Tumblin’ Tuesday – They Will PAY You to Take Their Oil
$38.50 per barrel.
That's how much you get PAID at the NYMEX for agreeing to take a 1,000-barrel contract off their hands. The problem is (and the reason it's so cheap) what are you going to do with 1,000 barrels of oil and $38,500? The barrrels are 42-gallon drums and weigh 300 pounds each and you have to pick them up in Cushing, OK no later than the end of the next month and picking up means from a pipeline – you have to bring your own barrrels.
You can buy the barrels for about $20 each but they are 3 foot tall by 2 foot in diameter (12 cubic feet) and a standard semi truck has about 2,400 cubic feet of spaces so, if you were to fill up 1,000 barrels you'd need 5 semi trucks to take them to your storage facility and you'd have to pay 5 teams to load them and unload them and then pay for storage until you find a seller.
Still if you are doing the math, you might be able to make all that work for under $38,500 but then you still need to find someone who will buy the oil from you for less than zero and, while -$38.50 did not last long – oil is still trading at -$4 this morning. Those are the contracts that expire today for May delivery as there is simply nowhere left to put the oil.
Not only are the storage facilities full but the pipelines are full so you can't even transport the stuff and the oil tankers are being used for storage and good luck finding a tanker truck or tanker car on a train. Go to your local gas station and he'll tell you he's full too – those tanks hold 12,000-24,000 gallons and that's just 250-500 barrels at a gas station but that is, of course, refined gasoline – you would be buying unrefined crude so your only potential buyer is a refinery and, guess what – they're FULL!!!
So the oil market is, currently, broken and will not magically get unbroken as long as no one is driving their cars. Trump is talking about adding 75M barrels to the Strategic Petroleum Reserve and he should have done that yesterday, when he could have been PAID $2.88Bn to take it!
75M barrels is 75,000 contracts and that's about all the storage that's left in America and that's a BIG problem for NYMEX traders, who place hundreds of thousands of fake, Fake, FAKE! orders – something we've discussed since oil was $100 per barrel, 13 years ago (see "Goldman’s Global Oil Scam Passes the 50 Madoff Mark!"). Well now the scam completely unravels as there is no longer anwhere to hide the fake orders and they can no longer be rolled but there are still 582,426 open contracts at the NYMEX, pretending they want delivery of 582 MILLION barrels by June 30th. WTF are they going to do with those?
We thought oil was going to bounce and we took some longs on USO for July and some June contracts but we gave up yesterday as the volatility got too crazy and now, looking at these open orders – I don't see how the June contracts are going to escape the same fate as the May ones just suffered. 75M barrels won't put a dent in those fake orders. I suppose the NYMEX could declare a force majeure and cancel all contracts but, short of that – this is likely to be an ongoing catastrophe.
Fortunately, the energy sector is down to about 3.5% of the S&P 500 already so it can continue to collapse without taking the whole market with it but, unfortunately, it will constrain growth on the way back as capacity goes permanently off-line through bankruptcy and lack of investment in new wells as the old ones run dry. In the future – assuming demand returns – there will be spot shortages for years to come.
None of that matters now though – the reality of the now is that every barrel of oil pumped out of the ground above our anemic 8.5Mb consumption (and that INCLUDES 3.5Mbd we refine for export) adds to the problems of a country that is already swimming in oil. The US passes Saudi Arabia last year to become the World's Largest producer of oil and the Republicans have been running on a "Drill Baby Drill" platform since McCain in 2008 and now they have succeeded – yet another Conservative plan that ended up destroying a US Industry.
Not only do reckless policy decisions destroy the long-term viablitiy of industries but the fossile fuel industry and their pollution is killing us slowly (with environmental damage and global warming) and now quickly as air pollution causes much higher death rates from Covid-19. Who could have thought that the long-term damage to our lungs due to air pollution would make them vulnerable to disease? It's one of those connections our President would say no one ever could have seen coming – so clearly not his fault...
Trump is, of course, hard at work – rolling back air quality controls and increasing the amount of mercury, arsenic and other heavy metals the Koch Brothers' plants can spew out into the atmosphere. The EPA’s own in-house experts believe that the rules Trump’s team has gutted were saving 11,000 premature deaths per year - more bodies for the pile, I suppose…
Rolling back the regulations has allowed Trump to roll in the donations from our nation's largest polluters and they will keep paying as they need Trump to have 4 more years to poison the atmosphere. The President is $189M ahead of Joe Biden, who can't campaign and is ignored by the media in the midst of the 2020 Presidential campaign. Nonetheless, Biden is well ahead in the polls because that's how terrible Trump is…
There will be more pressure on the May oil contact (/CLK20) as it terminates today at 2:35 and that should keep pressure on the June contract (/CLM20), which is currently $14. Trump will officially announce filling the SPR at some point but not today as he needs Congressional approval – though that hasn't stopped him from announcing things he can't really do before.
This morning's low on /CLM20 was $11.79 so I don't mind taking a poke there with a stop at $11.50 and then again at $10 with a stop at $9.75 but only playing for bounces because, as noted above, the contract pressure in June is tremendous.
Be careful out there.