The Price of a Barrel of Crude Oil

[Running_Man]

The lessons to be learned from this adventure are not being made. There is talk of efficient markets, there is almost no larger market than the oil market, weeks ago I saw analysts discussing how the lack of storage space would lead to negative oil prices as there was more in oil to be delivered by May contract than there was storage space so prices would have to go negative. Despite this for weeks after the MAY contract traded over $20 until it came time for deliveries and ETF's that held the contracts but no possible method of storing the oil realized they were stuck and some had to sell at minus $57 per barrel. This was a known problem by some of the richest and smartest individuals in world and still in one day commodity fell over 100% It was not until the actual paper flowed that prices moved to realize the actual demand/supply.

Now today people holding June July August paper on oil futures suddenly realize they have a huge problem and today those contracts are down 35%. Which would have been an all time record for a one time decline in the price of oil, excepting for what happened yesterday.

The same issue is poised to happen to all of the holders of stock market certificates. There is no money nor is it any longer socially acceptable for corporations to use their funds to buy stock back, states are not having funds paid to them so they will certainly defer funding public pensions. Individuals are increasingly not working and will be accessing their 401K funds to maintain their lifestyle, indeed the IRS has changed the rules to eliminate the penalty on doing so.

Contributions to 401K will drop precipitously. The result is as the months pass without a full return to normalcy there is going to be a increased supply of stock for sale with a very diminished long term storage capacity. In the aftermath, this will be clear to everyone that prices on the way down are not set by active managers, they just sell and no longer have influence, but when passive investors sell there is no one with the storage capacity to sell to and there will be days with air pockets in the market. By the time this becomes obvious there will be a collective, "should have seen that coming it was an obvious known problem just like the oil issue but too late now".

The oil market is just the canary in the coal mine. I wonder who the individuals sitting with these 100% losses are....

 

[ExFlyBoy5]

I view this news (the price of oil collapsing)as good news. With the weakened demand caused by the virus it just shows that eventually with the move to electric vehicles then a large portion of the fossil fuel industry with just go away. I know that will be some time coming but the prediction of the declining need for oil is not only possible but hopefully reality. Time to move on to a 21st century means of energy production. Oil is so 19th century.

Yep, and we will be on electric powered commercial airplanes and cruise ships soon.

 

[ExFlyBoy5]

When I pumped gas in high school, gas was $1/gallon and I was paid $2.10 hour. Those days may be here again.

Gas prices have been in flux for YEARS (although this craziness is new, obviously). Back in the early 90's, I worked in a warehouse making $15 an hour and could get gas for 80 cents a gallon.

 

[atmsmshr]

The lessons to be learned from this adventure are not being made. There is talk of efficient markets, there is almost no larger market than the oil market, weeks ago I saw analysts discussing how the lack of storage space would lead to negative oil prices as there was more in oil to be delivered by May contract than there was storage space so prices would have to go negative. Despite this for weeks after the MAY contract traded over $20 until it came time for deliveries and ETF's that held the contracts but no possible method of storing the oil realized they were stuck and some had to sell at minus $57 per barrel. This was a known problem by some of the richest and smartest individuals in world and still in one day commodity fell over 100% It was not until the actual paper flowed that prices moved to realize the actual demand/supply.

Now today people holding June July August paper on oil futures suddenly realize they have a huge problem and today those contracts are down 35%. Which would have been an all time record for a one time decline in the price of oil, excepting for what happened yesterday.

The same issue is poised to happen to all of the holders of stock market certificates. There is no money nor is it any longer socially acceptable for corporations to use their funds to buy stock back, states are not having funds paid to them so they will certainly defer funding public pensions. Individuals are increasingly not working and will be accessing their 401K funds to maintain their lifestyle, indeed the IRS has changed the rules to eliminate the penalty on doing so.

Contributions to 401K will drop precipitously. The result is as the months pass without a full return to normalcy there is going to be a increased supply of stock for sale with a very diminished long term storage capacity. In the aftermath, this will be clear to everyone that prices on the way down are not set by active managers, they just sell and no longer have influence, but when passive investors sell there is no one with the storage capacity to sell to and there will be days with air pockets in the market. By the time this becomes obvious there will be a collective, "should have seen that coming it was an obvious known problem just like the oil issue but too late now".

The oil market is just the canary in the coal mine. I wonder who the individuals sitting with these 100% losses are....

I agree.

Basically a demand side shock coming for stocks on top of a months long and rippling earnings decline. The Fed can keep us from a liquidity crunch, but not from bankruptcies and a lot of cash stuffed into mattresses.

 

[ExFlyBoy5]

Contributions to 401K will drop precipitously. The result is as the months pass without a full return to normalcy there is going to be a increased supply of stock for sale with a very diminished long term storage capacity. In the aftermath, this will be clear to everyone that prices on the way down are not set by active managers, they just sell and no longer have influence, but when passive investors sell there is no one with the storage capacity to sell to and there will be days with air pockets in the market. By the time this becomes obvious there will be a collective, "should have seen that coming it was an obvious known problem just like the oil issue but too late now".

The oil market is just the canary in the coal mine. I wonder who the individuals sitting with these 100% losses are....

As much as I would like to disagree, I cannot...and that is a very, VERY scary scenario. This is an illustration that we really have no idea how bad this could get...we have never been here before.

 

[PatrickA5]

The oil and gas industry here in the U.S. has always been it's own worst enemy. For various reasons (some good, some bad), the industry just doesn't believe in shutting in production until it's too late. The fracking of natural gas back in the 2008-2012 caused a glut in natural gas with prices going from $9-$13/mcf down below $2. No company wants to be the first to curtail production - always wanting others to go first. Now we have a glut in oil, due to overproduction and a massive decline in demand. Things will turn around eventually, but it takes time - meanwhile many small/medium sized oil companies will be forced into bankruptcy.

 

[ownyourfuture]

$0.229. The cheapest I ever paid for gas. Early 70’s.

One things for certain, you'll never see it that cheap again. The fed & state tax alone averages around $.50 per gallon.

Just drill baby

 

[Markola]

The lessons to be learned from this adventure are not being made.

One lesson is to not speculate in the futures market.

 

[Gumby]

One lesson is to not speculate in the futures market.

Another is to always understand what you actually own. https://www.cnbc.com/2020/04/21/ret...esting-in-crude-oil-get-a-rude-awakening.html

 

[PatrickA5]

One of the Texas Railroad Commissioners just stated on CNBC that they want to approve a 20% curtailment of production IF other states and Canada will do the same. Good luck with that!

 

[Mr. Tightwad]

^^^^^^
I'm not sure I have ever disagreed with a post more than this one above. Although I've disagreed with a good number of posts over the years. This is not good news and the negative ramifications are likely to be far reaching and are unpredictable at this time, especially if these negative prices drag on for any length of time. (Oil prices in the teens are bad enough) However, I would agree that eventually we will run out of fossil fuels and be forced to alternate sources but that's a long time away. Well beyond my lifetime anyway.



^^^^^^^^

Fully agree with this post. From my POV, with the price of gas going much lower than it is today, why would anyone want to buy an EV. Except maybe the environmental purist. (That's as politically correct as I can say it)

Also, you must have grown up rich. I can remember my mom pulling into the gas station and asking for a dollars worth. Of course that was in the very early 60's... And I do remember getting Green Stamps too.

I can remember seeing gas for 19.9 at one time. (Late 50's or early 60's)

A week ago or a year ago, you couldn't understand why anyone would want to buy an EV. The current oil situation isn't changing your outlook. If gas was 10 cents or 10 dollars a gallon you wont be buying an EV. But that's you. Your POV is ICE car is superior. That isn't going to change.

Cheap oil won't encourage EV sales. But the price of gasoline is not the reason Tesla sales keep increasing. (How is Ford doing?)

People buy EV's for many reasons. Not having to stop to refuel at a gas station is just one of them. Check with an EV owner and see why they say" they'll never go back to driving an ICE car again".

 

[Running_Man]

One lesson is to not speculate in the futures market.

ISO a very popular ETF owned as of yesterday 33% of the future contracts for June delivery. THE ETF was thought to be a way to invest in a hedged fund to profit from moves in the commodity. Indeed they are swamped with orders to create more shares as money is pouring in from people convinced now is the time to buy oil. However, they cannot create creation units as the math does not work and as a consequence have stopped trading several times today to change the rules under which the ETF operates and to avoid going to negative value itself. Kyle Bass is questioning if the owners of an ETF could be held to loss more than 100% of their investment if ISO turns negative.

But it is not the futures speculation but the physical limitations that are actually driving the market. Kelly Evans just posted a piece where when June oil is delivered the expectation is for negative 100 a barrel oil.

 

[Freedom56]

"US Oil Fund halted after saying it will change structure again as ETF tries to stave off collapse"

Given that they have to rollover the June futures contract starting May 5th, 2020 and
the June contract is already at just over $10, the oil market was headed for an even more of a disaster. You have to ask yourself, why does this ETF even exist. It just rolls two months of oil futures forward. There are some leveraged equity ETFs and ETNs that are even more dangerous.

https://www.cnbc.com/2020/04/21/uso...rk-will-be-the-next-month-contract-to-ex.html

 

[NYEXPAT]

"US Oil Fund halted after saying it will change structure again as ETF tries to stave off collapse"

Given that they have to rollover the June futures contract starting May 5th, 2020 and
the June contract is already at just over $10, the oil market was headed for an even more of a disaster. You have to ask yourself, why does this ETF even exist. It just rolls two months of oil futures forward. There are some leveraged equity ETFs and ETNs that are even more dangerous.

https://www.cnbc.com/2020/04/21/uso...rk-will-be-the-next-month-contract-to-ex.html

Just went long USO at $2.38!

 

[Jeffman52]

WTH - I dropped a small amount of cash into oil futures today. It will be interesting to see what that looks like a year from now.

Hopefully this and not this

 

[Car-Guy]

A week ago or a year ago, you couldn't understand why anyone would want to buy an EV. The current oil situation isn't changing your outlook. If gas was 10 cents or 10 dollars a gallon you wont be buying an EV. But that's you. Your POV is ICE car is superior. That isn't going to change.

100% correct on all points...

Cheap oil won't encourage EV sales.

I "believe" that will prove to be 100% correct too!

People buy EV's for many reasons. Not having to stop to refuel at a gas station is just one of them.

So I guess they must prefer to stop more often and for much longer periods of time for each stop to charge their batteries. If that's what they like to do with their time then that is fine, but it's 100% not for me.

 

[Beststash]

There is now talk of a possible fossil fuel bailout. I hope not but it would fit into the traditional practice by some of privatizing profits and socializing losses. While oil and gas workers facing layoffs deserve assistance, their bosses do not. I guess another example of our so-called "free market".....I hope it doesn't happen.

 

[Mr. Tightwad]

100% correct on all points...


I "believe" that will prove to be 100% correct too!

So I guess they must prefer to stop more often and for much longer periods of time for each stop to charge their batteries. If that's what they like to do with their time then that is fine, but it's 100% not for me.

Thats a common misconception about EV drivers. 80% of Tesla owners never "stop more often", or at all. You fuel up at home. Just like your phone. If you had to get in your car and drive a mile or 2 or ? to charge your phone, we would all consider that a negative to owning a phone.

I would guess the Leaf and Bolt numbers are higher than 80%.

But if you like spending your time at gas stations that is fine, but I 100% don't need to.

 

[Car-Guy]

Thats a common misconception about EV drivers. 80% of Tesla owners never "stop more often", or at all. You fuel up at home.

I guess I'd be in the 20% group if I had a Tesla or any pure EV since I couldn't make my typical "day" trips on one charge. Over the past 6 to 7 years I've been making 3 or 4 ~400 mile (per day) round trips each month. That's 200 miles each way if I take the shortest routes. Add another 50 to 75 miles, each way, if I want to take different (more scenic routes) which I sometimes do when I feel like it. Then several times each year I take some much longer trips and often drive 600 to 700 miles per day on those trips. To be honest I wouldn't drive an EV even if it could go 1k miles a day and charge over night,,, but that's me...

 

[PatrickA5]

There is now talk of a possible fossil fuel bailout. I hope not but it would fit into the traditional practice by some of privatizing profits and socializing losses. While oil and gas workers facing layoffs deserve assistance, their bosses do not. I guess another example of our so-called "free market".....I hope it doesn't happen.

I suppose it depends on your thoughts on bailouts in general. Personally, I'm not in favor of bailouts - but I suppose if the airlines get bailed out and the banks and car makers last time, then why not the oil industry? I can see our energy industry being just as valuable as these others. While COVID19 isn't the only reason oil prices tanked, it IS a very big reason demand has cratered.

Full disclosure: I'm biased, as I worked in the industry for 30 years and DW currently does. The only way her small oil company avoids bankruptcy is if there's a bailout.

 

[Mr. Tightwad]

I guess I'd be in the 20% group if I had a Tesla or any pure EV since I couldn't make my typical "day" trips on one charge. Over the past 6 to 7 years I've been making 3 or 4 ~400 mile (per day) round trips each month. That's 200 miles each way if I take the shortest routes. Add another 50 to 75 miles, each way, if I want to take different (more scenic routes) which I sometimes do when I feel like it. Then several times each year I take some much longer trips and often drive 600 to 700 miles per day on those trips. To be honest I wouldn't drive an EV even if it could go 1k miles a day and charge over night,,, but that's me...

Your situation isn't common, but it does occur. Ford (how is that company doing?) came out with a study that said 72% of all drivers stay under 40 miles a day. My EV's would last a week between charges at 40 miles a day.

For the vast majority 325 miles of range is plenty. Some people choose to have an ICE and an EV.

We prefer different vehicles, but to eliminate gas stations and their stench from one's life one picks an EV.

 

[CardsFan]

Your situation isn't common, but it does occur. Ford (how is that company doing?) came out with a study that said 72% of all drivers stay under 40 miles a day. My EV's would last a week between charges at 40 miles a day.

For the vast majority 325 miles of range is plenty. Some people choose to have an ICE and an EV.

We prefer different vehicles, but to eliminate gas stations and their stench from one's life one picks an EV.

We get it. You love your EV, and every should have one.

But I have to admit I have NEVER heard the reason to get an EV was to avoid the stench of gas stations.

I guess there is a reason I never posted in the EV thread that was going a while ago (or maybe I did and forgot about it).

 

[Car-Guy]

Your situation isn't common, but it does occur. Ford (how is that company doing?) came out with a study that said 72% of all drivers stay under 40 miles a day. .

I don't have a clue about how Ford is doing as a company. (never cared much for Ford's) I'm a GM and FCA guy.

And 40 miles a day I drive that far or more just to get to the nearest store/post office/hamburger joint and back home.

If I lived in a big city and/or didn't take as many long trips as I do, I could consider an EV (well maybe ,,,,,, on second thought, not)

 

[MichaelB]

Can we take the generic EV discussion back to one of the many EV threads and let the “botton fell out of the petroleum market” discussion continue? It’s an interesting topic

 

[Car-Guy]

^^^^^^
As you wish forum leader.....