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April 20, 2020 | Crude Price Falls to -$40: Yes, Negative

Mike 'Mish' Shedlock

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
There is nowhere to store the oil, but someone is obliged to take delivery.
This is what happens when someone has to take delivery and no one wants to because there is nowhere to store the oil.Those who thought $1 was cheap, thought wrong.

You now get paid as much as $40 to take delivery of oil because no one wants May delivery.

May Delivery

The last day for May delivery trading is today. Traders long the May contract are in deep trouble.

June Crude

June Delivery Crude - 2020-04-20

The price of crude for June delivery touched $20.19, down from $55.00 in February. Those rolling crude contracts expecting the price to go up have been hammered for months.

The Art of a Failed Oil Deal

Supposedly, Trump saved the oil market with his production cut deal with the Saudis earlier this month.

On April 14, the Wall Street Journal crowed about The Art of an Oil Deal.

I panned that idea on April 15 in The Art of a Failed Oil Deal.

These were my comments.

Real Deal

As soon as storage facilities fill up, nations will have to curb production.

Trump did not negotiate a thing that was would not have occurred on its own by brute force of the market.

A cut of 9-10 million barrels was not enough. So the price fell after a brief market surge.

Hooray, the Saudis saved face. But what good did it do? The cuts were coming because they had to.

Voilla!

If demand destruction amounts to 20 million barrels per day, guess what?

Production will ultimately fall by 20 million barrels per day, deal or no deal.

I believe we now know which view was correct.

Conversation with an Oil Trader

I asked Phil Flynn, at the Price Futures Group how many contracts were in play.

His estimate was “about 50,000 contracts

Each penny in movement is worth $10. At negative $40.00, each long contract was worth negative $40,000.

-$40,000 * 50,000 = -$2,000,000,000.

Traders likely bought those hot contracts at some positive value so the manage futures crowd just got carted out.

I expect some hedge funds got blown out of the water today.

Mike “Mish” Shedlock

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April 20th, 2020

Posted In: Mish Talk

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