Some thoughts on negative oil price

[traderDS]

The WTI 2005 contract went to -40$ really shocked investors around the world. How the negative happened and what influence it may put on the future oil trading?

1) People say the occurrence of negative price is because the over-supply and demand loss. Well, I prefer to pick the consipiracy theory as an explanation. It seems a hunting wall streets doing to the Chinese money.
Retail investors may have lost $85 million in Bank of China’s oil-related funds, Bloomberg reports
https://www.marketwatch.com/story/b...investors-may-haven-gotten-crushed-2020-04-22

Bank of China Seeks CME Group Probe in Negative Oil Prices
https://www.financemagnates.com/for...seeks-cme-group-probe-in-negative-oil-prices/

The short players knew exactly that those long players, most of them are ETF accounts tracing back to retail investors, were unable to do the delivery, and they had to close their long position, no matter cut it or roll over to next contract, before expiracy whatever cost it might be.

2) Not only lots of retail investors are hurt by the negative oil price, but also some physical long position holder. As the common sense, if the economy didn't go to a complete halt, the exchange of physical crude oil is still ongoing, then its price should not go to negative. But it happened. It inevitablely make people question the pricing effectiveness of WTI. The shrink of the WTI volume and the Brent-WTI spread seems saying people are abandoning wti.

Therefore, we can assume that if nymex still want to have their share in oil pricing power, some measures are gonna be taken to avoid reoccurrence of negative price. And Brent-WTI will go back to normal range.

 

[Times]

Yeah, negative crude has been the biggest blow to my trading, I consider it a black swan.

 

[OptionsOptionsOptions]

• How many barrels where sold at -$40?
• IMO ..... The negative price is insignificant due to extremely low volume.
• Was there any volume at all?

 

[syswizard]

The WTI 2005 contract went to -40$ really shocked investors around the world. How the negative happened and what influence it may put on the future oil trading?

Massive supply/demand imbalance and the lack of inventory space.

1) People say the occurrence of negative price is because the over-supply and demand loss. Well, I prefer to pick the consipiracy theory as an explanation. It seems a hunting wall streets doing to the Chinese money.

This is somewhat incoherent. There is no conspiracy. The NYMEX has operated their exchange for years with complete openness and laisse faire...letting the buyers and sellers determine the price of a commodity.

Retail investors may have lost $85 million in Bank of China’s oil-related funds, Bloomberg reports

Who cares ? Investors lose all of the time when they are wrong on price direction.

Bank of China Seeks CME Group Probe in Negative Oil Prices

A stupid witchhunt IMHO. In our markets, the buyers and sellers determine the price.

The short players knew exactly that those long players, most of them are ETF accounts tracing back to retail investors, were unable to do the delivery, and they had to close their long position, no matter cut it or roll over to next contract, before expiracy whatever cost it might be.

Of course. The USO ETF fund was particularly vulnerable.

2) Not only lots of retail investors are hurt by the negative oil price, but also some physical long position holder. As the common sense, if the economy didn't go to a complete halt, the exchange of physical crude oil is still ongoing, then its price should not go to negative. But it happened. It inevitablely make people question the pricing effectiveness of WTI. The shrink of the WTI volume and the Brent-WTI spread seems saying people are abandoning wti.

Of course WTI is oversupplied right now. Cushing, Oklahoma is running out of storage space. Buyers of WTI crude must immediately ship it out as they cannot store it there.

Therefore, we can assume that if nymex still want to have their share in oil pricing power, some measures are gonna be taken to avoid reoccurrence of negative price. And Brent-WTI will go back to normal range.

Meddle with the free market ? Meddle with our great exchanges ? You've got to be kidding. Dude....it's time for you to go back to Econ 101.
BTW: a recent Bloomberg Businessweek article is targeting WTI at $-100 for June delivery on May 19th.

 

[maxinger]

It simply means there will be even more trading opportunities.

 

[qwerty11]

The short players knew exactly that those long players, most of them are ETF accounts tracing back to retail investors, were unable to do the delivery, and they had to close their long position, no matter cut it or roll over to next contract, before expiracy whatever cost it might be.

Not true, no single ETF had May20 exposure.

I think it was mostly caused by retail bottom fishers that got scared and needed to get out...

 

[VolSkewTrader]

Until storage capacity returns at Cushing paper traders are going to avoid the front-month WTI CL (currently June20) like the plague. During the week of expiration, only those capable of taking physical delivery and access to storage will be trading Jun20...so there should be thin volume in Jun20, as was the case for May20.

Combination of USO exiting its front-month position (probably CME/NYMEX enforced), and retail brokers like IB forbidding customers to trade front month CL, will make negative futures prices unlikely going forward. But a careless refiner, hedge fund, etc. with no access to storage may still be forced to liquidate at negative prices leading up to the day of expiration.

 

[syswizard]

and retail brokers like IB forbidding customers to trade front month CL

Correction: IB is permitting trading the June front month in CL. Of course, the margin requirement is high ($12,500). You must liquidate your position by 9 am on May 18th or they will do it anyway.
Many other brokers like AMP and TOS have placed the June contract on "liquidation only" status....no new orders accepted.

 

[VolSkewTrader]

Correction: IB is permitting trading the June front month in CL. Of course, the margin requirement is high ($12,500). You must liquidate your position by 9 am on May 18th or they will do it anyway.
Many other brokers like AMP and TOS have placed the June contract on "liquidation only" status....no new orders accepted.

Thanks for the clarification. Surprised IB is allowing traders to hold CL longs up until the morning before expiration for Jun20, after they took an $88M hit on May20 liquidations last month.

 

[syswizard]

Here is the Bloomberg article where one analyst says we could have a June contract around $-100/BBL.