Oil Futures

[jon-nyc]

May futures expire tomorrow. If you're long you gotta accept delivery. There's no where to store it. In theory it could go negative.

[Mik]

Good time to replenish the strategic reserve.

[jon-nyc]

If you only have storage capacity for n barrels, barrel n+1 is industrial waste.

[jon-nyc]

Yes it is, Mik.

[Loki]

How much can we charge to store it?

If you look way out I think it’s still 45 a barrel.

[Jolly]

@Mik said in Oil Futures:

Good time to replenish the strategic reserve.

The feds have been doing that, haven't they?

[jon-nyc]

@Loki said in Oil Futures:

How much can we charge to store it?

If you look way out I think it’s still 45 a barrel.

Not that high, but yeah, this is all about storing oil at 3pm on Wednesday in Cushing, Oklahoma.

[jon-nyc]

[Mik]

Man, if you had a place to store it.....

[jon-nyc]

I'd love to know what's happening behind the scenes right now on the physical side.

It's gotta be crazy.

[Mik]

We have room for another 90 million barrels right now. We should get it.

[89th]

I don't really understand oil futures. Maybe I'm the only one.

[89th]

I mean, I've google'd but still... what a different world to do business in.

[George K]

One dollar.

One.

[Improviso]

It just hit 10 cents a barrel.

[Improviso]

Negative : -1.43 a barrel. Unbelievable.

[Improviso]

At this rate, they are going to pay us to fill up our cars.

[89th]

Sooooo........should I buy Halliburton?

Is this just reflecting the surplus in supply, minimal demand, and no place to store the actual dinosaur juice?

[jon-nyc]

@jon-nyc said in Oil Futures:

May futures expire tomorrow. If you're long you gotta accept delivery. There's no where to store it. In theory it could go negative.

And it did!

https://www.barrons.com/articles/oil-futures-fall-below-1-for-first-time-ever-51587406408

[xenon]

@89th said in Oil Futures:

I don't really understand oil futures. Maybe I'm the only one.

There's a lot of implications and math that falls out from the basic structure. But the basic structure is quite simple:

The spot price is the price of a commodity today.

The futures price is the price of a commodity at a specific point in the future.

The futures price includes the cost of carrying and storing the commodity until the "delivery date".

Those two prices converge as the future date gets closer to today (spot price)

In this case, storage in May is expected to be full - which significantly increases storage and carrying costs. This makes the commodity itself quite unattractive and is the reason why we're seeing next to zero or even negative prices.

At this point full storage isn't priced into later months (July, August, etc.) - so those prices are still positive.