Oil Crash Resumes: When Does It Stop?

Mish

Crude for June delivery plunged below the $10.00 level and those futures could go negative as well.

Anyone rolling oil futures is in a world of hurt. Yesterday it was mainly the small traders who got wiped out. Today managed managed funds are getting killed.

Some “American pipeline companies are requiring companies seeking space on their lines to provide proof of destination certificates verifying there is a refiner at the other end of the pipeline willing to take the oil.” 

COT Position

June Crude Plunges Below $10 2020-04-21

Let's do the Math 

Large speculators are long 510,699 contracts.

Small speculators are long 44,160 contracts.

Each contract represents 1,000 barrels. 

A move of $10 amounts to a profit or loss of 510,699 * 1000 * $10 = $5.1 billion.

Gains or Losses on $10 Move in Crude 2020-04-21

Actual losses are far worse because many speculators have been rolling contracts for months on end. 

Speculators who have been rolling contracts since $50 are now down $40 per barrel. 

If prices go to -$40 like they did yesterday, we are talking about losses approaching $90 billion or so. 

Trump Wants to Formulate a Plan

Negative Oil Prices

Yesterday, the price of oil plunged to -$40 because there was nowhere to store it. 

Longs were trapped in a situation where they were forced to take delivery of crude and had to get out at any price.

For discussion, please see Crude Price Falls to -$40: Yes, Negative. 

My Plan

  • Stop the bailouts.
  • Let the oil speculators go bankrupt.
  • Let the financers take it on the chin as well.

When Does the Crash Stop?

  1. When producers stop drilling oil that is not needed.
  2. When the speculators putting on "paper oil" trades get wiped out.

Paper Oil 

Oil is another example of leveraged trades. Even more so than gold, speculators will not take delivery. 

For discussion of delivery issues related to gold, please see Gold "What If?" Silliness 

Only Plan We Need

It's time for personal responsibility, not bailouts of favored industries.
That's the only plan we need.

Mike "Mish" Shedlock

Comments (22)
No. 1-14
Tony Bennett
Tony Bennett

Queue up the False Flag operation.

Go long missile + tanker + Strait of Hormuz

WildBull
WildBull

@Sechel Yes, no need to bail stock holders, bond holders, err.... 401k accounts, pension funds, err... I guess a lot of the elderly will be living with their children. This is just the beginning. We're only 5 weeks in and things are starting to come apart at the seams. This is not confined to a few rich bastards. It is you, me and everybody else that has ever bothered to save a dime.

lol
lol

Trump will allow tankers to dump there oil off the coast of Cali into the Pacific and into the Gulf to make room for even moar earl.hell Feds own Lake Mead,fill that sucka up with crude,problem solved!

WildBull
WildBull

@Sechel Not that I want bailouts either. Protect the elderly, get everyone else back to work.

Six000mileyear
Six000mileyear

There is another 3-4 weeks of stay-at-home in the northeast. That's going to hold things back for awhile.

TimeToTest
TimeToTest

Mish is always talking about deflation.

While I don’t disagree with short term deflation, I think we are looking at inflation in the medium/longer term.

They will bail out driller, seller, tankers, storage, bond holder, stock holders and anyone else that has a lobbing firm.

I would at least if I had a print button. In what world does this not work out in inflation vs hard assets?

BigSpam
BigSpam

Some drillers will go under this year, prices will stabilize, eventually demand will return, reduced capacity/competition will mean shortages, and we’ll see oil head back up to 100.

Bam_Man
Bam_Man

"When the capital development of a country becomes the by-product of the activities of a casino, the job is likely to be ill done."
- J.M. Keynes

randocalrissian
randocalrissian

When the first day of the front month contract has a daily range of $6.50-22.xx, how can anyone doubt the possibility of it going negative? Heck, it would not shock me to see it happen this week if the unwinding is big enough.

Tengen
Tengen

Trump is helpless here. He foolishly hitched his wagon to the frackers, who are now beyond redemption. We've already seen demand destruction in recent years, but the virus kicked it into overdrive.

He put so much effort into antagonizing Venezuela, Iran, and Russia, but it was all for naught.

Stan88
Stan88

A middle east war could turn oil around

AshH
AshH

Read a clever tweet on this. Something along the lines of, "Hey, I know, let's store it in the Earth's crust!"

Silver2020
Silver2020

Trump to oil's rescue....just instructed the Navy to shoot down any Iranian boat that comes close to Navy ships!

The Hood
The Hood

When does the oil debacle end? When the splendid little war with Iran starts and closes the Straits, that's when,... soon.


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