03/that-time-i-tried-to-buy-some-crude-oil" rel="nofollow">https://www.bloomberg.com/news/articles/2015-11-03/that-time...</a>
In one of the articles, it quoted someone from, I think, the CME, that said they were fully prepared in their trading systems to handle these negative prices with no hiccups.<p>What I immediately thought, that I haven't seen anyone else mention yet, is that <i>there</i> are some admirable programmers!
There seems to be lots of confusion on how this could have happened. Long story short — it may be because of the USO ETF:<p><a href="https://www.forbes.com/sites/jimcollins/2020/04/20/the-us-oil-etf-uso-is-the-culprit-behind-oils-massive-plunge/" rel="nofollow">https://www.forbes.com/sites/jimcollins/2020/04/20/the-us-oi...</a>
Futures prices are significantly higher than $0. This is less noteworthy than it seems.<p><a href="https://www.marketwatch.com/investing/future/crude%20oil%20-%20electronic" rel="nofollow">https://www.marketwatch.com/investing/future/crude%20oil%20-...</a>
It should really be "US WTI front month futures negative for the first time"<p>There's a big distinction between that and "oil prices"
So, where are all the arguments now about why speculators should be required take delivery? I mean, really, the oil producers got paid and consumers shall have copious supplies of oil.<p>Nobody out looking to find excuses to further regulate commodities markets when all the traders are losing their asses.
Oil costs $ to store. Due to the economic collapse, oil isn't being used much. So all the storage facilities are filled up. So nobody who can store it will buy it from you. If you want to get rid of oil, you have to pay someone.
I might be in minority, but I think this is great for the clean energy sector and environment. The oil is not being used and thus not being consumed and converted into toxic products (carbon dioxide, and various other vehicle emissions) which are leaked into the environment.<p>I hope these oil companies dissolve over this unprecedented event.
It’s getting more likely that the fallout from the response will be worse than the virus would have been.<p>For perspective, 800 000 people die every year in the world from suicide alone.<p>Depression/anxiety/hopelessness has real consequences.
There should be a meme:
75 year old baby boomer: I remember when gas was less than a dollar a gallon
45 year old son: me too!
15 year old grandson: me three!!