Crude Oil

[nikol]

CLK0 hits minus 40.



https://www.barchart.com/futures/quotes/CLK20/interactive-chart

[Chuck]

How much oil actually changes hands at -$16 (spot) vs. closing their futures contracts? A producer sold a futures contract because he thought he'd deliver in May, but turns out his contract skyrocketed in value... What to do--close out futures at a profit and hold on to oil inventory? And possibly stop pumping?



What does the buyer do if he has no room to store the oil he thought he'd need? Close out his position at a loss and let someone else store the oil?

[nikol]

Yes. It's settlement risk.

from contract: "The delivery point is located in Cushing, Oklahoma which is home to 90 million barrels of storage capacity"

So, somebody had to deliver in excess of these 90 Mbrls which is full. Still, the price of oil is becoming effectively less than that in Venezuela during reign of Chavez, when their citizens used to buy subsidized gasoline and convert it into bitcoins.



https://www.economist.com/the-economist-explains/2018/04/03/why-are-venezuelans-mining-so-much-bitcoin



This could be the solution for such low oil prices... and support lovely bitcoin

[CMPT]

The front June contract settling near zero would require changes to the portfolio construction methodology of many strategies. Many PC models use contract value in some way. Price going strongly negative would be easier to deal with...

[Kitno]

Speaking to a head of crude at one of the majors - the producers are physically unable to shut production within 2m or so (unless they are willing to permanently destroy wells).



In the US empty drilled wells from the 1970s are being opened and filled up.

[ronin]

> What does the buyer do if he has no room to store the oil he thought he'd need? Close out his position at a loss and let someone else store the oil?





Pays somebody to take it of his hands, what else. How do you think we got to where we are?





> Speaking to a head of crude at one of the majors - the producers are physically unable to shut production within 2m or so (unless they are willing to permanently destroy wells).





Depends on the type of the well, but basically it's a long tube which has to be under certain pressure range, otherwise it collapses. Turn the flow off and its gone. It woud have to be drilled all over again, and it would be more difficult the second time around.



In the short term, it's cheaper to pay somebody to take the stuff.



In the longer term, they would of course have to shut wells down.



Man. I remember what a thing it was when oil first broke $100. Talk of $200 oil and all that. Ten years later, here we are.

[nikol]

> . Ten years later, here we are



Which thing is biggest oil consumer ex cars?

Tesla and all EVs are taking the roads. They talk now about e-planes too. So, what?



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



transportation - 14.16 million barrels per day - 69%

industrial - 5.13 million barrels per day - 25%

residential - 0.56 million barrels per day - 3%

commercial - 0.48 million barrels per day - 2%

electric power - 0.11 million barrels per day - 1%



Electricity generation has big potential, but people use mostly coal, gas, turf, wood, not oil.



UPD: sorry, screwed up the table in copy.

[Chuck]

Starting tomorrow, the CME Group (NASDAQ:CME) clearing house will switch its options pricing and valuation model to accommodate negative prices in the underlying futures and allow for listing of options contracts with negative strikes, Bloomberg reports

[nikol]

Farewell logNormality as fundamental property of commodity prices?



Still, I can imagine the situation where the price of commodity itself remains positive while derivative (futures) sink into negative territory, because it is the contractual obligation which creates such effect.



Not funny question then: under which (today imaginary, but you never know) circumstances stock prices might get negative?

[gaj]

I wonder how many automated systems went haywire. Even simple logic like calculating % returns will break, especially at price==0.