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In addition, let me also take this opportunity to remind everyone this thread is about the negative oil price situation and very closely related topics.
Anything else Crude / Trading related really belongs in the main CL discussion thread, please.
which loosk not far apart.
In fact as long the stocks are full (WTI) might tumble again and get to near zero at the end of next month's contract. So the price difference between both products will pump up and down.
For the trader it is a nice niche to make some money of given background.
Broker: Broker: Trade Future 4 Less. Data Feed/Order routing: CQG
Trading: DAX; ES; Bund Futures
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I agree very much with the last part - positive or negative oil prices, as long as they move and move a lot in a short tile the more and quicker profit is to by made, so lets hope for continuied big volatility
Trading: Primarily Energy but also a little Equities, Fixed Income, Metals and Crypto.
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@GFIs1 Thanks for your comments on liquidity and speculation.
Focusing on 'speculation' and specifically 'speculators' and 'hedgers'. There was a situation a few years back when the CFTC reclassified a trader from being a hedger to a speculator and the Commercial/Non-Commercial COT data shifted 10%! Traders involved in the physical product need to be able to hedge their physical exposure. But at times they may not want to hedge, in fact its possible that their speculative derivatives position is additive to their physical position not offsetting. How do you handle that?
“CME boss says his exchange is not for retail investors and it’s ‘no secret’ futures can go negative” Excerpt:...Continental Resources executive chairman Harold Hamm wrote a letter to the Commodity Futures Trading Commission, asking for an investigation into Monday’s trading. Duffy said that CME was open to an investigation but that Monday’s session — which involved 154,000 contracts changing hands, the majority of which were traded above zero — was a function of supply and demand.
“If Mr. Hamm and any other commercials who are traditionally in the market believe that the price should be above zero, why would they not have stood in there and taken every single barrel of oil if it was worth something more? The true answer was is it wasn’t at that point in time ... the market worked the way the market was supposed to work,” Duffy said.* https://www.cnbc.com/2020/04/22/cme-boss-says-his-exchange-is-not-for-retail-investors-and-its-no-secret-futures-can-go-negative.html
Trading: Primarily Energy but also a little Equities, Fixed Income, Metals and Crypto.
Frequency: Many times daily
Duration: Never
Posts: 5,049 since Dec 2013
Thanks Given: 4,388
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He does make a good point. Although I'm not sure dropping $50 on Monday and then rallying $50 on Tuesday is 'normal', 'rational' or 'desired' market behavior. I think there were a lot of retail traders that bought in front of $0 thinking it couldn't go negative and a lot of hedge funds that bought K/M assuming they could get storage at some price. Both were wrong and got long squeezed! There's also a story that a Bank of China ETF stye structured product got destroyed on Monday but that was only 1400 lots - potentially a contributor - but not the whole reason.
I want to thank @SMCJB for his detailed descriptions of the various pricing mechanisms used in the crude oil markets. This is very helpful to understand.
Regarding the negative futures prices we saw on Monday and Tuesday, I do find it extremely disturbing that several traders were unable to exit positions due to systems failures on their brokerage platforms. The response from the brokers that "I'm sorry, there's nothing we can do" is unacceptable. I genuinely hope that these issue are resolved. However, for those who got stuck, perhaps this is also a good reminder to always use a stop - even a "catastrophe stop" such as what one might put in place in case the power goes out or the system crashes is better than being totally exposed in an extremely thin and volatile market a day or two before expiration.
But the deep negative price settlement on Monday also reminded me of something I witnessed up close and personal during the financial crisis in 2008. Without getting into all the minutiae, in late 2008 and early 2009 a large investment bank used its size and pricing power to drive market prices in a thinly traded derivatives index (the ABX CDS index) well below its intrinsic value. Since this derivatives index was used as a pricing benchmark for hundreds of billions of dollars worth of bonds, however, this bank was also able to force many of its clients and smaller competitors into insolvency - especially some of the more highly levered players that were financing their positions in the repo market with this very bank.
Bonds that were worth 90 cents in the secondary market were marked to market at 65, margin calls were issued, collateral was siezed, and companies were ruined, all so that this bank could pick at the carcasses and flip mismarked collateral to preferred customers for a quick 10 or 20 points of near riskless profit. This, of course, on top of the $3 billion they made on their ABX position. Their ABX short was so massive, by the way, that it can be fairly described as a successful corner, one that bankrupted a large number of smaller players who got caught on the other side. The forced liquidations that followed only added to the P&L
How does this remind me of crude today? Well someone clearly stands to benefit from bankrupting smaller, higher-cost competitors and has the size to be able to pull this off. I don't think for one second that the carnage we witnessed was due solely to some fluke in the futures roll. There was intent behind this move and I don't think it's over yet.
When there's a blatant attempt to smuggle into the conversation the "clever" but contextually devoid slant of oil's essential properties as being only "stinky black mud" rather than it and its derivatives objectively being the most practical energy-dense substance (other than LPG, uranium, and the related, higher nuclear elements found on the planet today); and, as oil will continue to be used by billions of people in millions of products well past the time when all of us here and our children have long gone individually extinct; then such biased moderation of a thread by an OP will contain no value to me personally. But I do appreciate the warning, thank you.
Furthermore, when people who use oil--in other words, all of us--are then publicly tarred (ironic, isn't it?) with essentially being "petrol heads" then I judge that mind as simplistic, if not divisive, and specifically due to its explicit cognitive choices when expressing its POV (which could have been done without all the loaded terms). Saul Alinsky much? Duh.
So now that mind is IGNORED. I'll never read another post by it again. It's not because we have a difference of opinion, either. It's because I cannot trust it to focus on essentials after it had deliberately tried to frame opposing views as coming from social pariahs right out of the gate. When I want to be amused by a "clever" slant on any subject, I can go to MSNBC, HuffPo, FoxNews, CNN, Slate, Vox, Bloomberg, WaPo, or Mother Jones and their comment sections (for those media outlets still brave enough to tolerate readers' comments). They're all rife with such commonplace and typically onanistic "cleverness" these days. It's nothing new, either, unless you were born yesterday.
But, by all means, and this will be my last post on using oil for "never letting a crisis go to waste," if you buy into what they're selling, please, please, PLEASE short oil as a long-term strategy.
No? Oh, it's that money and mouth thing, isn't it? Okay, yeah. I get it. I understand.
