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
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.
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?
- When producers stop drilling oil that is not needed.
- 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
Trump to oil’s rescue….just instructed the Navy to shoot down any Iranian boat that comes close to Navy ships!
Read a clever tweet on this. Something along the lines of, “Hey, I know, let’s store it in the Earth’s crust!”
Doing so, is not even all that expensive.
For all the screaming, capping wells are operationally fairly cheap.
It’s just that the same connected leeches which have been handed control of near everything by central banks and totalitarian progressive states, are very leveraged to the wells not being capped.
A middle east war could turn oil around
That’s the scary part…..
Trump and Putin both desperately wanting higher oil prices, does not bode well for Middle Eastern peace….
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.
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.
“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
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.
I suspect that depends entirely on how many of those 100s are added to the supply.
Without a serious, really serious, increase in Middle Eastern instability, I don’t think you will be able to obtain an ounce of Gold in exchange for only 14 barrels of oil fora long, long time.
If the Chinese decide to stop playing along with our local clowns, and open up for sourcing oil directly from Iran, it will take even longer. Iranian fields have seen so little developments for so long, that they reside at a much more favorable point along the diminishing returns curve, wrt investments. And Iran does have lots of oil.
Is this what Trump’s cult members voted for? Bailing out every speculator and hedge fund manager in America? Draining the swamp indeed.
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?
“anyone else that has a lobbing firm.”
…
So?
You are talking bailing out asset holders … top 10% own 80%+ of assets … the bottom 80% have little in the way of assets, but mountains of debt … unless you get cash into their hands there will be little in the way of demand pressure on pricing.
Inflation is probably going to be contingent upon money velocity. All these bailouts aren’t really increasing velocity right now… most are still spending less than normal. Once we come out of hibernation, then we will see what happens. I doubt people will be “make-up purchasing” to buy all their 2020 goods they would purchase if the virus didn’t happen, so inflation may come in a lot lower than this free printing press might otherwise imply.
There is another 3-4 weeks of stay-at-home in the northeast. That’s going to hold things back for awhile.
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!
Handing money to some dude taking a big cut of it in order to speculate in oil stocks and bonds, is hardly an example of “saving.”
Queue up the False Flag operation.
Go long missile + tanker + Strait of Hormuz
That would probably be much cheaper in the short-term than direct price supports. However, it would be bad for world geopolitics and also bad for the stock market.
Absolutely nothing is bad for the stock market these days.
Um, sounds inflationary?
Am I doing this right, Tony??