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So oil reaches a record low today of -$37.63 a barrel. Oil is soooo backlogged that they don't have a place to put it. But negative? Oh yessir, let me explain in this thread... https://www.cnn.com/2020/04/20/investing/premarket-stocks-trading/index.html
As you can imagine, this is the person holding the oil saying "if you will take my barrel of oil, I will pay you $37.63". Still seems incredible, it is. But put it in the context of a futures contract. If someone holds a futures contract for a barrel of oil at expiration...
...they (or the broker that guarantees them) is required to take that oil. Literally, the oil they are on the hook for. They must pick it up. No joke. That's a commodity contract for you and why commodities trading can really mess with your day!
The reason this is happening is there is no more place to put it. If there was, the trader holding the contract would rather keep his $40/bbl and hold on to the oil for another day. And it's not like this stuff fits in your backyard shed. This is supertankers worth of the stuff.
Speaking of supertankers, the last time this happened, there were literally tankers full of oil with nowhere to go. And now they are running out of empty tankers with nowhere to go.
As most know, oil goes to refineries, refineries make products like gasoline, which gets transported to the pumps you buy at. So let's think about this hypothetical "I'll pay you to take oil" scenario. What could actually happen here?
One thing I've been thinking about is free gasoline to anyone that will take it. I don't know about you, but I could take about 1/4 tank on my truck and maybe another couple gallons in a jerry can in the garage. Does anyone have an empty tank on their car right now?
But how would that even work? States pay for roads with gasoline taxes and it's not a percentage of the price, it's usually a fixed price per gallon. The states are not going to let the gas go to customers without SOMEONE paying the tax to cover the eventual damage to the roads.
That someone COULD be the refineries that are making $37.63/bbl to take the oil in the first place! Instead of the end user paying for the finished product, the product indeed pays for itself, but only if people will simply take the end product!
I think we know that this would take a while to happen. The Costco store in Oklahoma City is one of the lowest prices in the country for regular gasoline, and they are still at $0.99/gallon after some weeks.
What's evident to me is the retailers who are paying the tax aren't incentivized yet by the refiner to take the gas. For it's part, Costco is saying "we can't go any lower without someone paying for our taxes and effort".
This week should be VERY interesting!!!
This week should be VERY interesting!!!
