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US oil prices turn negative

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forrado
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US oil prices turn negative

#302084

Postby forrado » April 20th, 2020, 9:22 pm

"The price of US oil has turned negative for the first time in history. That means oil producers are paying buyers to take the commodity off their hands over fears that storage capacity could run out in May."

https://www.bbc.co.uk/news/business-52350082

I thought I'd seen everything when interest rates went negative on some countries' government debt instruments, but this must surely take the cigar.

dealtn
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Re: US oil prices turn negative

#302086

Postby dealtn » April 20th, 2020, 9:35 pm

forrado wrote:"The price of US oil has turned negative for the first time in history. That means oil producers are paying buyers to take the commodity off their hands over fears that storage capacity could run out in May."

https://www.bbc.co.uk/news/business-52350082

I thought I'd seen everything when interest rates went negative on some countries' government debt instruments, but this must surely take the cigar.


You would be surprised how little storage there is at Cushing, Oklahoma, especially relative to the sizes of Oil Demand, Supply and Futures Trading. Yes it's a very unusual situation, but given the settlement mechanism, and a once in a lifetime economic shock of this magnitude, perhaps not so surprising.

odysseus2000
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Re: US oil prices turn negative

#302091

Postby odysseus2000 » April 20th, 2020, 10:01 pm

dealtn wrote:
forrado wrote:"The price of US oil has turned negative for the first time in history. That means oil producers are paying buyers to take the commodity off their hands over fears that storage capacity could run out in May."

https://www.bbc.co.uk/news/business-52350082

I thought I'd seen everything when interest rates went negative on some countries' government debt instruments, but this must surely take the cigar.


You would be surprised how little storage there is at Cushing, Oklahoma, especially relative to the sizes of Oil Demand, Supply and Futures Trading. Yes it's a very unusual situation, but given the settlement mechanism, and a once in a lifetime economic shock of this magnitude, perhaps not so surprising.


It is interesting how one has oil selling for negative prices while at the same moment US equity markets are near highs after a huge run from the lows in March.

It is oft said that equity markets reflect how market participants see the economic future, but for now there is a huge deviation between what market participants expect in oil and in many equities. One can argue that oil is all about storage, but one can counter this by noting that there would be no storage problem if the main producers had cut their output.

Interesting to see how this will all resolve and what consequences there are in that resolution.

Regards,

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Re: US oil prices turn negative

#302092

Postby Spet0789 » April 20th, 2020, 10:08 pm

Oil going negative is purely technical and not fundamental. As has been said, driven by limited storage at Cushing and a dramatic reduction in demand. Brent is a far more sensible benchmark and is at $25.5.

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Re: US oil prices turn negative

#302126

Postby colin » April 21st, 2020, 8:21 am

Spet0789 wrote:Oil going negative is purely technical and not fundamental. As has been said, driven by limited storage at Cushing and a dramatic reduction in demand. Brent is a far more sensible benchmark and is at $25.5.

In what way exactly is a 'dramatic reduction in demand' not fundamental?

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Re: US oil prices turn negative

#302129

Postby dealtn » April 21st, 2020, 8:38 am

colin wrote:
Spet0789 wrote:Oil going negative is purely technical and not fundamental. As has been said, driven by limited storage at Cushing and a dramatic reduction in demand. Brent is a far more sensible benchmark and is at $25.5.

In what way exactly is a 'dramatic reduction in demand' not fundamental?


I think it is better to say the futures settlement price going negative is...not fundamental, reflecting the specific physical delivery issue and storage at Cushing. A drop in demand is also fundamental but reflective, along with games on the supply side between the Saudis and Russia, in moving the price down to, say, +$25.

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Re: US oil prices turn negative

#302131

Postby Spet0789 » April 21st, 2020, 8:41 am

dealtn wrote:
colin wrote:
Spet0789 wrote:Oil going negative is purely technical and not fundamental. As has been said, driven by limited storage at Cushing and a dramatic reduction in demand. Brent is a far more sensible benchmark and is at $25.5.

In what way exactly is a 'dramatic reduction in demand' not fundamental?


I think it is better to say the futures settlement price going negative is...not fundamental, reflecting the specific physical delivery issue and storage at Cushing. A drop in demand is also fundamental but reflective, along with games on the supply side between the Saudis and Russia, in moving the price down to, say, +$25.


I think that’s exactly what I said!

Oil going from $50 ish to $25 ish is fundamental, based on the reduction in demand. WTI going negative yesterday is technical.

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Re: US oil prices turn negative

#302134

Postby dealtn » April 21st, 2020, 8:50 am

Spet0789 wrote:
dealtn wrote:
colin wrote:In what way exactly is a 'dramatic reduction in demand' not fundamental?


I think it is better to say the futures settlement price going negative is...not fundamental, reflecting the specific physical delivery issue and storage at Cushing. A drop in demand is also fundamental but reflective, along with games on the supply side between the Saudis and Russia, in moving the price down to, say, +$25.


I think that’s exactly what I said!

Oil going from $50 ish to $25 ish is fundamental, based on the reduction in demand. WTI going negative yesterday is technical.


Well our definition of "exactly" must be different in our respective dictionaries then.

I merely clarified your "oil going negative..." to "the futures settlement price going negative..." for someone who questioned it and maybe didn't understand the distinction between the two. Perhaps next time you could make that clarification yourself.

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Re: US oil prices turn negative

#302148

Postby Bubblesofearth » April 21st, 2020, 9:53 am

I see there are an increasing number of predictions that we have seen the peak in oil consumption, that demand will not climb back to pre-virus levels.

From an investment pov I hope these predictions keep coming and oil shares continue to fall. Because I don't believe it. IMO we will be back to business as usual in a couple of years time and population and GDP growth will take consumption back above 100bbls/day. A small minority of people might change their lifestyle but most will revert to norm, possible with a bit of overcompensation for having been locked down.

I shall be looking to buy oil shares on any significant dips below todays levels.

BoE

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Re: US oil prices turn negative

#302196

Postby monabri » April 21st, 2020, 12:24 pm

Aerial view of Cushing, Oklahoma , courtesy of Google Earth.

Image

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Re: US oil prices turn negative

#306883

Postby johnhemming » May 9th, 2020, 9:58 am

Primary visions frac spread count is down now to 55
https://twitter.com/PrimaryVision?ref_s ... r%5Eauthor

It peaked somewhere around 500 and troughed in 2016 at around 150. This is the actual process of fracking to start off a fracked oil well. Potentially fracking itself could stop or just run at trivial numbers.


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