Why the fuck did we not buy oil when it was around 0?

I feel so dumb for not buying oil when it was around 0, no brainer that it would go back up again. Anyone else that was in the same position or anybody that actually bought? 

 

Comments (22)

 
  • Prospect in IB - Gen
Feb 21, 2021 - 7:18am

I am just a student so maybe I am wrong, but I think the price hit 0 because contracts were expiring and the place that usually stores the oil were at full capacity so it meant that you would have to have the oil delivered to you and you would pay for the delivery + maintenance costs. I remember back then when I tried to invest, it wasn't as simple as it is investing in a stock and leaving it be.

 
  • Intern in IB-M&A
Feb 21, 2021 - 8:09am

I see, so you could have had the barrels delivered to your house? Or would you need some kind of license to store them? 

 
Feb 21, 2021 - 10:48am

No, they would be delivered to an exchange sponsored warehouse and you are responsible after that. In fact, most retail brokerages like TD Ameritrade don't even let you take delivery.

 
Feb 21, 2021 - 9:35am

The oil contracts which were negatively expired were expiring the following day and due for delivery a month later. Anyone holding a contract on expiration would've received thousands of barrels requiring very high industrial maintenance (and oil is highly toxic). Fancy that in your garden?

 
Feb 21, 2021 - 9:52am

I know next to nothing about commodities / futures, but will spout off an answer anyway. The beauty of the internet... When you say oil was at zero, this was just the front month futures contract (I think it was May in this case). I think the June contract was around $20 or so. Spot oil was never negative. I think the only way you could have bought oil around zero or negative was if you took physical settle of a may contract and stored 1000 barrels of oil in your back yard (after picking it up in cushing, oklahoma) until prices went back up. 

 
  • Intern in IB-M&A
Feb 21, 2021 - 5:00pm

I see, so let me get this straight:
1 contract of Crude oil was at negative say -30$ and you wanted to buy. 
1 contract contains 1000 barrels, so you would have received 30 dollars to take delivery and store 1000 barrels.
Then say you bought in April, you waited until now and want to sell. How would you even sell this and if prices were -30 when you bought this 1 contract how much would you even profit if you sold at say $60? If we say you only need to pay for transport and storage was free. 

I read this article about this one firm that bought 250,000 barrels, very interesting. https://markets.businessinsider.com/commodities/news/negative-oil-price…

 

 
Feb 22, 2021 - 10:24am

Because it was strictly related to that month's delivery. The following months's deliveries did not present the same issue/opportunity. 

Can be summoned to make fun of liberals at will. 

  • 1
 
Feb 22, 2021 - 10:38am

For 99% of people - the best way to express a view like that is through a proxy... like energy stocks. 

Aside from the mechanics of futures contracts themselves, you would end up with a nightmare logistically to store it. Even if you could take delivery, the costs to move it, store it, etc. would have basically eaten you alive... thus, part of the reason that people were paying you to take the oil off their hands, it was better to pay than have to deal with it. 

 

 

 
Feb 22, 2021 - 10:41am

 I bought 1 contract of crude, 1 of soybeans, and 1 of copper during the peak of covid. I had to sell my crude and soybean contracts because of work but made like 8k on crude,10k on soybeans, and almost 38k on copper. Over doubled my savings. I will say you have to roll your contract and couldn't do it at 0 since it was expiring, but I think the idea that commodities were going to rally was pretty apparent to me. 

 
  • Intern in IB-M&A
Feb 22, 2021 - 2:09pm

thats interesting nice job, did you buy at a positive price?

 
  • Associate 1 in IB - Restr
Feb 22, 2021 - 10:43am

Lol typical "why didnt i...." bullshit. Why didnt u buy gme at 5 and sell at top? U telling me storage is free when everyones fighting for it back then? Post weak af

 
  • Intern in IB-M&A
Feb 22, 2021 - 2:05pm

Believe you misunderstood the post, my little angry girl. Don't know what you are fussing about this is not the same as GME. Storage is not free it was a theoretical scenario to understand transportation. 

 
  • Associate 3 in PE - LBOs
Feb 22, 2021 - 1:38pm

The reason you didn't do it is the same reason that people who typically trade those contracts professionally didn't do it... you need a place to store it. Even if you have the space, you can't just put a bunch of barrels in the pack of a pickup and leave them in the yard, unless you want the EPA on your ass. If any seeped into the groundwater (and it would), you're responsible for it

 

Think you can time the market and get out of the contract before you have to take delivery? Nope, that's why people were paying money to get these contracts off their hands rather than take possession of toxic chemicals

 
Feb 22, 2021 - 9:46pm

not zero...negative -40   crude traded negative 40 dollars

 

if only you had 4 tanker trucks to take delivery in Cushing OK

just google it...you're welcome
 
Feb 23, 2021 - 6:49pm

Storage.

Not only is there a cost to hiring people/equipment to do it for you, doing it yourself could kill you. 

Here's a really good story from Bloomberg's Tracy Alloway about making the play with a jar of crude:

https://www.bloomberg.com/news/articles/2015-11-03/that-time-i-tried-to…

I generally see somebody I know on TV on Bloomberg/CNBC etc. once or twice a week. This sounds cool, until I remind myself that I see somebody I know on ESPN five days a week.
 
  • Analyst 3+ in HF - Other
Feb 23, 2021 - 8:39pm

What if I told you I did?

Also, contracts expire, so you'd have to buy a forward contract. For example, the April 2021 contract was ~$30 when the price was $0. This $30 of contango eats into your profit, but it still would have been a $30 gain. 

 
Feb 23, 2021 - 10:14pm
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