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04-20-2020, 01:29 PM
(This post was last modified: 04-20-2020, 01:32 PM by fenders53.)
(04-20-2020, 01:16 PM)Kerim Wrote: Thanks Otter!
Now, can you or anyone else talk to me like I'm six years old and explain it again? So the sub-dollar prices I'm seeing are only for... what,... "May 20" contracts? Those expire today / tomorrow? Or next month?
I'm a total oil noob -- I guess I need a primer!
Don't ask about contango lol. I get a warning message (this stuff is crazy) before I hit send on a US Oil transaction lol. Long story short is future contracts matter more than today's spot price. Nobody is lining up to sell a lot of oil for 5 cents a gallon.  Buy a little of the ETF USO if you want to follow along. It's really cheap lol. You can't get hurt too bad from here.
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(04-20-2020, 01:16 PM)Kerim Wrote: Thanks Otter!
Now, can you or anyone else talk to me like I'm six years old and explain it again? So the sub-dollar prices I'm seeing are only for... what,... "May 20" contracts? Those expire today / tomorrow? Or next month?
I'm a total oil noob -- I guess I need a primer!
WTI price is now negative. Holders of the May futures contracts that expire tomorrow are literally paying people to take oil off their hands. Most of the speculators trading in WTI crude futures don't have any physical storage capacity to take delivery and store the oil, hence their massive problem at the moment. These speculators typically sell their futures contracts to avoid having to take delivery. They are taking a bath today because no one wants to buy their contracts. Not a lot of players out there who can take physical delivery of crude and store it in this environment. The ones that can are setting themselves up for huge future profits. People are paying them to take oil that can be stored and resold for a nice profit later.
Storage is a relatively fixed quantity (it is infrastructure, and takes time to build out). So, the lack of storage is what is driving the current rout in WTI prices. Eventually shale producers either go bankrupt, wells get shut-in, or both. They simply cannot continue producing at current volumes. Once the storage at Cushing is full, pipelines will refuse transport.
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(04-20-2020, 01:28 PM)crimsonghost747 Wrote: negative $6.5 per barrel now.
Greenpeace better keep their eyes open, someone will be soon buying and dumping it all in a swamp somewhere.
I've never seen anything so stupid since last week when the SPY ran up yet again. 
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From the NYT:
"Oil prices tumbled on Monday as the economic crisis set off by the coronavirus pandemic continued to destroy demand for energy, and as concerns grew that storage tanks in the United States are near capacity and unable to hold all the unused crude.
It was a bizarre day for oil traders, owing largely to a quirk in the way that oil prices are set. Oil that is scheduled to be delivered next month fell 12 percent Monday to about $22 a barrel, but at the same time a key benchmark for oil to be delivered Tuesday was essentially deemed to be worthless by investors. It actually fell into negative territory, meaning people who had oil to sell were willing to pay people to take it off their hands."
Can anyone explain the "quirk in the way oil prices are set"?
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04-20-2020, 01:49 PM
(This post was last modified: 04-20-2020, 01:51 PM by Otter.)
(04-20-2020, 01:39 PM)Kerim Wrote: From the NYT:
"Oil prices tumbled on Monday as the economic crisis set off by the coronavirus pandemic continued to destroy demand for energy, and as concerns grew that storage tanks in the United States are near capacity and unable to hold all the unused crude.
It was a bizarre day for oil traders, owing largely to a quirk in the way that oil prices are set. Oil that is scheduled to be delivered next month fell 12 percent Monday to about $22 a barrel, but at the same time a key benchmark for oil to be delivered Tuesday was essentially deemed to be worthless by investors. It actually fell into negative territory, meaning people who had oil to sell were willing to pay people to take it off their hands."
Can anyone explain the "quirk in the way oil prices are set"?
The quirk is what we were discussing. Oil deliverable tomorrow under May contracts is worthless (contract holders are paying people to take oil). June crude (contracts expire late May) is $22/bbl. Due to May contracts expiring tomorrow, June is the new front month for oil futures contracts. The price always rolls along, month-to-month, with the futures contracts.
Usually the effect is not so extreme, and no one notices contango or backwardation too much. This is a generational upset to the crude market.
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This one got even more exciting.
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(04-21-2020, 08:53 AM)fenders53 Wrote: This one got even more exciting.
Yeah. Sold out of my USO LEAPs this morning. Not clear what is going on with the fund.
Other ETFs have gone through this and ended up trading at a substantial premium to NAV, but I'd rather just keep the cash and not fly blind.
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(04-21-2020, 08:57 AM)Otter Wrote: (04-21-2020, 08:53 AM)fenders53 Wrote: This one got even more exciting.
Yeah. Sold out of my USO LEAPs this morning. Not clear what is going on with the fund.
Other ETFs have gone through this and ended up trading at a substantial premium to NAV, but I'd rather just keep the cash and not fly blind.
I closed my position as well. It was a small position as I was learning how these funds trade, but flying blind is not learning.
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Sold my 5/22/20 VXX 42 Calls today for a ~33% gain.
crimsonghost747
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(03-02-2020, 06:53 AM)crimsonghost747 Wrote: Shorted the frenchies. Let's see how that one goes.
Well.
Here is how it went. I got bored of paying the shorting fees and watching the index creep us slowly.
So I closed that position today. I know I didn't time the entry particularly well, and since I always miss the timing there is no doubt that the index will tank 10% in the next week or two.
Total profit is somewhere around 20%, so I'm still happy with the outcome.
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(04-27-2020, 02:47 AM)crimsonghost747 Wrote: (03-02-2020, 06:53 AM)crimsonghost747 Wrote: Shorted the frenchies. Let's see how that one goes.
Well.
Here is how it went. I got bored of paying the shorting fees and watching the index creep us slowly.
So I closed that position today. I know I didn't time the entry particularly well, and since I always miss the timing there is no doubt that the index will tank 10% in the next week or two.
Total profit is somewhere around 20%, so I'm still happy with the outcome.
Sounds like it was time to move on while you were ahead. If you are bored, the US FAANG stocks and TSLA are looking a little frothy again. So are oil tankers and gold. They probably need a good shorting. Just throwing out ideas for you.
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If you are looking for a trade, the oil tanker stocks are going crazy since they are now being used for crude storage and daily shipping rates are soaring.
Long NAT and FRO here. STNG is another to look at.
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