So can someone please help me make sense of this? Oil is essentially a predictor of demand and crashing to around 2.50 a barrel.
Meanwhile stock market is acting like the fed's tit is perma-latching. Can someone please rationalize this apparent disconnect?
Be forewarned I'm a contraction and I think a serious depression is ahead so I may be looking for the problem for my answer .
Kind of disappointed about these low gas prices since I haven't filled my tank in 5 weeks.
.
I’ve been driving around during the quarantine not even going anywhere just so I can have the once in a lifetime opportunity to fill my tank up for less than $30
I am trying to figure this out myself. I believe that the oil contract is technically down a ridiculous percentage but that is primarily because the contract expires tomorrow
Like the shortening of a word, the shortening of a muscle, or catching a disease?
Yes
I meant contrarion but my Droid phone says it's not a word.
Contrarian ;)
Hah, "contrarian" ;)
Buy an iPhone
The oil price that you saw crash 90+% today is the may contract for futures. If you look out further to the June, July, and November contracts, you’ll see oil is traded at $30+ per barrel. So why are prices today so much lower? it’s because there is only so much capacity to store oil when production exceeds demand, so once the storage fills up, producers are forced to sell at any given price. (they could potentially go negative)
Isn't the relevant contract the June one , which is trading at around 22?
How do you define relevant?
Can I get a banana for calling negative?
Sbd
what do u mean negative? like paying others to buy their oil? Also, why don't they stop producing when the storage fills ups?
^
It costs money to store oil, so from my understanding that’s the cause of the negative prices. Furthermore, with the fact that the futures contracts expire tomorrow, anyone holding the WTI contract would be required to purchase oil tomorrow.
Shutting down and restarting production is also very costly and can potentially damage the well.
Hope this helps and lmk if I missed anything
If you have to ask, you can’t afford it
At one point, the May contract was down over 90% but that is only the May contract. It would make sense that the combination of: only one day left to expiration and the value of an oil delivery being close to zero (due to shutdowns), that the price would be close to 0, as the May oil is almost worthless. The June WTI is down about 10% and is trading at around 22.
Deeply negative at this point. Absolutely wild.
The price is negative because people holding the contract by end of day are responsible for holding the barrels and right now there is nowhere to store it. Pay attention to the June contract, about $20 a barrel.
Yeah this doesn’t make sense. Good takes by some people on air saying market is broken somehow. Doesn’t make sense that people wouldn’t take $35,000 to hold 1,000 barrels of oil.
Best explanation I’ve heard is that people were holding the contracts that didn’t have the physical capability to take possession of the barrels in the contracts and panic sold.
I also don’t know what I’m talking about, just repeating things I’ve heard.
Yep, zero buyers out there. Has this ever happened?
I don’t think it’s necessarily panic selling.
Call it death algos. It’s what we got when we turned markers over to machines. It’s not panic selling when it’s bankruptcy selling. Maybe that’s semantics. But I’d call it panic selling when you take a loss. When the price of one month storage goes from -5 to -70 in a couple hours it doesn’t matter if you panic the exchange closed you out. Maybe a much smaller spread is reasonable (my guess) and your loss should have been smaller but that’s straight up forced out at silly levels.
I can sort of understand this. But isn't it unprecedented, why is the market acting like it's nothing? I get the futures think it will go somewhat back to normal but wouldn't that require digesting the current oversupply?
The glut to make it go -22/barrel I would think is a stronger sign than "oh it's just bc close to expiration"...like the physical aspect doesn't expire...I guess the reopening of FL beaches =
Oil is not like a precious metal, which has value without a particular use. Without a current use, oil is pretty much worthless. If you take delivery (I would assume that very few market participants take delivery), you would have storage costs, which might lead to a negative price.
Again, I understand this snapshot scenario. My question is how do you go from neg 35 to 20 etc the next month when physically current supply needs to be digested. Unless there is a massive shutdown (see; bankruptcy from halting production), how is the market not seeing significant future damage?
Rumor mill says BP got caught long without the space to take delivery... ended up having to puke the whole position with the May about to come off the board.
Guess Cushing is just about full.
As for its relation to the stock market.. who cares? This is about supply - not demand. We know demand will recover over the long term (hence the never before seen contango) but what we don't know is how much supply is going to keep flowing into storage in the short term? This is the market screaming at everyone to shut their wells in. Doesn't matter what it cost, the market cannot handle anymore barrels and if you want to keep delivering them then you are going to have to pay to do so.
We also knew home prices can't go down, anything with a .com is a winner, and interest rates can't go negative.
You're echoing my point, at what rate will demand return? I don't see it making a strong comeback and think 20-30/barrel next month is a pipe dream...pun intended
What point are you trying to make? Guess I am too dense.
so how do you play this trade?
If you’re confident in that, short it at 20
How is it not about demand? We are down 20-25 MMbpd....
If you read my message in context of the OP then it makes more sense.. He was asking why the front month crashed like it did today despite equities being okay. The crash today is a short term issue that has to do with supply going into Cushing and the contract expiring tomorrow. I was speaking to this particular price action - not the overall fall we have seen.
So yeah, obviously everything in trading is supply and demand but there are days where one far outweighs the other.. no new information came out today regarding demand yet prices went -40 the day before the settle during a time when the talk has constantly been about how long until Cushing fills up.. that is a short term supply issue if you ask me.
This was inevitable. Storage will run out, market stupidly ran on that OPEC "cut", further negatives may be ahead, COVID will cause shut-ins... but once demand recovers from COVID we are likely to have a strong upward move in prices since some supply simply won't be back. Late 2021/2022 will likely see prices test $70.
There’s no way to profit from this other than buying futures contracts is there
You can hit up your uncle who owns 10,000 acres of land in Kansas and ask him if he could take delivery. Pocket the proceeds today and revisit when prices turn positive in a year.
I am not a trader and do not play commodities markets. Probably better to ask Rotterdam. Equities on the other hand...
There was a way to profit from this and there are still ways to profit from this steep contango.
At one point the spread between May delivery and June delivery was over $50.. if someone had the balls they could have bought the May and sold the June contract. Holding that to just before expiry would have netted you nearly $50/bbl.
Moving forward this same structure is still in place.. steep contango from June to July and even July to August. Sell the spread if you think this is going to get worse or buy it if you think its going to get better before most people do.
My question is how much pricing power with Riyadh gain from this? I’ve read estimates that 20% of global suppliers will be laid to rest after this is all said and done. it seems the Saudi’s strategy has been successful so far... how high could they get prices on the back end of this?
I don’t think we can say the Saudis have been successful yet. A massive majority of their government budget depends on oil revenue.
If there is persistently low prices they can’t support their residents, and it’s not like these folks can go to the polls in a few months. Regime change in Saudi Arabia entails some guys with AK-47s and military fatigues, only they aren’t in the military.
well well well... This was quite a day...
All we need to do is wait til tomorrow afternoon when May future expires. If June contract then is above $20 I would characteristic today's crush as panic, not fundamental.
June is at $13.06.
Would say the sector impairment is pretty fundamental at this point. Shutting off meaningful production in the US in a short timeframe is a shitshow of obligations.
Even if there are announced well shut ins, frac spreads go to 0, and rigs go to an all time low - June is still fucked. An announcement like that would bring up the price because longer dated futures would rise and those with the scale to physcially trade could buy today and store. There just is no storage, and no real way to fix that before June expiry of WTI futures.
2Q is fucked for all in the energy space (though crack spreads are wonderful if anyone starts buying refined product.. i.e. driving/flying).
step 1) pull up to New Jersey gas station step 2) tell gas station attendant “look at me, look at me, I’m the captain now” and command him to pay you $20 for filling up your tank because oil prices are negative now step 3) pull out a glock to coerce cooperation and ensure speedier service step 4) leave gas station with full tank of gas and $20 in your pocket step 5) thank Saudi Arabia for the low prices and chop up a Washington Post journalist in honor of glorious crown prince Mohammad Bin Salman Al Saud
Banana for the 'look at me, look at me' comment.
That gave me a little chuckle.
I am not really expereinced in stocks but what is the play here. What would you buy to capitalize on this situation?
1 futures contract = 1000 barrels at 42 gallons per barrl = 42,000 barrels
the play was the buy the May WTI futures contract (traded negative -$40.32) then you wait to either take delivery (you get paid 40.32*1000 = $40,320 per contract) you then need to rent 4 tanker trucks (each can hold 11,000 gallons). these truck normally cost $1500 per month to rent...so that gonna cot you 6k (but you just got paid 40k)...so net you make 34k and you own 4 tanker trucks fillled with crude oil you can then sell the crude oil next month (you can short a june futures contract now to lock in that price..currently + $21/barrel)...so that's a net $60 spread you could have made
unfortunately, you need a special insurance to fill your tankr truck with crude oil, and thats hard to get. also, there are no tanker truc available for rent, they are all big used.
thats why icovered my long and just took the profit on the futures
did you mean.... lactating and contrarian?
Does anyone have an opinion on buying shares in Tanker companies such as Euronav? They must be charging insane prices for storage
I bought some FRO stock a few days ago and it's been up a good amount
this thread aged well
Interested in this as well. Wonder why there is such a gap between decreasing oil and increasing stocks. Considering that the virus situation keeps going...how would the gap end up?
The stock market is broken. We are trading at levels from mid-2019. In fact, P/E multiples haven't changed--earnings expectations have simply dropped. That doesn't make sense to me.
The equity market is priced for a VERY rapid recovery. There is also nowhere else to put your money, and most people don't know any better. Short of a miracle cure that lets everyone go back to work tomorrow, equities seem wildly overpriced to me.
That said, not all companies are going to be losers on the far side of COVID. If I'm honest, I wish we'd let a few more companies fail. After all, how can you claim to be a capitalist when you run to big daddy government for a handout when you can't cover operating expenses for even 1 month without revenues? If there is no resiliency built into your business, you will eventually be taken out by an exogenous shock. The process of creative destruction is key to free-market capitalism, and that process requires some companies to fail when their strategic planning processes over-lever their balance sheets and weaken their chances at surviving changes to the unknowable and uncertain world we live in.
The fact that so many companies didn't have any sort of rainy day fund is ludicrous. The executives running those companies should be fired and banned from all Boards especially if they issued debt to pay dividends, overpay for M&A or buyback shares. It's laughable how much money has gone out the door to save businesses from the EXACT same mistake we harass people for when they lose their jobs.
Oh--you didn't save? You were profligate in your spending when you had a job, and now you can't survive when you lose your income? You have bills due and you can't pay them because you can't go even a month or two without income? Tough--this is America! Fuck you, you worthless piece of shit. You get unemployment for a few weeks that won't even cover half your rent and as a consolation prize, we'll also take your insurance from you. Good luck signing up to Medicaid or finding an affordable Obamacare plan.
Why we are maniacally protecting companies when we ordinarily give zero shits about people who find themselves in the exact same situation is beyond my ken. And yet, Congress is writing checks with its eyes closed. More importantly, though, the Fed has MASSIVELY overstepped its bounds. It's now trying to control the entire bond market. It intervened in the repo markets last year, it intervened in the commercial paper market a few weeks ago, it set up huge dollar swap lines with 14 central banks last month, and it's now buying corporate bonds including junk bonds (they're calling them 'fallen angels' but the nomenclature doesn't change the fact that they're non-investment grade). On top of all of that, the $500 billion in the CARES Act that was meant to go to medium-sized businesses (those employing 500-10K employees) is being administered by the Treasury. But the Treasury took $454 billion of that money and put it on deposit at the Fed. The Fed is going to use that as Tier 1 collateral to leverage the shit out of it. The Fed is going to start making direct loans to medium-sized businesses using that money. That is naked risk the Fed is NOT QUALIFIED to take.
You were asking why the equity markets have held up despite everything? For me, the answer is the Fed. Central banks around the world have adopted much of its playbook and as a result, the entire world economy is going to be the same way around and drastically over-levered on the far side of this. There will be financial crises that come as a result of this. The Fed can get away with extraordinary measures longer than the RBA, the RBI or even the ECB. But your seeing this same nonsense all over Asia, not just in Japan. It's going to end in tears.
In any case, for the moment, the market is holding up. I bet both my nuts that situation doesn't last. I guess we'll see.
This guy fucks
Also blackrock is managing private purchases for the fed. The amount of debt is ludicrous enough. Wait until pension plans true up later this year and people start losing their vehicles financed 7yrs and deferred payments.
https://chicago.suntimes.com/politics/2020/4/20/21228383/gop-illinois-c…
https://www.forbes.com/sites/pedrodacosta/2020/04/20/a-glaring-new-conf…
https://www.nytimes.com/2020/04/02/business/dealbook/coronavirus-public…
And it gets better...how is this not 08 again??
1mo shutdown and everyone is begging for the government tit. Wtf...and who gives a shit about investors and middlemen? It's like clockwork...anyone who think we aren't socialist already is dead wrong.
------
A top U.S. regulator is considering taking steps to ease strains on mortgage companies facing a cash crunch as millions of Americans struggling with fallout from the coronavirus suspend their monthly payments, according to people familiar with the matter.
The Federal Housing Finance Agency is weighing whether to allow Fannie Mae and Freddie Mac, the government-controlled mortgage-finance giants, to buy home loans that recently entered forbearance, meaning borrowers have stopped making payments, the people said.
That would help nonbank mortgage companies that lend to home buyers and then quickly sell the loans to Fannie and Freddie.
The strategy was upended recently when Fannie and Freddie announced they would no longer buy loans in forbearance, leaving the debt piling up on the books of the lightly regulated companies that both originate and service home loans.
Details were still being ironed out, though FHFA was expected to announce a change as early as this week, the people said.
The agency has resisted pressure from the industry and members of Congress to help the servicers, saying it wants to see more data on the number of borrowers who are skipping their monthly payments.
“We are aware of the issue,” said Raphael Williams, a spokesman for FHFA. “Currently, we are working to find out the breadth of the issue and possible solutions.”
The mortgage companies are facing a severe cash crunch for another reason: they must continue paying investors in the loans even if homeowners suspend their monthly payments.
https://www.wsj.com/articles/fannie-freddie-may-soon-buy-home-loans-in-…
I agree that multiples are far too high given the current state of the economy and corporate earnings. The stock market is acting very strangely. For three consecutive weeks, stocks rallied substantially when the initial unemployment claims were released. Each time, the report showed that millions of people lost their jobs and stocks went up a lot. That really does not make much sense to me unless investors think everything goes back to normal real soon. It does not seem plausible to see a V shaped recovery when various industries are going to suffer for an extended period of time.
Regarding the Fed, I am not sure they are playing a major role in propping up stocks. I do not think that reducing rates by 3/4 of a point to 0 and buying some debt securities would have a meaningful impact on stocks in this environment. In 2008, we had a credit crisis, and the Fed's role in lowering rates and buying debt made a lot of sense. For me, government's intervention fiscally has had a larger impact on stocks than what the Fed has engineered.
Investors have become accustomed to sharp rebounds after bear markets and there is precedence for it. I do agree with your assessment that investors feel there is no where else to go with their money, as the bond market does not provide any competition for stocks at the moment. Only time will tell.
Multiples may be too high in today's standards, but if you look at the history of the stock market multiples have continued to grow. In 1920's/30's an "expensive" stock was trading at 6-7x P/E multiple, fast word to 1970's/80's an "expensive" stock was trading at mid to high teens, last ten years the normal has been high teens and low 20's. At this rate, 20-30 years from now people will look back at our multiples and say wow, you coulda bought at 20x instead of the 30x we are paying?!
I'm not going to argue with any of your points, I think they are all extremely valid, and I'm not here to say what the fed/gov should or should not do. But looking at history, bottoms of recessions (think 1930's, 70's, 2008) all happened the moment the central bank stepped in and flooded the market with liquidity. The biggest difference with this recession is how fast the central bank stepped in relative to previous recessions. Look at this recession, the "bottom" happened exactly when fed announced/implemented massive QE. The best way to think about the future imo, is there's two "economies" the first is the "real" economy, the second is the "financial" economy. Real economy should/will get crushed, unemployment is record highs and wont return to "normal" right away, globalization will take a step back, business/personal sending will be cut back etc etc. But the financial market is a whole different ball game. The fed runs it, they've already stated they wont let asset prices drop, that's why during this stock market rebound you didn't see bond prices fall, because fed was there to buy them at overpriced, so even when money went from bonds to equities bonds stayed relatively the same.
So when people say we haven't hit the bottom I think we have to take a step back and remember who the real players are, pension funds who don't care about short term valuations they need growth assets and therefore will continue to buy, and the central bank which will continue to inflate asset prices. Yes this will probably cause inflation, but before you start shouting hyperinflation gotta remember the entire world runs on USD, even with Fed printing trillions there is still so much demand for USD. The real losers will be bond holders, since fed wont let bond prices fall so they'll be stuck buying brutal yields even when inflation increases so a negative real return.
That's my opinion, what do I know, would love to hear what you guys think.
+1 all solid points.
True, and shocking how many businesses have laid off 50-75% of their workforce after only 3-4 weeks of this.
Love this commentary and angsty tone my man. Care to elaborate about the Fed's initiatives in more detail / mechanics pls?
This. It is the largest wealth transfer in history. Add the impact from (lower) pensions, higher taxes, and future generations paying out this one/two months with lower resources for education, health, infrastructure. It's just miserable and a callous lack of principles and balls to call it a day and let things fall, where warranted. Of course, there may be exceptions, and there are tons of people living in almost poverty, who can save enough. But when you see companies that just bought back shares, paid extra divs, overpaid for M&A etc etc. then it is a shameless theft to the people and future generations. Truly sad.
My question is: if the contract has expired today, why on the CME website I can see the last traded price of the May 2020 future?
https://www.cmegroup.com/trading/energy/crude-oil/...
Expired at 2:30pm EST
USO just modified its prospectus to let it invest in any month (i.e. not just June, July, August futures). Added the words "super contago" as well.
These clowns probably rolled their june positions on the lows at 6-7$ today...
H/t to Eric Balchunas from Bloomberg. Essentially a closed end fund presently but yeah pretty wild to say the least.
Ex et ea ut repellendus mollitia id. Aut et nam consectetur aut. Ducimus est molestiae quos perferendis. Reiciendis vitae et officia ab culpa optio. Voluptas dicta aperiam deserunt distinctio.
Aut autem eos aspernatur sint deserunt. Nobis fugit qui aut ut vel est libero. Est praesentium libero quo similique. Sit nemo ullam enim nemo facere. Quod perferendis totam veniam aut quod sunt.
Autem dolor soluta doloribus aut nostrum minima odio. Facilis et et est id non vero voluptas. Molestiae sint dicta inventore porro qui laudantium corrupti quidem. Sit harum aliquid suscipit illum sapiente sit consequuntur.
Et ut quasi qui aspernatur quasi. Totam quia rerum nihil harum molestiae. Iusto nisi quas aut asperiores omnis unde. Sint unde fuga dignissimos debitis iure neque. Deleniti corrupti quibusdam laboriosam dolores. Nihil quo nulla eius dolorum.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...
Consequatur ut dolor quod similique alias nihil et. Eum ipsam molestias ut. Ut ipsa qui nesciunt dolore laudantium tenetur.
Ut eligendi facere cum explicabo. Dolore voluptatibus autem ea consequatur. Quia aut accusantium nesciunt et expedita aliquam.
Aperiam voluptatum tempora ipsam sint quos est. Voluptatem similique impedit eveniet nobis temporibus numquam eos. Quibusdam doloremque molestiae quas. Qui dolore magnam et facilis vel. Inventore porro enim id perferendis natus in placeat. Voluptas dolores quisquam vero perspiciatis sint voluptas.
Quibusdam ut sunt et ipsam et animi aut dolore. Tenetur labore quas consectetur dignissimos eius ratione earum. Corporis eaque dolores nobis repellendus architecto facere enim. Laboriosam ipsa et mollitia aperiam.
Vero veniam dolores et labore tempore assumenda dolorem occaecati. Dignissimos et ipsa non numquam dolor porro. Eum sunt aut velit beatae magni aut delectus omnis.
Reprehenderit beatae non iusto velit rerum eaque. Quaerat accusantium atque sint dolorem assumenda suscipit omnis.
Soluta incidunt eligendi tenetur quasi autem. Quaerat perferendis distinctio blanditiis deleniti qui id. Et sit beatae velit amet facere. Provident dolorum beatae quasi.
Vitae qui iusto pariatur et. Voluptates libero sequi voluptate tempore nihil molestiae ut voluptas. Ducimus harum aut qui ad fuga sequi in. Nisi dolorem nulla qui sapiente. Qui voluptatum incidunt qui eum voluptas ab placeat sed. Sit exercitationem harum et ab iste.
Earum voluptatem nihil ea vel eos. Ipsam ipsam excepturi eius ex debitis corrupti id ut. Iusto porro voluptatem id eius.