The May contract is down 300% today. Things are going to be interesting tomorrow. Good luck all
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It is a bit of a false figure. Last I looked not many contracts were trading at that price. June contract trading at about 20 dollars.
The fact is though that there is too much of the stuff in storage and they are running out of storage space hence the negative May price.
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Exactly people don’t want physical delivery as there is nowhere to store it so they are dumping the May contract.
The June WTI contract however, which expires on May 19, has fallen about 18% to trade at $20.43 per barrel and kind of better reflects the reality of the market. The June contract was more actively traded today and the July contract was roughly 11% lower at $26.18 per barrel.
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Which oil companies/ funds would people buy on Freetrade? I’m liking the look of £DGOC
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Honetstly, things are not looking good for oil at all. Even before the virus we were moving around $60/bbrl at best. Most oil majors need $50+ to break even.
I have positions in both Shell and BP, but I am thinking of closing one, I don’t see how can we go back to oil of at least 60$ any time soon.
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This is the simplified version of what the “-$36.73 a barrel oil” means if anyone is not into futures contracts.
A futures contract is a contract to buy something in the future at a pre-agreed price.
When you buy most commodity contracts e.g. for oil or soybean or orange juice, you actually buy the “physical” product at a future delivery date.
If you don’t close out your oil or soybean contract, you get a call from the exchange telling you that your soybeans are waiting for you in Kansas City and what would you like to do with them? Imagine that problem.
Same with oil. Tankers will show up in Houston with millions of gallons of oil and somebody needs to take the delivery. Nobody can because all the storage facilities are already full. So people that bought these future contracts (in the hope they would be able to sell them at profit) are literally paying you almost $37 a barrel for you to take possession of oil.
Crazy times.
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We are not running out of storage space per se, but rather running out of non-leased storage space.
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Useful background here:
https://www.bloomberg.com/news/articles/2020-04-20/negative-prices-for-oil-here-s-what-that-means-quicktake
I would be staying well clear of anything oil-related in the markets if I were you - literally millions of dollars was lost by retail investors in the $USO ETF in the last few days of trading because they didn’t understand what they were getting themselves into.
IMHO Derivatives-based ETFs (I’m not sure if Freetrade has any?) need a damn big warning sign hanging over them, particularly at the moment with so much systemic risk in the global markets.
The key bit here is that these are not ETFs but rather ETPs and are governed by different rules etc.