Arrangements when price of a future contract go to negative
Hi all,
As you all may know that the price of the 2020may wti oil future contract went to negative just then. I am interested to know that:
If it is possible for buyer in the contract to ask seller that no need to deliver the underlying asset while buyer is willing to still pay the money.
No. The price is negative for a couple reasons (1) there's an oversupply of oil and it's expensive to keep in storage (2) producers are afraid that if they halt production the wells could be damaged. It wouldn’t make sense to pay you and continue incurring storage losses. Rent a flat in Manhattan and store it there, there’s still potential for an arbitrage profit there lol
Thx H2O, you explained why the seller may not want to accept the offer.
If there is a situation that seller are very happy to not deliver the asset. What I said could actually happen right?
no....the seller also does not have storage capacity....they need to get rid of it...like the game "hot potatoe"
What if the original buyer defaults and the seller is stuck with the oil? Do you hold on and sue?
the contract is physically settled aka if you are long the futures at expiry, you get physical oil; if short you have to had someone some oil
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