So, smart people, how do these negative prices work? Contract holder doesn't want pay storage costs, or simply can't, so they figure it's better to pay someone else to take the contract?
So, smart people, how do these negative prices work? Contract holder doesn't want pay storage costs, or simply can't, so they figure it's better to pay someone else to take the contract?
Not a smart person, but my understanding is that this is the last day to sell or buy for May futures and it has to all be gone by X date..
Oil prices plunged Monday as storage space ran low for the glut of crude no longer needed by economies hard hit by the coronavirus pandemic.
The June contract for West Texas Intermediate futures, considered the benchmark for U.S. crude prices, dropped 18% to $20.43 a barrel. Brent crude oil, the global benchmark, fell 8.9% to $25.57 a barrel.
The fall was more severe for the front-month May contract, which made history by plunging into negative territory in the afternoon, a first in oil-futures market data going back to 1983. It ended the day at $-37.63 a barrel, underscoring the glut threatening the energy sector. Producers in some parts of the world will have to pay buyers to take oil away or store it.
Still, with the May contract expiring Tuesday and no longer the most actively traded, oil watchers don’t consider it the most accurate reflection of price action.
When futures contracts come close to expiration, their price typically converges with the underlying price of physical barrels of oil. Otherwise traders could profit from the difference between oil futures and oil barrels.
So, smart people, how do these negative prices work? Contract holder doesn't want pay storage costs, or simply can't, so they figure it's better to pay someone else to take the contract?
Not a smart person, but my understanding is that this is the last day to sell or buy for May futures and it has to all be gone by X date..
Also curious how the Saudi/Russia price war affected these expiring contracts. Heard the Saudi's were sending 9 VLCCs to the Gulf compared to 1 or 2 a month before the price war.
Comments
hey kids - no swimming for a while. Time to drain the pool and fill it with oil!
https://www.zerohedge.com/energy/heres-next-problem-where-do-100-million-oil-barrels-get-delivered
I'm going to laugh if a bunch of the open contracts are the oil companies that own the oil and are getting paid not to deliver it...
The June contract for West Texas Intermediate futures, considered the benchmark for U.S. crude prices, dropped 18% to $20.43 a barrel. Brent crude oil, the global benchmark, fell 8.9% to $25.57 a barrel.
The fall was more severe for the front-month May contract, which made history by plunging into negative territory in the afternoon, a first in oil-futures market data going back to 1983. It ended the day at $-37.63 a barrel, underscoring the glut threatening the energy sector. Producers in some parts of the world will have to pay buyers to take oil away or store it.
Still, with the May contract expiring Tuesday and no longer the most actively traded, oil watchers don’t consider it the most accurate reflection of price action.
When futures contracts come close to expiration, their price typically converges with the underlying price of physical barrels of oil. Otherwise traders could profit from the difference between oil futures and oil barrels.
https://www.wsj.com/articles/oil-prices-slump-as-crude-storage-shortage-intensifies-11587382034
@meek?