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Yes, that's what I've been saying. The open question is what actually happens to the person holding the contract when they can't physically take position of the oil? I'm assuming right now that they are liable for a lawsuit. Okay, how much is that lawsuit probably going to end up costing them? It would seem like it must be expected to cost at least (and probably well over) $40/bbl, otherwise the person that sold the contract would have kept it and just eaten the lawsuit.
Peak Oil
- Thread starter joeyd999
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Here's a more technical explanation of what happened today:
https://www.kitco.com/news/2020-04-...prices-suggests-futures-market-is-broken.html
(And I just learned that the physical oil retail market is called the "Spot" market.)
https://www.kitco.com/news/2020-04-...prices-suggests-futures-market-is-broken.html
(And I just learned that the physical oil retail market is called the "Spot" market.)
Actually, I have heard of it, but it didn't come to mind in this discussion. So thanks. So I'm guessing that there is probably a rule of thumb for the demurrage per day (hour?) for oil shipments. I wonder what that might be. I've just done a quick search and can't locate an actual number. I found an article talking about Venesuala that through out $25,000/day for crude oil tankers. I have no idea what size they were talking about. A supertanker is about 2 million barrels. But I have a feeling that the cost is much hither than that (i.e., that I don't understand the numbers in the article) because at that rate I could have them sit on the oil in port for a couple years and still come out a head. Since June is still trading in positive territory, I'd guess the rate must be high enough to amount to the $60 difference between May and June contracts over a 30 day period, so at least $2/day/bbl, or perhaps $30M in demurrage and other fees for the $20 they paid me to take the risk.
That term I was aware of, since we often see the "spot gold" or other spot prices for lots of commodities.
ElectricSpidey
- Joined Dec 2, 2017
- 3,335
I wonder if there is any room in the US strategic reserves, might be a good time to buy.
Demurrage rates are spelled out in transportation contracts and while originally applied to oceanic shipping, now it is typical in any transport contract including rail and truck deliveries. Shipping/transportation companies want to keep their transports moving and if delayed you will have to pay for any delays you caused.
They were filled to near capacity as prices started to plummet when the Saudis and Russians started their price war in an effort to shore up the prices and market volume for U.S. producers. They currently have about 635 million barrels and the nominal capacity is just shy of 800 million barrels. I don't know how close to nominal capacity they can actually get -- they may already be close. The U.S. consumes nearly 20 million barrels a day, so that remaining 160 million barrels is barely over a week's use. Plus, they can't transfer in or out more than about 4 or 5 million barrels a day.
WOW!
The alternative is to pay buyers to take their U.S. crude after futures plummeted to a negative $37 a barrel on Monday.
Converge Midstream LLC with millions of barrels of storage available in underground salt caverns outside Houston has gone from few takers to requiring one- to two-year contracts.
“A lot of people have been calling me now and saying ‘I wanna go out and buy 100,000 barrels in May and put them in a frac tank,’” said Wade. “I tell them the party started about a month ago and it’s now almost over.”
How strangely the worm turns...
The alternative is to pay buyers to take their U.S. crude after futures plummeted to a negative $37 a barrel on Monday.
Converge Midstream LLC with millions of barrels of storage available in underground salt caverns outside Houston has gone from few takers to requiring one- to two-year contracts.
“A lot of people have been calling me now and saying ‘I wanna go out and buy 100,000 barrels in May and put them in a frac tank,’” said Wade. “I tell them the party started about a month ago and it’s now almost over.”
How strangely the worm turns...
So here's something that I can't understand.
I get the basic idea that the futures contracts went negative because the people who only want to trade paper couldn't find people that wanted to actually trade oil since those people have no place to put it.
But what would prevent the people that own it now from buying the contact when it is sufficiently negative? Yes, they will have the problem that they will still possess the oil when they want to make it go away, but it would seem like they are in a much better position to make it go away pretty quick by underbidding the spot price (which remained at about $20/bbl). And if they can't, then they are in the same position they would have been in had the person with the paper not been able to take delivery, except that instead of chasing them for demurrage and other fees, which they may well never see, the have close to $40/bbl to cover their actual expenses of sitting on it. But presumably the problem is that they need to get it out of their tanks so that they can take delivery of their June contracts -- but why not just sell your June contracts at the market rate (~$20/bbl)? You've now got $60/bbl to cover your costs of sitting on that oil for up to a month.
The fact that this didn't happen suggest one of two things. Either the regulatory framework prohibits them from doing it (insider trading?) or that $60/bbl isn't sufficient for them to cover their actual costs of sitting on oil that is already in their tanks. I find that hard to believe based on the very limit numbers I've been able to find.
If I get a change I'm going to start calling some places that might know the internals of how this sausage factory works, because I think the answer will be both enlightening and interesting.
I get the basic idea that the futures contracts went negative because the people who only want to trade paper couldn't find people that wanted to actually trade oil since those people have no place to put it.
But what would prevent the people that own it now from buying the contact when it is sufficiently negative? Yes, they will have the problem that they will still possess the oil when they want to make it go away, but it would seem like they are in a much better position to make it go away pretty quick by underbidding the spot price (which remained at about $20/bbl). And if they can't, then they are in the same position they would have been in had the person with the paper not been able to take delivery, except that instead of chasing them for demurrage and other fees, which they may well never see, the have close to $40/bbl to cover their actual expenses of sitting on it. But presumably the problem is that they need to get it out of their tanks so that they can take delivery of their June contracts -- but why not just sell your June contracts at the market rate (~$20/bbl)? You've now got $60/bbl to cover your costs of sitting on that oil for up to a month.
The fact that this didn't happen suggest one of two things. Either the regulatory framework prohibits them from doing it (insider trading?) or that $60/bbl isn't sufficient for them to cover their actual costs of sitting on oil that is already in their tanks. I find that hard to believe based on the very limit numbers I've been able to find.
If I get a change I'm going to start calling some places that might know the internals of how this sausage factory works, because I think the answer will be both enlightening and interesting.
I miss my optimism.
It could be worse.
https://www.cbc.ca/news/business/russian-oil-exec-falls-from-window-1.6569444
Russian oil executive dies after falling from hospital window, sources say
I wonder what it is about russian windows that make them so dangerous to be near of...
The oligarchs were only supposed to hold/control the great assets of the Soviet Union until Gorbachev's grave mistake can be undone. Those oligarchs who start to think otherwise tend to fall out of windows.
It's funny to me, not ha-ha funny but funny, that those that own companies(or just run them like a certain member) complain about the working man getting socialism type programs, while they get them for their companies and not complain about it.
Oil companies still get the big money that was passed when oil first got popular, for rail tranportation, when there were no pipe lines. But now there are pipelines but they still get the rail transport money.
Oil companies still get the big money that was passed when oil first got popular, for rail tranportation, when there were no pipe lines. But now there are pipelines but they still get the rail transport money.
Off topic but in reference to the LukOil CEO falling out of a hospital window story above...
"Window fall-outing" isn't just for Russian Executives. Bed Bath and (the great) Beyond...
https://finance.yahoo.com/news/bed-bath-beyond-cfo-plunges-134524108.html
https://www.cnbc.com/2022/09/04/bed-bath-beyond-cfo-gustavo-arnal-has-died-company-says.html
Bed Bath & Beyond CFO Gustavo Arnal died by suicide, medical examiner says
One died by died by suicide (BB&B) almost certainly while the Russian suicides were likely helped by supernatural forces of the FSB kind.
https://aminoapps.com/c/scp-foundat...l-division/4qYj_pVTvIN2lEom4pq0bom08mG6RbnGn3
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panic mode
- Joined Oct 10, 2011
- 4,991
not so sure that either one was a suicide... that is just what news reported.
i would like to know how exactly is medical examiner able to tell in a case like this it was a suicide or if deceased was pushed.
report should state if the cause of death was natural or not, and what the likely cause is (drowning, blunt trauma, bleeding to death, burns, whatever etc.) and keep the speculations out.
i would like to know how exactly is medical examiner able to tell in a case like this it was a suicide or if deceased was pushed.
report should state if the cause of death was natural or not, and what the likely cause is (drowning, blunt trauma, bleeding to death, burns, whatever etc.) and keep the speculations out.
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