Crude futures fell $3.40 in a day. From the previous price that’s an amazing 18.6% decline in just one day.
Contango
Crude in a massive state of contango. That means spot prices are way lower that prices expected in the future.
Contango is often the case due to increasing demand and central bank sponsored inflation. But futures more than doubling in three month is extremely unusual.
Crude Price Front Month
Part of this collapse is related to May futures expiring on Tuesday with no one wanting to take delivery due to storage constraints.
Even still, contango is severe.
Will the price really double by August?
Even if that happens, many if not most US oil producers will still be losing money.
That fully explains Trump’s reelection strategy: Pay Drillers Billions to Leave Oil in the Ground.
Mish
Trump says I will fix this problem…. I am going to take over Iran oil and keep it in the ground!
History book will have a chapter about today: the crude oil is on sale at $-40.32! Yes you are paid to bring home the crude!
Half an hour ago, now it is minus $35
When will they start paying me to take it?
I think before it is actually free, they will be giving away free glasses with each barrel, get a set of six!
Oops, I was too slow, it is already in the minus category.
Tanks!
Your welcome!
Now may 20 crude oil futures is at $1，basically free! Grab some while supply is still thete!
Crude oil now at $2.26 (may 20 futures)! Nobody wants it! Surreal! Unprecedented in history! tRump must be enjoying it now!
Just like the My Lai massacre… We had to destroy the country in order to save it. This is my biggest fear, a full on credit collapse accompanied by mass bankruptcies. This stuff may make the pandemic an afterthought
Vietnam didn’t need saving. Freedom should allow people to choose the way they want to live, and most of the Vietnamese didn’t want to live like Americans.
Weird comparison if there’s one.
We had to ensure that France had confidence in the NATO treaty. Vietnam wasn’t even a colony of France prior to WWII, it was just a protectorate. At the same time the Vietnam war was increasing, Charles DeGaul was calling out Washington DC for cheating on the Bretton Woods Agreement. Gotta wonder who owned who at that time.
“Not Dying” is a pretty valuable economic good.
More valuable than “Cruise vacations” and “airplane trips” to most people.
Lower oil prices are not “destroying” “the economy.” It’s just a result of people now having different priorities. Which cause relative prices to be rearranged in such a way as to reward serving demand arising from the new reality, while flushing out overcapacity that was built out to serve demand from a reality which no longer exists. I.e, people who used to work in the oil patch, are incentivized to work in face mask factories.
Just as what happened to be the global average temperature in the summer of ’69 was not some sort of be-all-end-all for the earth’s “correct” temperature, neither were structures build up to serve demand existing as of 6 months ago, any more “correct” nor “good” than demand as of now. Things just change.
…As if this wasn’t enough to depress U.S. benchmark oil prices, a wave of Saudi oil is making its way onto tankers, headed for America this month, various tanker-tracking data estimates show.
In early April, tanker-tracking data compiled by Bloomberg showed that Saudi Arabia – the world’s top oil exporter – was making good on its promise to flood the world with oil even as demand collapses, with a surge in tankers carrying Saudi crude to the United States.
Last week, The Wall Street Journal reported that the volume of Saudi crude en route to the United States is seven times higher than the typical monthly intake of Saudi oil in 2019. …
The Saudi Arabian royal family has to be getting very very nervous.
10,000 royals and everyone else who are kept at bay by oil $s.
Riyal devaluation has been in the cards for so long …………….
I am sure there’s a swap line open between the Saudi Central Bank and the Fed.
But yeah, the Riyal is overvalued by 40% IMHO.
I wasn’t clear. “Everyone else” refers to Saudi Arabian citizens.
“the Riyal is overvalued by 40% IMHO.”
…
Could well be … which would lead to rampant inflation for necessities … civil unrest on tap? Another Arab Spring?
Call in the construction crew. They gotta bore a hole in the floor to make room for the line on the graph.
I expect Gold to be in the same spot one day but in reverse i.e. people will want to take DELIVERY and the other side can’t deliver.
Now below $6, they have to sell it now, no place to store it
7.82 down 10.83. Hard to imagine, but that’s what happens when they can’t take delivery on a contract.
“Part of this collapse is related to May futures expiring on Tuesday with no one wanting to take delivery due to storage constraints.”
…
And when the supertankers are filled??
…
“Reuters reported over the weekend that traders are frantically exploring storage options for crude oil both on land and at sea, citing multiple shipping sources.
There are now 160 million barrels of oil being stored on tankers, Reuters reported, a record amount. Previously, the largest amount of oil stored at sea was around 100 million barrels during the 2009 financial crisis, the report added.
Much of the oil is being stored on 60 super tankers, also known as very large crude carriers (VLCCs), which have a capacity to hold more than 2 million barrels each, Reuters reported.
…
25 to 40 VLCCs were already in use at the start of April, compared to less than 10 VLCCs in February, according to Reuters, which cited sources.”
All those tankers just sitting out there, waiting for some whack job in a zodiac with a fertilizer bomb….
And yet despite the oil price collapse the XLE is up %50 from its low?
Its almost as if the banker in this giant game of Monopoly is cheating.
All below $10 w/exception Southwest Wyoming Sweet
Mish, what about down stream impacts this over supply could have? I heard all holes to put crude in have been used. The only fuel currently being used in the US is diesel fuel. Can US refineries process crude just to make more diesel? I heard they can’t. Do they refine crude just to make more diesel and dump everything else? If not, how long before diesel supply runs out? Does that halt all trucking in the US and supply chain collapses?
Truckers run diesel, passenger cars gas, since doing so is the most efficient use of crude. Some trucks used to run big gas engines.
If passenger car gas demand drops enough to create a huge price disparity in favor of it over diesel, some truckers (local delivery in particular), will switch back to gas engines until balance is restored. It’s not as if Detroit lacks spare V8 building capacity these days……
Looks like gas taxes need to be raised fast.
Nothing like countering low demand with making things even more expensive than they already are……
At our current mileage tax should be 10x to get similar revenue.
I think you just answered a question you didn’t even know you ask.
So, why hasn’t RBOB collapsed?
Where is my 30¢/gal gasoline?
Life in America makes sense once you understand that you are only allowed to exist so you can be monetized.
Besides the costs of refining gasoline there is transportation, insurance, etc. It costs a lot of money to operate a business.
And there’s taxes. The Federal tax, alone, is 18¢/gallon and states tack on more. In California, combined gasoline taxes are 80¢/gallon.
Variable rate state gas tax?
Gas price in my area (CT) is the lowest I can ever remember seeing it.
It takes a while for a glut on the crude end, to move across to the refined products end.
Not sure how responsive and flexible refineries are wrt cost of shutdowns and restarts, but at some point, some of them are bound to overestimate demand and run into storage bottlenecks on that end as well, leading to cheaper end products as.
Over time, lower end product demand will entice anyone from refiners to truck drivers to fleet owners etc., to lower prices/rates/expectations for both margin and consistency of work. It just takes some time for the new reality to set in.