Oil price discussion and analysis

[wayneL]

In the US

Diesel demand down 20%
Gasoline demand down 50%
Aviation fuel/kero down 80%
And nowhere left to store surplus.

Interesting times alright.

 

[$20shoes]

Still going down, settling at -$37.63/ bbl down 300% in a day.

We're watching price movement that'll be remembered forever (unless it happens again next month).

Absolutely incredulous. Never thought Id see anything like this.

 

[rederob]

Medic...
Medic...
Medic...

 

[tonyparis]

Hopefully they can revive him

 

[InsvestoBoy]

Still going down, settling at -$37.63/ bbl down 300% in a day.

We're watching price movement that'll be remembered forever (unless it happens again next month).

On the day before contract expiry, it's just a register of desperation for a very small handful of longs that need physical storage. They're basically saying "I will pay any price for you to take this oil that is about to be delivered to me, off my hands".

I wouldn't read all that much into it (other than, demand for storage is very high and supply of storage is very low), it's an illiquid low OI contract. Nobody is posting "we're watching price movement that'll be remembered forever" when some illiquid ASX microcap jumps 500% in a day.

 

[rederob]

Hopefully they can revive him

Not soon.
WTI is the benchmark oil price for mostly landlocked US crude.
When forward prices go negative it means producers are needing to pay for their oil to be "taken."
It means that storage is either not available or too expensive.
It means that pipelines will stop flowing.
It means that wells will start to be shut in.
It will add an unprecedented level of debt to US oil producers and kill off a great deal of LTO for some considerable time.

 

[wayneL]

On the day before contract expiry, it's just a register of desperation for a very small handful of longs that need physical storage. They're basically saying "I will pay any price for you to take this oil that is about to be delivered to me, off my hands".

I wouldn't read all that much into it (other than, demand for storage is very high and supply of storage is very low), it's an illiquid low OI contract. Nobody is posting "we're watching price movement that'll be remembered forever" when some illiquid ASX microcap jumps 500% in a day.

That's true we do see that in various commodities futures contracts from time to time... Huge moves into expiry etc.

It's still historic and it does serve as an analysis point for the future of supply and demand however.

The June contract still looks pretty dreadful and if we subtract the decay factors inherent in the forward oil price, we are still at pretty diabolical lows.

 

[rederob]

On the day before contract expiry, it's just a register of desperation for a very small handful of longs that need physical storage. They're basically saying "I will pay any price for you to take this oil that is about to be delivered to me, off my hands".

I wouldn't read all that much into it (other than, demand for storage is very high and supply of storage is very low), it's an illiquid low OI contract. Nobody is posting "we're watching price movement that'll be remembered forever" when some illiquid ASX microcap jumps 500% in a day.

It's not that often that the physical realities of production and storage collide with paper speculators.
That game was being played out over the last month as WTI not only bounced off support, it leapt to $28/bbl and held its own for a week. It did that while demand was continuing to be destroyed and storage got more expensive and harder to find.
The question that will be answered in a month's time is if we have a rerun of this collapse after the forward contract rolls over.
And the question now is "what's stopping it?"
IMHO there is nothing right now that makes June contract which is around $20/bbl any safer.

A separate earlier issue regarding LTO producers related to them have in the money hedges. Some of these producers may not actually be able to deliver, so this crunch will hit hard despite what they hoped would "protect" them.

 

[InsvestoBoy]

When forward prices go negative it means producers are needing to pay for their oil to be "taken.".

Huh?

Here is a completely different take to what I think is your laughably wrong take:

When forward prices of WTI go negative on the day before the contract expiry session while Cushing is full, a bunch of financial participants who thought they were so smart or could find storage, got caught with their pants down.

The trading desks at energy producers are not long, they are short in the futures market. They will be the ones delivering the oil to those pants down longs and they don't care that the price is -$30 or whatever, they rolled into shorts in late March or early April, not yesterday morning.

They already got paid whatever the price was when they rolled in.

That is the whole point of the futures market.

 

[rederob]

Huh?

Here is a completely different take to what I think is your laughably wrong take:

When forward prices of WTI go negative on the day before the contract expiry session while Cushing is full, a bunch of financial participants who thought they were so smart or could find storage, got caught with their pants down.

The trading desks at energy producers are not long, they are short in the futures market. They will be the ones delivering the oil to those pants down longs and they don't care that the price is -$30 or whatever, they rolled into shorts in late March or early April, not yesterday morning.

They already got paid whatever the price was when they rolled in.

That is the whole point of the futures market.

My point related to the interplay, and it affects what a producer with physical can sell, and at what price.
How traders speculate their positions to profit is a different matter.
What is at issue at this moment in time is tangible production: can it be moved and will a profit be turned..

 

[InsvestoBoy]

My point related to the interplay, and it affects what a producer with physical can sell, and at what price.

An energy producer with physical oil to sell is not selling it into the about-to-expire May contract which is pretty much no bid. THEY ALREADY SOLD IT.

$-30 or whatever WTI the day before expiry does not mean producers need to pay for their oil to be taken.

Stop spreading crap.

 

[explod]

An energy producer with physical oil to sell is not selling it into the about-to-expire May contract which is pretty much no bid. THEY ALREADY SOLD IT.

$-30 or whatever WTI the day before expiry does not mean producers need to pay for their oil to be taken.

Stop spreading crap.

So are they to try and pour the excess oil into some sort of paper made contract tank.

 

[Betavegeta]

What happened to the oil price? wtf

 

[sptrawler]

How will Santos go if this continues? Its balance sheet looks o.k but if this goes on long term?
A lot of oil producers will be $hitting bricks,big overheads, big debts, bugger all income.
Sounds like a Virgin airlines script.

 

[rederob]

An energy producer with physical oil to sell is not selling it into the about-to-expire May contract which is pretty much no bid. THEY ALREADY SOLD IT.

$-30 or whatever WTI the day before expiry does not mean producers need to pay for their oil to be taken.

Stop spreading crap.

There is a spot market and a futures market.
As you know, if physical delivery is required then traders who already own their assets can tender them to their clearing agent. Traders who don't are obligated to purchase them at the current price. This happens:

“It’s like trying to explain something that is unprecedented and seemingly unreal!,” wrote Louise Dickson, oil markets analyst Louise at Rystad Energy, in emailed comments.

“The most simple explanation for negative oil prices is that midstream players are now paying ‘buyers’ to take oil volumes away as the physical storage limit will be reached. And they are paying top dollar!” the analyst said.
​

The spot market has now bounced back:

 

[InsvestoBoy]

“It’s like trying to explain something that is unprecedented and seemingly unreal!,” wrote Louise Dickson, oil markets analyst Louise at Rystad Energy, in emailed comments.

“The most simple explanation for negative oil prices is that midstream players are now paying ‘buyers’ to take oil volumes away as the physical storage limit will be reached. And they are paying top dollar!” the analyst said.
​

Wow, Louise Dickson, what a storied analyst...previous work experience includes English teacher in Moscow before she graduated to contract writing for "Investment Club" and "Coffee Mania".

I am sure she knows what she is talking about after 2 years as an analyst for BP and Rydstad.

Oh wait, her "most simple explanation" (great English skills there) doesn't actually match how MIDSTREAM (note, not even she is saying producers, only you @rederob) oil players operate in reality.

Good job.

 

[IFocus]

Locally I can get fuel for 80 cents a lt today could that be lower tomorrow?

Starting to wonder if cheap energy will fire up economies or burn them?

Also anyone have a guess at the capital destruction involved and could that follow through into financial markets or are the sums to low?

 

[rederob]

Wow, Louise Dickson, what a storied analyst...previous work experience includes English teacher in Moscow before she graduated to contract writing for "Investment Club" and "Coffee Mania".

I am sure she knows what she is talking about after 2 years as an analyst for BP and Rydstad.

Oh wait, her "most simple explanation" (great English skills there) doesn't actually match how MIDSTREAM (note, not even she is saying producers, only you @rederob) oil players operate in reality.

Good job.

You are just arguing with yourself, not me.
I will let you work it out.

 

[sptrawler]

The price of fuel has to be a huge plus, for those that have a high fuel component in their bottom line, QUBE (QUB)?

 

[Dona Ferentes]

The price of fuel has to be a huge plus, for those that have a high fuel component in their bottom line, QUBE (QUB)

A while ago, we visited this, the truckies etc. And Aurizon

Aurizon and Linfox have increased the number of weekly intermodal services by 20 per cent.

Australian Rail Track Corporation CEO John Fullerton recently said national general freight movements on its 8500km network had increased 14 per cent in March.

“The COVID-19 outbreak has sparked an unprecedented challenge for Australia’s freight and transport industry, with the country’s demand for critical supplies prompting a surge in rail freight,” Fullerton said. .“Moving freight to cities and regional towns across the country has never been so important, which is why the government has deemed our industry an essential service.

“This puts a lot of responsibility on our shoulders; but in collaboration with our rail freight customers, government and industry partners it’s been wonderful to see our teams rise to the challenge to keep Australia’s supply chain intact and our economy moving.

Maybe this should be in a different thread?