Oil Trading Negative - What does it mean?

[CyberB0b]

What are some long term repercussions from this?

https://www.cnbc.com/2020/04/20/oil...res-in-focus-as-coronavirus-dents-demand.html

 

[Reality]

Supply and Demand.

Demand went way down due to world events (not the forum to discuss it), but oil producing nations kept producing oil likely thinking it would not last very long and they were wrong.

In fact, Saudi Arabia even increased their production during their battle with Russia over oil production rates right at the exact moment the world event hit so global supply rate increased making it even worse.

In the long term, everything will open back up and demand will increase and prices will start to increase, but there will likely be a delay/lag until there is a better understanding of the post-event era demand for the rest of 2020 and probably well into 2021.

 

[nightrain]

Nothing good. The lack of global demand will move just about the entire oil segment of the energy industry into shut down mode pretty soon.

 

[YosemiteSam]

I used to work on Wall St for an energy trading platform that traded mostly WTI and NG options. (WTI = West Texas Intermediate crude, and NG = Henry Hub Natural Gas) I've reached out to the brokers I used to work with to see what's going on.

Short term, oil is going to be dirt cheap. Long term. That is a VERY good question. (without hearing back yet) suspect the following.

Once the world opens back up, prices will start to rise. How much so is the question. I'm guessing Russia and the Saudis will go into protective mode in the future because it's their life blood. (especially the Saudis) That will likely cause prices to rise above the norm.

Though, greed and ignorance run deep and the strain on local economies that depend on oil incomes will force them to start producing more. As that starts to collide with more electric cars. It will be very interesting indeed.

My buddy keeps saying he is going to "get in on these low oil prices and make tons of money". I warn him to be careful. You cannot "buy" oil. You can buy oil companies. If you "buy" oil, you will take delivery of it. My old brokerage company is gone because Dodd-Frank changed it where you have to take delivery of oil (even with options.) That used to not be the case. You used to could trade WTI and then just settle on the price difference. (though people always find loopholes)


EDIT: updated the WTI & NG acronyms so people know what I'm talking about

 

[65fastback2plus2]

I used to work on Wall St for an energy trading platform that traded mostly WTI and NG options. (WTI = West Texas Intermediate crude, and NG = Henry Hub Natural Gas) I've reached out to the brokers I used to work with to see what's going on.

Short term, oil is going to be dirt cheap. Long term. That is a VERY good question. (without hearing back yet) suspect the following.

Once the world opens back up, prices will start to rise. How much so is the question. I'm guessing Russia and the Saudis will go into protective mode in the future because it's their life blood. (especially the Saudis) That will likely cause prices to rise above the norm.

Though, greed and ignorance run deep and the strain on local economies that depend on oil incomes will force them to start producing more. As that starts to collide with more electric cars. It will be very interesting indeed.

My buddy keeps saying he is going to "get in on these low oil prices and make tons of money". I warn him to be careful. You cannot "buy" oil. You can buy oil companies. If you "buy" oil, you will take delivery of it. My old brokerage company is gone because Dodd-Frank changed it where you have to take delivery of oil (even with options.) That used to not be the case. You used to could trade WTI and then just settle on the price difference. (though people always find loopholes)


EDIT: updated the WTI & NG acronyms so people know what I'm talking about

That's why you just trade oil etf's

 

[Melonfeud]

* it's all part of the contrived/ designed grand scheme of financial reset/ repositioning of the still left standing world players,,,er,,, we all know how it ends*

 

[CF74]

* it's all part of the contrived/ designed grand scheme of financial reset/ repositioning of the still left standing world players,,,er,,, we all know how it ends*

The megalomaniacs are shaking the ole piggy banks of the world....

 

[DanteEXT]

Free Gas!

 

[Rockport]

What are some long term repercussions from this?

https://www.cnbc.com/2020/04/20/oil...res-in-focus-as-coronavirus-dents-demand.html

When you buy gas, you stick your card in and money is transferred to your account.

 

[YosemiteSam]

Free Gas!

Wrong. It's not free gas. They PAY YOU to take the gas!

hah So what happens is this. People trade futures contracts to make money. As I noted earlier, back when I was working for a broker who traded them. You could buy them and sell them and just settle for the price difference. You didn't have to take delivery of the actual oil. Dodd-Frank changed that. No longer could you do that. Whoever held the contract at expiry, had to take delivery of those contracts!

So what happens is this. Trader A) buys 50 "lots" (a "lot" is basically 50 barrels, 50 lots, is basically 2,500 barrels) of oil futures contracts (WTI options) for say $39/barrel ((39 * 50) * 50 = $97,500 Then he sales it at a profit for say $40/barrel which comes out to $100,000 or $2,500 profit.. That guy holds on to the lots with the intend to sell it again as the maturity date gets closer.

All the sudden the price goes from $40 to -$20 per barrel. How does it get to -$20 a barrel? Because the trader cannot take possession of the oil. He has no place to put it. So he has to PAY someone else to take the oil he bought! So, he spent $100,000 for the oil, and then had to pay someone $50,000 more to take the oil off his hands!

So him purchasing that oil pre-crash cost him $60/barrel or $150,000 for all 50 lots!

The guy that ended up with the oil made $50,000, plus he can hold that oil until the price goes back to say $40/barrel and sell it for $100,000! He basically just accepted $150,000 Fo' Free! The trick is, you have to have a place to store 2,500 barrels long enough for the price to go back to $40/barrel.

 

[DanteEXT]

Wrong. It's not free gas. They PAY YOU to take the gas!

hah So what happens is this. People trade futures contracts to make money. As I noted earlier, back when I was working for a broker who traded them. You could buy them and sell them and just settle for the price difference. You didn't have to take delivery of the actual oil. Dodd-Frank changed that. No longer could you do that. Whoever held the contract at expiry, had to take delivery of those contracts!

So what happens is this. Trader A) buys 50 "lots" (a "lot" is basically 50 barrels, 50 lots, is basically 2,500 barrels) of oil futures contracts (WTI options) for say $39/barrel ((39 * 50) * 50 = $97,500 Then he sales it at a profit for say $40/barrel which comes out to $100,000 or $2,500 profit.. That guy holds on to the lots with the intend to sell it again as the maturity date gets closer.

All the sudden the price goes from $40 to -$20 per barrel. How does it get to -$20 a barrel? Because the trader cannot take possession of the oil. He has no place to put it. So he has to PAY someone else to take the oil he bought! So, he spent $100,000 for the oil, and then had to pay someone $50,000 more to take the oil off his hands!

So him purchasing that oil pre-crash cost him $60/barrel or $150,000 for all 50 lots!

The guy that ended up with the oil made $50,000, plus he can hold that oil until the price goes back to say $40/barrel and sell it for $100,000! He basically just accepted $150,000 Fo' Free! The trick is, you have to have a place to store 2,500 barrels long enough for the price to go back to $40/barrel.

I would love it if they paid is to fill up. But I doubt I sit for hours in the line to do so.

Thanks for the explanation. So basically the guy who had to sell it for -$20 took it up the, well, you know.

 

[yimyammer]

Wrong. It's not free gas. They PAY YOU to take the gas!

hah So what happens is this. People trade futures contracts to make money. As I noted earlier, back when I was working for a broker who traded them. You could buy them and sell them and just settle for the price difference. You didn't have to take delivery of the actual oil. Dodd-Frank changed that. No longer could you do that. Whoever held the contract at expiry, had to take delivery of those contracts!

So what happens is this. Trader A) buys 50 "lots" (a "lot" is basically 50 barrels, 50 lots, is basically 2,500 barrels) of oil futures contracts (WTI options) for say $39/barrel ((39 * 50) * 50 = $97,500 Then he sales it at a profit for say $40/barrel which comes out to $100,000 or $2,500 profit.. That guy holds on to the lots with the intend to sell it again as the maturity date gets closer.

All the sudden the price goes from $40 to -$20 per barrel. How does it get to -$20 a barrel? Because the trader cannot take possession of the oil. He has no place to put it. So he has to PAY someone else to take the oil he bought! So, he spent $100,000 for the oil, and then had to pay someone $50,000 more to take the oil off his hands!

So him purchasing that oil pre-crash cost him $60/barrel or $150,000 for all 50 lots!

The guy that ended up with the oil made $50,000, plus he can hold that oil until the price goes back to say $40/barrel and sell it for $100,000! He basically just accepted $150,000 Fo' Free! The trick is, you have to have a place to store 2,500 barrels long enough for the price to go back to $40/barrel.

My dad and I spent hours on the phone yesterday trying to figure out what it would cost to build the capacity to store 1M barrels because he found something that would pay him $35/barrel , needless to say we quickly determined there was no way to move fast enough to take advantage of this strange situation but if someone had the ability to store and hold the actual oil, they stand to make a lot of money down the road when prices eventually go back up (we realize there is no guarantee of a price increase but if we could buy and hold oil at the current price like you can a stock, we'd be happy to sit and wait for the next 5+ years believing the price would eventually go high enough to make a nice profit).

We were unable to figure out a way to go long on oil (and by long I mean years, 5-15 if necessary) besides buying actual physical oil and even that is wrought with issues as you have to buy or have the land for the tanks, pay taxes & holding costs, mitigate the gas byproduct, pay for tank maintenance, etc, etc, etc and gawd knows what you have to do to satisfy the EPA, etc

I'm sure some guys in this biz know how to take advantage of this market anomaly and reposed to make lots of $$

please enlighten me if I missed something or got something wrong

 

[Melonfeud]

My dad and I spent hours on the phone yesterday trying to figure out what it would cost to build the capacity to store 1M barrels because he found something that would pay him $35/barrel , needless to say we quickly determined there was no way to move fast enough to take advantage of this strange situation but if someone had the ability to store and hold the actual oil, they stand to make a lot of money down the road when prices eventually go back up (we realize there is no guarantee of a price increase but if we could buy and hold oil at the current price like you can a stock, we'd be happy to sit and wait for the next 5+ years believing the price would eventually go high enough to make a nice profit).

We were unable to figure out a way to go long on oil (and by long I mean years, 5-15 if necessary) besides buying actual physical oil and even that is wrought with issues as you have to buy or have the land for the tanks, pay taxes & holding costs, mitigate the gas byproduct, pay for tank maintenance, etc, etc, etc and gawd knows what you have to do to satisfy the EPA, etc

I'm sure some guys in this biz know how to take advantage of this market anomaly and reposed to make lots of $$

please enlighten me if I missed something or got something wrong

* It would probably have to be pumped back into an old low production oilwell ,pumping out of a shallow "sand" pay zone rather than the deep( and less porous " limestone" oil producing pay zones) would be the quickest/ easiest storage ,the problem being most of those Wells have more than likely done been plugged/ capped off,,,er,, and, also, there's no guarantee you'll get back what you pumped down, as nobody knows where it's gonna go


* Edit *
Transportation costs alone of the product ,would prove cost prohibitive,,,,just saying.

 

[yimyammer]

My dad and I spent hours on the phone yesterday trying to figure out what it would cost to build the capacity to store 1M barrels because he found something that would pay him $35/barrel , needless to say we quickly determined there was no way to move fast enough to take advantage of this strange situation but if someone had the ability to store and hold the actual oil, they stand to make a lot of money down the road when prices eventually go back up (we realize there is no guarantee of a price increase but if we could buy and hold oil at the current price like you can a stock, we'd be happy to sit and wait for the next 5+ years believing the price would eventually go high enough to make a nice profit).

We were unable to figure out a way to go long on oil (and by long I mean years, 5-15 if necessary) besides buying actual physical oil and even that is wrought with issues as you have to buy or have the land for the tanks, pay taxes & holding costs, mitigate the gas byproduct, pay for tank maintenance, etc, etc, etc and gawd knows what you have to do to satisfy the EPA, etc

I'm sure some guys in this biz know how to take advantage of this market anomaly and reposed to make lots of $$

please enlighten me if I missed something or got something wrong

Anyone else get exhausted trying to proofread everything to make sure autocorrect didn't jack up what you were trying to write?

The word I intended to use there was "positioned", not reposed, come on autocorrect!

 

[DFWJC]

Near term contracts made it negative due to storage issues. So that part is a fluke
Low prices in general for the rest of the year, however, is not.
At least temporarily, driving is way down, as well as other uses of petro.
Supply and Demand will take awhile to adjust and the energy industry routinely overreacts. They'll shut it down and then prices will start to drift higher by this time next year. Then they'll gear back up.

 

[CouchCoach]

Means if you were going to trade me a gallon of oil for a Snickers six pack, that will no longer work. You are going to have to sweeten the deal with your Nickelback CD collection.......and I will keep all of the Snickers.

 

[ABQCOWBOY]

I view this as Karma. Oil prices are dirt cheap, gas prices cheaper then that. This is the time to jump in the old Chevy and drive it till the tires fall off but jokes on us. Nobody can go anywhere, nothings open and their is no way to change it till we see the other side of this Covid thing, at which point the Oil prices will go back up!



Karma Bro!

 

[CouchCoach]

Anyone else get exhausted trying to proofread everything to make sure autocorrect didn't jack up what you were trying to write?

The word I intended to use there was "positioned", not reposed, come on autocorrect!

Ah no zackly wut yuu meen.

 

[yimyammer]

Near term contracts made it negative due to storage issues. So that part is a fluke
Low prices in general for the rest of the year, however, is not.
At least temporarily, driving is way down, as well as other uses of petro.
Supply and Demand will take awhile to adjust and the energy industry routinely overreacts. They'll shut it down and then prices will start to drift higher by this time next year. Then they'll gear back up.

thus why I wish there was an easy way to go long by locking in current prices

 

[DFWJC]

thus why I wish there was an easy way to go long by locking in current prices

I loaded up on the ETN, "OIL" for a quick scalp to take advantage of overreaction.
Made about 35% in a day or two

But I got out already. Not sure what to think in the next few months