Energy Sector

[LC]

Will be interesting to see how commodity desks react in the coming weeks/months.

[alwaysdrawing]

As at 4:09 pm EST: WTI is priced at MINUS USD 35.30.

The immediate issue is which big players have bankrupted, and what announcements are we going to hear in the next day or so;

as this will be on par with the collapse of Lehman Bros, and the other US I-Banks, at the start of the GFC.

 

The follow-up will be that if there was hesitation on a NA oil tariff before, it's now gone.

This will have done major damage to US oil-state infrastructure, and Trump's re-election chances are zero - without a massive, and almost immediate rescue package.

 

SD

 

This is big, but not quite what you say. Futures further out (June and July, I think) were still in the 20s last I saw. This is a storage issue for this month's contract because we're close to date when you have to get delivery.

 

https://www.forbes.com/sites/jimcollins/2020/04/20/the-us-oil-etf-uso-is-the-culprit-behind-oils-massive-plunge/?subId3=xid:fr1587412446979iif#141008c724e8

 

It matters, but Liberty is right.  This is small potatoes--most oil futures for May were already closed.  This just screws some people with open long contracts who cannot take physical delivery.

 

That said, I don't see why this doesn't happen again when June expires...nothing about the massive oversupply has been fixed, and storage continues to fill.

[TwoCitiesCapital]

As at 4:09 pm EST: WTI is priced at MINUS USD 35.30.

The immediate issue is which big players have bankrupted, and what announcements are we going to hear in the next day or so;

as this will be on par with the collapse of Lehman Bros, and the other US I-Banks, at the start of the GFC.

 

The follow-up will be that if there was hesitation on a NA oil tariff before, it's now gone.

This will have done major damage to US oil-state infrastructure, and Trump's re-election chances are zero - without a massive, and almost immediate rescue package.

 

SD

 

This is big, but not quite what you say. Futures further out (June and July, I think) were still in the 20s last I saw. This is a storage issue for this month's contract because we're close to date when you have to get delivery.

 

https://www.forbes.com/sites/jimcollins/2020/04/20/the-us-oil-etf-uso-is-the-culprit-behind-oils-massive-plunge/?subId3=xid:fr1587412446979iif#141008c724e8

 

It matters, but Liberty is right.  This is small potatoes--most oil futures for May were already closed.  This just screws some people with open long contracts who cannot take physical delivery.

 

That said, I don't see why this doesn't happen again when June expires...nothing about the massive oversupply has been fixed, and storage continues to fill.[\b]

 

This. While the 90+% decline today, and negative oil prices, are being overly hyped b/c it's for front month delivery that no one wants, there is nothing stopping this from happening again in June when we get to May 20th and realize we still don't have any storage b/c demand is still 10% of what it was. 2-3 months of negative oil prices is likely all we need to shake out a lot of week hands (both investors and companies) who are in this field.

 

That will probably be the time to start buying the majors that will survive this. 

[rb]

As at 4:09 pm EST: WTI is priced at MINUS USD 35.30.

The immediate issue is which big players have bankrupted, and what announcements are we going to hear in the next day or so;

as this will be on par with the collapse of Lehman Bros, and the other US I-Banks, at the start of the GFC.

 

The follow-up will be that if there was hesitation on a NA oil tariff before, it's now gone.

This will have done major damage to US oil-state infrastructure, and Trump's re-election chances are zero - without a massive, and almost immediate rescue package.

 

SD

 

This is big, but not quite what you say. Futures further out (June and July, I think) were still in the 20s last I saw. This is a storage issue for this month's contract because we're close to date when you have to get delivery.

 

https://www.forbes.com/sites/jimcollins/2020/04/20/the-us-oil-etf-uso-is-the-culprit-behind-oils-massive-plunge/?subId3=xid:fr1587412446979iif#141008c724e8

 

It matters, but Liberty is right.  This is small potatoes--most oil futures for May were already closed.  This just screws some people with open long contracts who cannot take physical delivery.

 

That said, I don't see why this doesn't happen again when June expires...nothing about the massive oversupply has been fixed, and storage continues to fill.

Well Liberty is not exactly right. USO had nothing to do with it. Guy in his link knows not what he is talking about. USO was all in the June contract already. See link below.

 

http://www.uscfinvestments.com/holdings/uso

 

So yea you have a problem with delivery. But when the thing went to minus 10. Why didn't some trader for a refinery go "Fuck it! at -10 I'll take some extra barrels and clear the market." It's because NOBODY wants those barrels. If it's a storage problem, do you think that there will be more storage or less storage available 30 days from now? If you have the same storage problem for June delivery and that contract will go negative then what is the fair value of that contract today?

 

Normally E&P close and roll their contracts over because there hasn't been any problem with delivery. Now if I'm an E&P guy with overproduction and I just saw spot go down to -35 cause nobody is taking delivery and I'm looking at the $20 june contract don't I just sell my production forward and force delivery on whatever fool was dumb enough to buy the contract?

[bonkers]

I guess negative interest rates weren't crazy enough. Why should anything in this world have a positive price!?  8)

[rb]

This. While the 90+% decline today, and negative oil prices, are being overly hyped b/c it's for front month delivery that no one wants, there is nothing stopping this from happening again in June when we get to May 20th and realize we still don't have any storage b/c demand is still 10% of what it was. 2-3 months of negative oil prices is likely all we need to shake out a lot of week hands (both investors and companies) who are in this field.

 

That will probably be the time to start buying the majors that will survive this.

It'll be very interesting to see if the shippers get into the trade. They were probably not ready this go around cause it was so unexpected. But if I have a VLCC around and I buy oil at -20 and sell one month forward at 20 that can hugely profitable. Why just settle for paltry rents?

 

Btw, for shits and giggles the Texas RR commission is having another big meeting tomorrow. I bet it's gonna be EPIC. Usually these things are like the most boring thing on the planet. But could be fun seeing some Texas oilmen soil themselves tomorrow.

[longlake95]

I hope the SPR bought every contract they could handle.

[Peregrine]

I hope the SPR bought every contract they could handle.

 

Very limited liquidity for the May contract as far as I'm aware.

[opihiman2]

Looks like the VLCC tanker play is taking off today.

[Dalal.Holdings]

Looks like the VLCC tanker play is taking off today.

 

Yep, now just up to these (sometimes questionable) managers to seize the opportunity.

[writser]

That said, I don't see why this doesn't happen again when June expires...nothing about the massive oversupply has been fixed, and storage continues to fill.

 

Gotta give the market a bit more credit than this, right? That should be priced in. Or you could just short the June futures now and make a few gazillion in a month when people figure out they can't take delivery. Again. "Damn, I'm selling my crude for minus $13 per barrel the last day of trading. Just like four weeks ago. And nothing has changed! Didn't see that coming".

[Dalal.Holdings]

That said, I don't see why this doesn't happen again when June expires...nothing about the massive oversupply has been fixed, and storage continues to fill.

 

Gotta give the market a bit more credit than this, right? That should be priced in. Or you could just short the June futures now and make a few gazillion in a month when people figure out they can't take delivery. Again. "Damn, I'm selling my crude for minus $13 per barrel the last day of trading. Just like four weeks ago. And nothing has changed! Didn't see that coming".

 

Too many unknowns to price in. Do the OPEC+ cuts (starting May 1) do enough? Does demand return in 'V' shape as developed regions 'reopen'?

 

Just like with stocks, the price is a voting machine in the short run.

[LC]

The real unknown here is how various desks will price these assets going forward and the various implications of that (i.e. reduced volumes or higher collateral reqs). Many existing models (e.g. gabillon) do not allow for negative prices. Similarly to negative interest rates a few years back.

[Dalal.Holdings]

The real unknown here is how various desks will price these assets going forward and the various implications of that (i.e. reduced volumes or higher collateral reqs). Many existing models (e.g. gabillon) do not allow for negative prices. Similarly to negative interest rates a few years back.

 

Agree, negative pricing changes the game: the downside becomes potentially limitless. Almost feels like CME made the decision on the fly.

 

And I wouldn't be surprised if we hear of a few trading firms going under in the days to come because of what happened today.

[writser]

That said, I don't see why this doesn't happen again when June expires...nothing about the massive oversupply has been fixed, and storage continues to fill.

 

Gotta give the market a bit more credit than this, right? That should be priced in. Or you could just short the June futures now and make a few gazillion in a month when people figure out they can't take delivery. Again. "Damn, I'm selling my crude for minus $13 per barrel the last day of trading. Just like four weeks ago. And nothing has changed! Didn't see that coming".

 

Too many unknowns to price in. Do the OPEC+ cuts (starting May 1) do enough? Does demand return in 'V' shape as developed regions 'reopen'?

 

Just like with stocks, the price is a voting machine in the short run.

 

Yes, many unknowns, but a known fact is that the May crude future traded at a double-digit negative price one day before expiry (when liquidity has already disappeared) because apparently some speculators couldn't take delivery in Cushing. I'd be very, very, very surprised if nobody learns anything from that and it will be a repeat event that the front future drops from basically the spot price a month before settlement to minus $whatever a day before settlement each month. I'd happily take a decent sized bet that something similar won't happen again in 1/2/3/x months. If  you work at an oil trading firm and you are forced to sell front month futures at $-15 during a massive squeeze just before expiry your boss might say "don't fuck up again" if he's a nice guy. But three weeks later he'll be standing at your desk to warn you that you are fucking fired if you get into the same spot again.

 

As for what the spot oil price is in a month I agree: I have no clue.

[rb]

The real unknown here is how various desks will price these assets going forward and the various implications of that (i.e. reduced volumes or higher collateral reqs). Many existing models (e.g. gabillon) do not allow for negative prices. Similarly to negative interest rates a few years back.

 

Agree, negative pricing changes the game: the downside becomes potentially limitless. Almost feels like CME made the decision on the fly.

 

And I wouldn't be surprised if we hear of a few trading firms going under in the days to come because of what happened today.

I think that the open interest in the May was enough to make any firm go under. Mad props to the CME for letting markets be markets. Though I kinda picture some guy over there just going like Fuck It! What's the worst that can happen.

 

In a separate thought, is anyone wondering how much of shit energy "formerly investment grade" bonds did the Fed buy? What happens when those things default? Does the Fed become an oil field operator? Is this how the US gets a national oil company? With the shittiest assets in the business to boot??

[Spekulatius]

The real unknown here is how various desks will price these assets going forward and the various implications of that (i.e. reduced volumes or higher collateral reqs). Many existing models (e.g. gabillon) do not allow for negative prices. Similarly to negative interest rates a few years back.

 

Seems risky to trade this at all, unless you actually can take delivery, as these contracts are worse than hot potatoes. This will take liquidity from the crude future markets

[SharperDingaan]

As at 4:09 pm EST: WTI is priced at MINUS USD 35.30.

The immediate issue is which big players have bankrupted, and what announcements are we going to hear in the next day or so;

as this will be on par with the collapse of Lehman Bros, and the other US I-Banks, at the start of the GFC.

 

The follow-up will be that if there was hesitation on a NA oil tariff before, it's now gone.

This will have done major damage to US oil-state infrastructure, and Trump's re-election chances are zero - without a massive, and almost immediate rescue package.

 

SD

 

This is big, but not quite what you say. Futures further out (June and July, I think) were still in the 20s last I saw. This is a storage issue for this month's contract because we're close to date when you have to get delivery.

 

https://www.forbes.com/sites/jimcollins/2020/04/20/the-us-oil-etf-uso-is-the-culprit-behind-oils-massive-plunge/?subId3=xid:fr1587412446979iif#141008c724e8

 

It matters, but Liberty is right.  This is small potatoes--most oil futures for May were already closed.  This just screws some people with open long contracts who cannot take physical delivery.

 

That said, I don't see why this doesn't happen again when June expires...nothing about the massive oversupply has been fixed, and storage continues to fill.

Well Liberty is not exactly right. USO had nothing to do with it. Guy in his link knows not what he is talking about. USO was all in the June contract already. See link below.

 

http://www.uscfinvestments.com/holdings/uso

 

So yea you have a problem with delivery. But when the thing went to minus 10. Why didn't some trader for a refinery go "Fuck it! at -10 I'll take some extra barrels and clear the market." It's because NOBODY wants those barrels. If it's a storage problem, do you think that there will be more storage or less storage available 30 days from now? If you have the same storage problem for June delivery and that contract will go negative then what is the fair value of that contract today?

 

Normally E&P close and roll their contracts over because there hasn't been any problem with delivery. Now if I'm an E&P guy with overproduction and I just saw spot go down to -35 cause nobody is taking delivery and I'm looking at the $20 june contract don't I just sell my production forward and force delivery on whatever fool was dumb enough to buy the contract?

 

This is not just a storage problem.

Somebody was getting material margin calls, and tried to roll a big long position into other months; ordinarily not a problem, as long as you have the confidence of the market. But if a growing liquidity concern is suspected, no-one wants you as the counter-party, and you can no longer roll. All you can do is fire sale your position for as much you can get, by end of day.

 

The negative price - indicates that somebody was willing to pay others [a lot] to take the contacts off their hands. This would only occur this aggressively, if liquidity had been cut off, and there was a 'containment' instruction to avoid any physical oil. Physical oil in transit, is routinely sped up, or slowed down, according to need. We will know, if there is a liquidity injection into the inter-bank clearing system within the next few days.

 

There's lots of storage. Just keep the oil in the ground, and DON'T produce it.

We just don't have a mechanism yet - most would think that before the next expiry we very likely will have.

 

We live in interesting times.

 

SD

 

 

[alwaysdrawing]

Robinhood shows USO, an ETF that holds oil futures contracts, was the biggest add today.  Retail investors don't know WTF they are buying, and are going to crash into contango.  I wouldn't be surprised if USO collapses in the next 30 days.  I see absolutely no reason why the June futures won't collapse like May causing massive losses for USO holders.

 

I bought a very small position in USO July $2 puts.  It's actually a similar situation to XIV during volmageddon, and would be 8-10 bags if the ETF liquidates at 0.  I don't think it would get to 0, but as seen today the market could get pretty crazy as people realize there is absolutely no storage for physical oil.

[capitalg]

On Robinhood, where can you see the biggest adds or most popular stocks?

[TwoCitiesCapital]

Robinhood shows USO, an ETF that holds oil futures contracts, was the biggest add today.  Retail investors don't know WTF they are buying, and are going to crash into contango.  I wouldn't be surprised if USO collapses in the next 30 days.  I see absolutely no reason why the June futures won't collapse like May causing massive losses for USO holders.

 

I bought a very small position in USO July $2 puts.  It's actually a similar situation to XIV during volmageddon, and would be 8-10 bags if the ETF liquidates at 0.  I don't think it would get to 0, but as seen today the market could get pretty crazy as people realize there is absolutely no storage for physical oil.

 

Was considering this myself today. Interesting times.

[fareastwarriors]

On Robinhood, where can you see the biggest adds or most popular stocks?

 

I need some help there too!

 

 

Usually use IBKR but have Robinhood app for fun.

 

 

[alwaysdrawing]

On Robinhood, where can you see the biggest adds or most popular stocks?

 

https://www.robintrack.net/

[Dalal.Holdings]

Well I guess the futures mkt is not that “efficient” after all...now the June contract also tumbles as people realize the same could happen a mo from now...

[rb]

On Robinhood, where can you see the biggest adds or most popular stocks?

 

https://www.robintrack.net/

Their popularity change is like a list of what not to buy. Who are these people?