04-20-2020, 01:31 PM
(04-20-2020, 01:16 PM)Kerim Wrote: Thanks Otter!
Now, can you or anyone else talk to me like I'm six years old and explain it again? So the sub-dollar prices I'm seeing are only for... what,... "May 20" contracts? Those expire today / tomorrow? Or next month?
I'm a total oil noob -- I guess I need a primer!
WTI price is now negative. Holders of the May futures contracts that expire tomorrow are literally paying people to take oil off their hands. Most of the speculators trading in WTI crude futures don't have any physical storage capacity to take delivery and store the oil, hence their massive problem at the moment. These speculators typically sell their futures contracts to avoid having to take delivery. They are taking a bath today because no one wants to buy their contracts. Not a lot of players out there who can take physical delivery of crude and store it in this environment. The ones that can are setting themselves up for huge future profits. People are paying them to take oil that can be stored and resold for a nice profit later.
Storage is a relatively fixed quantity (it is infrastructure, and takes time to build out). So, the lack of storage is what is driving the current rout in WTI prices. Eventually shale producers either go bankrupt, wells get shut-in, or both. They simply cannot continue producing at current volumes. Once the storage at Cushing is full, pipelines will refuse transport.