OIL FUTURES, STORAGE and STRATEGIC PETROLEUM RESERVE
Future prices may be related to the fulfillment of the contract associated to them. In the case of Oil, the Future Contract Specs for WTI can be found here (cmegroup.com/trading/energy/crude-oil/light-sweet-crude_contract_specifications.html). So upon the contract Expiration (Last Trade date that can be found here: cmegroup.com/trading/energy/crude-oil/light-sweet-crude_product_calendar_futures.html?optionProductId=769&optionExpiration=769-K0), you will have to receive the Oil Barrels (1000 per Future purchased as per this contract in this case). This requires storage capacity, and given the current Covid scenario, this has been compromised (read more about this here: nytimes.com/2020/04/21/business/live-stock-market-trading-coronavirus.html?campaign_id=60&emc=edit_na_20200421&instance_id=0&nl=breaking-news&ref=cta®i_id=122790762&segment_id=25646&user_id=0ea82f68322b54290c6e72c6b8a627d9).
It seems that given that the price of the futures are negative, it means that sellers are willing to PAY buyers to take the asset from them... so this might mean that it is cheaper for them to have someone take the oil from them and take care of the storage, than having to do it themselves (having to store more than they can, or even drop production to be able to prevent more supply from compromising current storage capacity and the costs associated with it).
I think that Governments and other entities with high storage capacities might stand to benefit from this. They can get paid to take the oil from these suppliers, while also increasing their Oil reserves. In the case of the US, for example, the US has the Strategic Petroleum Reserve (en.wikipedia.org/wiki/Strategic_Petroleum_Reserve_(United_States)), read more here (spr.doe.gov/dir/dir.html). If they acquire the oil barrels now, when things normalize, they will be at an advantage with higher volume supply than others, to sell. They will be able to regulate the Oil market and other markets that depend on it.
Will be looking into it as it evolves. Thoughts?
It seems that given that the price of the futures are negative, it means that sellers are willing to PAY buyers to take the asset from them... so this might mean that it is cheaper for them to have someone take the oil from them and take care of the storage, than having to do it themselves (having to store more than they can, or even drop production to be able to prevent more supply from compromising current storage capacity and the costs associated with it).
I think that Governments and other entities with high storage capacities might stand to benefit from this. They can get paid to take the oil from these suppliers, while also increasing their Oil reserves. In the case of the US, for example, the US has the Strategic Petroleum Reserve (en.wikipedia.org/wiki/Strategic_Petroleum_Reserve_(United_States)), read more here (spr.doe.gov/dir/dir.html). If they acquire the oil barrels now, when things normalize, they will be at an advantage with higher volume supply than others, to sell. They will be able to regulate the Oil market and other markets that depend on it.
Will be looking into it as it evolves. Thoughts?
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