04-20-2020, 01:12 PM
(04-20-2020, 01:02 PM)Kerim Wrote: Holy shit, is oil under a dollar a barrel right now? Am I seeing things?
How are the oil company share prices not tanking along side??
And what is the most straightforward way to bet that prices will go back up in the medium term?
May futures contracts for WTI expire tomorrow, and unlike Brent crude futures, WTI requires physical delivery to the futures contract holder at expiry. There is no storage left at Cushing, hence cratering prices on the contracts that expire tomorrow.
This is the sort of market force that leads to bankruptcies (CHK, come on down!) and shut-ins, and eventually gets crude prices back to something that isn't $0 (which is pretty much the current effective price of WTI).
USO rolled out of May contracts more than a week ago, so wasn't caught by today's drop. The question is, how bad do they contango in the near-term as demand stays moribund and oversupply remains.
Likewise, big producers like XOM/CVX aren't really affected by today's price action on expiring contracts. Their share prices have already taken a massive beating, because the reality of what is happening right now was clear several weeks ago (and is largely priced in).