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Oil price negative?


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Oil price negative?

  #1 (permalink)
 GFIs1 
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Oil price might fall into negative numbers

Several sources are indicating the today very low oil price might fall to zero or into negative numbers. (see Bloomberg and other this month).
The point is the crucial oil storage which is no longer there: oil ships, tanks etc. are all full because of the still massive positive supply over the demand as there are nearly no planes in the air, no vehicles on the roads and winters were much to warm for selling heating oil.
Thus oil companies are looking for clients that take fresh oil for a minus price without storing first.

Today it came out that CME group made a platform update over the last weekend to handle negative prices in trading.

GFIs1

Edit: this thread is not a trading lounge. Instead it is following a special economic theme: how a commodity can fall into a negative range.
In the time I studied economics at the university that was a scenario that never will and never can happen.
As we have seen with interests in the banking sector it happened. - Let us see the future of commodities here. Maybe oil is the first one to show a similarity.
Discussions about are most welcome.

Edit 2: After the historic event of minus numbers in oil on April 20, 2020 here a layout of the effects in economy:

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  #2 (permalink)
 tr8er 
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Yep, but also the huge contango is funny it is close to $ 7.--, I've never seen this before, because normally if roll-over starts, the prices narrow. The volume between the May and the June contract is equal (so we will roll later today or tomorrow).

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GFIs1 View Post
Oil price might fall into negative numbers

Several sources are indicating the today very low oil price might fall to zero or into negative numbers. (see Bloomberg and other this month).
The point is the crucial oil storage which is no longer there: oil ships, tanks etc. are all full because of the still massive positive supply over the demand as there are nearly no planes in the air, no vehicles on the roads and winters were much to warm for selling heating oil.
Thus oil companies are looking for clients that take fresh oil for a minus price without storing first.

Today it came out that CME group made a platform update over the last weekend to handle negative prices in trading.

GFIs1

Thanks.

For anyone needing details, the CME advisory @GFIs1 mentioned can be found at https://www.cmegroup.com/content/dam/cmegroup/notices/clearing/2020/04/Chadv20-160.pdf

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 SMCJB 
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Prices already are negative in some parts of the country!

If you look in the crude thread and the selling options thread I posted information on the announcement and implication of negative price functionality by CME.

As an aside I remember 20 years ago when energy products first started trading electronically and exchanges couldn't handle negative prices! They'd never seen it before!

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  #5 (permalink)
bob666s
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WSJ Economist consensus outlook is at $26 for June. it's easy to see who's heavily short in this thread lol

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bob666s View Post
WSJ Economist consensus outlook is at $26 for June. it's easy to see who's heavily short in this thread lol

June settled $25.14 which for all intensive purposes is the same as your WSJ economist $26. Hence I'm not sure your point?

With regards to heavy shorts, Commitment of Traders shows that speculative length is actually long and increasing it's position.

For me personally I do have some option positions on that have a negative delta, so I guess that makes me a short. But trust me my option position is insignificant versus my spread butterfly position.

If you have an opinion maybe you want to post in the main crude thread here.

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 GFIs1 
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Monday 20th April: Morning prices of

WTI crude on new lows: $14.70
Trend down.
Is the same with other oil sorts too.

GFIs1

edit 13:40 - down to $12.52
edit 14:00 - down to $11.23
edit 17:00 - down to $10.50 - means -40% down since midnight!

besides: US fracking oil was on Friday around $10 - for today we will see

nearing ZERO with high speed

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  #8 (permalink)
 GFIs1 
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"This thread is not a trading lounge. Instead it is following a special economic theme: how a commodity can fall into a negative range.
In the time I studied economics at the university that was a scenario that never will and never can happen.
As we have seen with interests in the banking sector it happened. - Let us see the future of commodities here. Maybe oil is the first one to show a similarity.
Discussions about are most welcome."

I added this part above into post #1 to set the focus.

GFIs1

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Just FYI Natural Gas Prices in West Texas have gone negative multiple times in the last year. Yes paying people to take it from you! There are limits to how much gas you are allowed to flare, and once you pass that limit you have to pay somebody to take it. Why would producers continue to produce something that has negative value? It's associated gas meaning they are actually drilling for oil and the gas comes with the oil, so the only way to stop the gas would be to stop the oil as well. (As a side note oil well shut-ins is bullish Natural Gas fundamentals. Good job as the country was close to drowning in gas!)

Also in the Eurodollar* market, the price is 100 - index interest rate, so a price of 99.50 represents an interest rate of 0.50%. The Eurodollar market has listed, and has open interest in options with strikes greater than 100 which means they have options with negative strike prices**.

* Eurodollar's represent 90day USD loans outside of the US and are based upon LIBOR. Very different than the EUR;USD exchange rate.
** When modeling a Eurodollar 100 Call, you actually model the underlying which is a 0% Put.

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Also copying these in from the main crude oil thread for reference.


SMCJB View Post
Here's something to start thinking about ...

CME :- Changes to Price and Strike Price Eligibility Flags for Certain Energy Products

This Sunday, April 5 (trade date Monday, April 6), as an operational step toward potentially supporting negative pricing and strikes, the MDP 3 Security Definition (tag 35-MsgType=d) for these NYMEX Energy outright futures and options on CME Globex will be flagged as eligible to trade at negative prices. The options on futures will also be flagged as negative strike price eligible. Trading at negative prices for these outright markets will not be supported at this time. Negative strike prices will not be listed.


SMCJB View Post
Negative Crude Oil Prices????

ADVISORY #: 20-152
SUBJECT: CME Clearing Plan to Address the Potential of a Negative Underlying in Certain Energy Options Contracts

https://www.cmegroup.com/content/dam/cmegroup/notices/clearing/2020/04/Chadv20-152.pdf

If WTI Crude Oil futures prices settle, in any month, to a price between $8.00/bbl and
$11.00/bbl, CME Clearing MAY switch its pricing and margining options models from the
existing models to the Bachelier model, currently utilized in numerous spread options
products where negative underlying prices and strike levels are a regular occurrence. If
any WTI Crude Oil futures prices settle, in any month, to a level below $8.00/bbl, CME
Clearing WILL move to the Bachelier model for all WTI Crude oil options contracts as
well as all related crude oil options contracts effective the following trade date. CME
Clearing will send out an advisory notice with one day notice before any implementation
occurs with all appropriate details.


I looked for a layman's definition of the Bachelier model but couldn't find anything easy to understand.


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