Episode 235 - Oil goes negative! How, why and what it tells us.


Manage episode 260115400 series 2391148
By Brent Philbin, Karim Baruque, and Adam "Roothlus" Levy - The Cryptocurrency news nerds, Brent Philbin, Karim Baruque, and Adam "Roothlus" Levy - The Cryptocurrency news nerds. Discovered by Player FM and our community — copyright is owned by the publisher, not Player FM, and audio is streamed directly from their servers. Hit the Subscribe button to track updates in Player FM, or paste the feed URL into other podcast apps.

Welcome to the Crypto Basic Podcast! This time around we're going over a truly unexpected turn of events which baffled even the most economically savvy of us (Karim. That's just Karim.) Oil went negative! A never before seen event, we try to make sense of it and pose the important questions: 1. What the hell? 2. What's the reason? 3. What will the repercussions be? All of this and more on today's show, so tune in now!

  • Interesting topic to learn about and extrapolate from
  • We have just witnessed an oil price crash like never before taking prices of West Texas Intermediate into deeply negative territory.
  • WTI Crude Oil Spot Price is the price for immediate delivery of West Texas Intermediate grade oil
  • reached minus US$40.32 a barrel
  • How can a price turn negative?
  • industry has not been able to slow production fast enough to counter the drop in demand.
  • global demand for oil has reduced by 29 million barrels a day (100 to 71)
  • Storage can stabilize prices, but its nearing capacity
  • WT mainly stored at Cushing Facility in OK, now almost full
  • 62m Barrel capacity - Can fill half tanks in the US
  • Worlwide, current rates of supply/demand have estimates of inventories increasing by 1.6B barrels in first half of 2020, but only 1.6B barrel capacity still available
  • Context - Amount of production that could be stored if exports dry up
  • US - 30 days, SA - 18, Russia - 8
  • Nigeria, largest producer in Africa....1.5 days
  • Traders with contracts to take delivery of oil in May fear they won't be able to store it. They are willing to pay not to have to take it and have nowhere to put it.
  • June contracts and later are still positive, so supply demand imbalance may be corrected
  • Fun Trivia - Guess what the name of the other price benchmark for oil
  • It stayed around $25, they can be put on ships and taken to storage anywhere
  • Responses
  • Halliburton (oilfield engineering) said that the pandemic has created so much turmoil in the industry that it "cannot reasonably estimate" how long the hit will last.
  • OPEC-Plus - Responded by cutting output by 9.7m barrels per day, which ends the duel between Russia and SA
  • But note still significantly less than the drop in demand
  • Oil importing countries taking advantage and filled up what they could in storage
  • Investors using Giant oil tankers for storage
  • Record 160m barrels stored this way, each can hold up to 2m barrels.
  • Of course this is bidding up charter rates, more than doubling to $350,000 a day
  • Last time we saw something close was 2009, about 100m barrels
  • Shiff Quote on Gold
  • The oil price is now negative $3 per barrel. What is happening now in the #Oil market will soon happen in reverse in the #gold market. In oil the shorts are trying to deliver, but the longs don't want it. In gold the longs will try to take delivery, but the shorts won't have it!
  • Sources
  • Understanding what just happened with oil prices
  • Oil crash explained: How are negative oil prices even possible?
  • The world's on the brink of running out of places to put oil
  • Supertankers drafted in to store glut of crude oil
  • Why TikTok is Now the No. 1 Social Media App

249 episodes