# Price of oil goes \*negative\*. How does this even make sense?? **URL:** \ **Category:** Factual Questions\ **Created:** [April 20, 2020, 6:23pm UTC](https://boards.straightdope.com/t/price-of-oil-goes-negative-how-does-this-even-make-sense/852207 "2020-04-20T18:23:22Z")\ **Posts on this page:** 20\ **Page:** 2
**Author:** ![Frankenstein\_Monster](https://avatars.discourse-cdn.com/v4/letter/f/ccd318/32.png) [@Frankenstein\_Monster](https://boards.straightdope.com/u/Frankenstein_Monster)\ **Post date:** [April 20, 2020, 10:18pm UTC](https://boards.straightdope.com/t/price-of-oil-goes-negative-how-does-this-even-make-sense/852207/21 "2020-04-20T22:18:41Z")
[Marketwatch explanation](https://www.marketwatch.com/story/why-the-oil-market-just-crashed-below-0-a-barrel-4-things-investors-need-to-know-2020-04-20?mod=home-page), where they call it “the opposite of a short squeeze”. It is somewhat comparable. ---
**Author:** ![Corry\_El](https://avatars.discourse-cdn.com/v4/letter/c/ecae2f/32.png) [@Corry\_El](https://boards.straightdope.com/u/Corry_El)\ **Post date:** [April 20, 2020, 10:36pm UTC](https://boards.straightdope.com/t/price-of-oil-goes-negative-how-does-this-even-make-sense/852207/22 "2020-04-20T22:36:04Z")
> [@Frankenstein\_Monster](#): > > Here are the > Last trading day for CLK20 is Tuesday. > > If you hold the long side of the contract you may have to take delivery. > > I think there is somewhat enough storage still available for delivery, but speculators don’t want the paperwork (and maybe small speculators are getting margin calls, although I don’t see much small speculators right now). It’s pretty hard actually to nail down a definition of ‘speculator’ that’s meaningful in a serious discussion (though in populist politics we can just wave that term around whenever it’s convenient). Hard for me to see how ‘speculators’ in the sense of relative outsiders to the oil market, who’d be tripped up by arranging storage or would sell out at -$30 to ‘avoid paperwork’ :eek: would be in the May contract any time recently. A large player with no ability to deal with delivery would have rolled to Jun some time ago (and open interest in Jun today was ca. 500,000 contracts v around 100,000 in May). Seems more likely it’s players with some more familiarity with settlement, though obviously longs who misjudged it. Who certainly could be speculating though. Even outright ‘legitimate end users’ in commodity market are often speculating in the futures market, which is why ‘speculator’ is not such a useful distinction in serious discussion, despite it’s storied history in politics (populist politicians in the US were blaming low grain prices on grain futures ‘speculators’ at least 130 yrs ago). Seems more likely the simple explanation why this happened now and never has before is more of a squeeze (of longs) on actual storage and pipeline capacity near Cushing than ever before. Though that’s not a direct reflection of land oil tanks filling up everywhere else (though they are getting there) nor sky high tanker charter rates to store it there\*. \*even recent record $400k per day to time charter a ~2mil bbl VLCC is only $6/bbl out to the Jun contract which you can sell at $21, that doesn’t explain the May contract being anywhere near -$30, that has to be an issue about storage/pipeline capacity in/around Cushing. ---
**Author:** ![Frankenstein\_Monster](https://avatars.discourse-cdn.com/v4/letter/f/ccd318/32.png) [@Frankenstein\_Monster](https://boards.straightdope.com/u/Frankenstein_Monster)\ **Post date:** [April 20, 2020, 10:42pm UTC](https://boards.straightdope.com/t/price-of-oil-goes-negative-how-does-this-even-make-sense/852207/23 "2020-04-20T22:42:12Z")
No, I was referring to the accepted, legal definition of speculator as used by the CFTC. Commercials are the futures traders that have an interest in the physical underlying. They are officially registered as such and get specific treatment. Large speculators are registered as traders that **don’t** have an interest in the physical. They are also officially registered in this way and have specific, corresponding responsibilities. I’m not gonna look up the legalese, I’m sure it can be found somewhere. Small speculators are the rest, that are not registered. Nothing wrong with speculators. They are considered an essential component of futures trading, critical for liquidity and price discovery and whatever else. ---
**Author:** ![Chronos](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/chronos/32/134_2.png) [@Chronos](https://boards.straightdope.com/u/Chronos)\ **Post date:** [April 20, 2020, 10:59pm UTC](https://boards.straightdope.com/t/price-of-oil-goes-negative-how-does-this-even-make-sense/852207/24 "2020-04-20T22:59:02Z")
The oil is somewhere right now. Let’s say it’s in ships. Why can’t it just stay in those ships indefinitely? Because time on the ships is expensive? Well, why would that be, at a time when there’s so little demand for them? ---
**Author:** ![UltraVires](https://avatars.discourse-cdn.com/v4/letter/u/ecccb3/32.png) [@UltraVires](https://boards.straightdope.com/u/UltraVires)\ **Post date:** [April 20, 2020, 11:07pm UTC](https://boards.straightdope.com/t/price-of-oil-goes-negative-how-does-this-even-make-sense/852207/25 "2020-04-20T23:07:44Z")
Perhaps this should be in the other thread. But is this situation the most historically horrific thing ever for the U.S. economy? ---
**Author:** ![Andy\_L](https://avatars.discourse-cdn.com/v4/letter/a/c67d28/32.png) [@Andy\_L](https://boards.straightdope.com/u/Andy_L)\ **Post date:** [April 20, 2020, 11:13pm UTC](https://boards.straightdope.com/t/price-of-oil-goes-negative-how-does-this-even-make-sense/852207/26 "2020-04-20T23:13:20Z")
> [@Chronos](#): > > The oil is somewhere right now. Let’s say it’s in ships. Why can’t it just stay in those ships indefinitely? Because time on the ships is expensive? Well, why would that be, at a time when there’s so little demand for them? The ships may have commitments to be somewhere, empty. Even if not, a ship has a lot of staff if it’s at sea (and dock fees if it’s in port) - so just keeping a ship running may be more expensive than paying someone to store the stuff. ---
**Author:** ![Trom](https://avatars.discourse-cdn.com/v4/letter/t/958977/32.png) [@Trom](https://boards.straightdope.com/u/Trom)\ **Post date:** [April 20, 2020, 11:25pm UTC](https://boards.straightdope.com/t/price-of-oil-goes-negative-how-does-this-even-make-sense/852207/27 "2020-04-20T23:25:59Z")
> [@Corry\_El](#): > > It’s pretty hard actually to nail down a definition of ‘speculator’ that’s meaningful in a serious discussion (though in populist politics we can just wave that term around whenever it’s convenient). > > Hard for me to see how ‘speculators’ in the sense of relative outsiders to the oil market, who’d be tripped up by arranging storage or would sell out at -$30 to ‘avoid paperwork’ :eek: would be in the May contract any time recently. A large player with no ability to deal with delivery would have rolled to Jun some time ago (and open interest in Jun today was ca. 500,000 contracts v around 100,000 in May). Seems more likely it’s players with some more familiarity with settlement, though obviously longs who misjudged it. Who certainly could be speculating though. Even outright ‘legitimate end users’ in commodity market are often speculating in the futures market, which is why ‘speculator’ is not such a useful distinction in serious discussion, despite it’s storied history in politics (populist politicians in the US were blaming low grain prices on grain futures ‘speculators’ at least 130 yrs ago). > > Seems more likely the simple explanation why this happened now and never has before is more of a squeeze (of longs) on actual storage and pipeline capacity near Cushing than ever before. Though that’s not a direct reflection of land oil tanks filling up everywhere else (though they are getting there) nor sky high tanker charter rates to store it there\*. > > \*even recent record $400k per day to time charter a ~2mil bbl VLCC is only $6/bbl out to the Jun contract which you can sell at $21, that doesn’t explain the May contract being anywhere near -$30, that has to be an issue about storage/pipeline capacity in/around Cushing. I agree. Storage is the issue. There’s nothing unusual or surprising about monthly futures roll. If Glencore, Vitol, Trafigura, etc. had the capacity to take delivery on -$37 oil, sell June futures at $20, and store it for a month they’d absolutely be doing it. ---
**Author:** ![leahcim](https://avatars.discourse-cdn.com/v4/letter/l/b4bc9f/32.png) [@leahcim](https://boards.straightdope.com/u/leahcim)\ **Post date:** [April 20, 2020, 11:26pm UTC](https://boards.straightdope.com/t/price-of-oil-goes-negative-how-does-this-even-make-sense/852207/28 "2020-04-20T23:26:40Z")
> [@Chronos](#): > > The oil is somewhere right now. Let’s say it’s in ships. Why can’t it just stay in those ships indefinitely? Because time on the ships is expensive? Well, why would that be, at a time when there’s so little demand for them? Because there is no port in Cushing, Oklahoma that has the capacity to dock even the smallest oil tanker at. 🙂 The “price of oil”, in the sense of the average price someone could sell a barrel of oil for anywhere in the world, is not not negative. Just the price of oil, as delivered in May, to the place and in the manner specified by the futures contract. In ordinary times, storage capacity in any particular place would not be an issue, and the price of WTI crude would be more or less equal across the board (+/- 10% say), it’s just that the futures contract specifies one place that has more glut than it can handle right now and that breaks the idea that there is a single “price of oil”. ---
**Author:** ![Trom](https://avatars.discourse-cdn.com/v4/letter/t/958977/32.png) [@Trom](https://boards.straightdope.com/u/Trom)\ **Post date:** [April 20, 2020, 11:30pm UTC](https://boards.straightdope.com/t/price-of-oil-goes-negative-how-does-this-even-make-sense/852207/29 "2020-04-20T23:30:46Z")
> [@Chronos](#): > > The oil is somewhere right now. Let’s say it’s in ships. Why can’t it just stay in those ships indefinitely? Because time on the ships is expensive? Well, why would that be, at a time when there’s so little demand for them? Tanker companies want to make money. The rates they charge to store oil have gone up 10x in the past month or so. They generally don’t own the oil. Their product is oil storage capacity and demand for that is through the roof. ---
**Author:** ![Trom](https://avatars.discourse-cdn.com/v4/letter/t/958977/32.png) [@Trom](https://boards.straightdope.com/u/Trom)\ **Post date:** [April 20, 2020, 11:33pm UTC](https://boards.straightdope.com/t/price-of-oil-goes-negative-how-does-this-even-make-sense/852207/30 "2020-04-20T23:33:29Z")
> [@leahcim](#): > > Because there is no port in Cushing, Oklahoma that has the capacity to dock even the smallest oil tanker at. 🙂 > > The “price of oil”, in the sense of the average price someone could sell a barrel of oil for anywhere in the world, is not not negative. Just the price of oil, as delivered in May, to the place and in the manner specified by the futures contract. In ordinary times, storage capacity in any particular place would not be an issue, and the price of WTI crude would be more or less equal across the board (+/- 10% say), it’s just that the futures contract specifies one place that has more glut than it can handle right now and that breaks the idea that there is a single “price of oil”. Though, it should be noted that spot oil in many places in Canada as well as Alaska is trading with negative prices. It’s not exclusively WTI at Cushing. ---
**Author:** ![leahcim](https://avatars.discourse-cdn.com/v4/letter/l/b4bc9f/32.png) [@leahcim](https://boards.straightdope.com/u/leahcim)\ **Post date:** [April 20, 2020, 11:38pm UTC](https://boards.straightdope.com/t/price-of-oil-goes-negative-how-does-this-even-make-sense/852207/31 "2020-04-20T23:38:45Z")
> [@Frankenstein\_Monster](#): > > Nothing wrong with speculators. They are considered an essential component of futures trading, critical for liquidity and price discovery and whatever else. I think the impact of speculators on prices of things is generally overstated. After all, every deal on the exchange starts out between two parties – one buying who hopes the price will go up, and one selling that hopes the price will go down – making speculators on both sides of roughly equal numbers. There really is a physical thing being pumped out of the ground, and there really is too much of it to store efficiently in the place where it is supposed to be stored. One could argue that _maybe_ this is due to the wall street types not seeing the demand cliff coming as soon as they should have and trading as if the price was going to be high forever, but I think there’s a much better case that the COVID situation was a legitimate surprise to the market. ---
**Author:** ![Andy\_L](https://avatars.discourse-cdn.com/v4/letter/a/c67d28/32.png) [@Andy\_L](https://boards.straightdope.com/u/Andy_L)\ **Post date:** [April 20, 2020, 11:40pm UTC](https://boards.straightdope.com/t/price-of-oil-goes-negative-how-does-this-even-make-sense/852207/32 "2020-04-20T23:40:00Z")
> [@Trom](#): > > Tanker companies want to make money. The rates they charge to store oil have gone up 10x in the past month or so. They generally don’t own the oil. Their product is oil storage capacity and demand for that is through the roof. I wonder if some of the _buyers_ of negative price oil are ships… ---
**Author:** ![smithsb](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/smithsb/32/12107_2.png) [@smithsb](https://boards.straightdope.com/u/smithsb)\ **Post date:** [April 21, 2020, 12:23am UTC](https://boards.straightdope.com/t/price-of-oil-goes-negative-how-does-this-even-make-sense/852207/33 "2020-04-21T00:23:01Z")
Cushing oil storage is not full but the influx is large. Total estimated capacity is around 91 million barrels. Storage in thousand barrel units went from 37,882 to 54,965 over the dates 3/6/20 to 4/10/20. [https://www.eia.gov/dnav/pet/PET\_SUM\_SNDW\_DCUS\_YCUOK\_W.htm](https://www.eia.gov/dnav/pet/PET_SUM_SNDW_DCUS_YCUOK_W.htm) Crude keeps coming in but the gulf coast refineries are cutting back on production/demand. ---
**Author:** ![dasmoocher](https://avatars.discourse-cdn.com/v4/letter/d/dbc845/32.png) [@dasmoocher](https://boards.straightdope.com/u/dasmoocher)\ **Post date:** [April 21, 2020, 12:27am UTC](https://boards.straightdope.com/t/price-of-oil-goes-negative-how-does-this-even-make-sense/852207/34 "2020-04-21T00:27:04Z")
How is this going to affect Russia and Saudi Arabia? I ask because some of the Trumpsters I know on Facebook are crowing that this is some sort of genius maneuver by Trump and Wilbur Ross to bring their economies to heel. Or something. As with most things Trump, they never seem to know what they’re talking about but I also don’t know much at all about the oil markets. ---
**Author:** ![Telemark](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/telemark/32/372_2.png) [@Telemark](https://boards.straightdope.com/u/Telemark)\ **Post date:** [April 21, 2020, 12:33am UTC](https://boards.straightdope.com/t/price-of-oil-goes-negative-how-does-this-even-make-sense/852207/35 "2020-04-21T00:33:29Z")
> [@Chronos](#): > > The oil is somewhere right now. Let’s say it’s in ships. Why can’t it just stay in those ships indefinitely? Because time on the ships is expensive? Well, why would that be, at a time when there’s so little demand for them? IIRC, the quote is for West Texas oil futures for the month of April. It’s not on a ship anywhere; it’s being pumped out of the ground in TX/OK. ---
**Author:** ![Velocity](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/velocity/32/18006_2.png) [@Velocity](https://boards.straightdope.com/u/Velocity)\ **Post date:** [April 21, 2020, 1:08am UTC](https://boards.straightdope.com/t/price-of-oil-goes-negative-how-does-this-even-make-sense/852207/36 "2020-04-21T01:08:02Z")
So what does this mean at the refined end? Are car drivers going to see something like 90 cents per gallon at the pump? ---
**Author:** ![Jonathan\_Chance](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/jonathan_chance/32/701_2.png) [@Jonathan\_Chance](https://boards.straightdope.com/u/Jonathan_Chance)\ **Post date:** [April 21, 2020, 1:25am UTC](https://boards.straightdope.com/t/price-of-oil-goes-negative-how-does-this-even-make-sense/852207/37 "2020-04-21T01:25:24Z")
> [@UltraVires](#): > > Perhaps this should be in the other thread. But is this situation the most historically horrific thing ever for the U.S. economy? No. Not remotely. Several of the 19th century panics were worse for the national economy. The Great Depression was worse and took both years and a near complete restructuring of how government worked to get back on track. Hell, the aftermath of 9/11 did that as well. So no, an excess supply of one commodity is not the worst thing ever. Don’t let anyone panic you. It’s a temporary over-supply issue that is easily dealt with by producers dialing it back for a while and letting honest price levels reassert themselves over the world. ---
**Author:** ![Jonathan\_Chance](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/jonathan_chance/32/701_2.png) [@Jonathan\_Chance](https://boards.straightdope.com/u/Jonathan_Chance)\ **Post date:** [April 21, 2020, 1:26am UTC](https://boards.straightdope.com/t/price-of-oil-goes-negative-how-does-this-even-make-sense/852207/38 "2020-04-21T01:26:33Z")
RTFirefly- You might enjoy this from a few years ago. NPR’s ‘Planet Money’ team bought a barrel of crude and reported on the entire process from bidding to taking ownership and later selling it. It gives a good overview of the process. > **[Planet Money Bought Some Oil](https://www.npr.org/series/494601665/planet-money-bought-some-oil)** > > The team at Planet Money set out to buy 100 barrels of crude oil right from the source, and then follow it from ground to gas tank. ---
**Author:** ![Telemark](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/telemark/32/372_2.png) [@Telemark](https://boards.straightdope.com/u/Telemark)\ **Post date:** [April 21, 2020, 2:29am UTC](https://boards.straightdope.com/t/price-of-oil-goes-negative-how-does-this-even-make-sense/852207/39 "2020-04-21T02:29:28Z")
This is a relatively isolated issue that doesn’t really impact the global market. Yes, there is a surplus of oil and finding storage for it will continue to be an ongoing problem unless production drops. Those issues are real and remain. But the specific issue with the price of the May WTI futures relates to storage and the timing of the options being due. The price of WTI futures for June and July are in the $20-25 range, climbing into the $30s in the subsequent months. ---
**Author:** ![kaylasdad99](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/kaylasdad99/32/3398_2.png) [@kaylasdad99](https://boards.straightdope.com/u/kaylasdad99)\ **Post date:** [April 21, 2020, 7:13am UTC](https://boards.straightdope.com/t/price-of-oil-goes-negative-how-does-this-even-make-sense/852207/40 "2020-04-21T07:13:38Z")
> [@RTFirefly](#): > > [BREAKING: May contract for WTI crude oil settles at negative $37.63/barrel, down 305%](https://twitter.com/CNBCnow/status/1252302376859557891) I’ve got a little room in my back yard; I could take a barrel and hold onto it, if somebody wants to pay me $37.63. I mean who couldn’t use $37.63? [Previous page](https://boards.straightdope.com/t/price-of-oil-goes-negative-how-does-this-even-make-sense/852207.md?page=1) [Next page](https://boards.straightdope.com/t/price-of-oil-goes-negative-how-does-this-even-make-sense/852207.md?page=3)