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Almost no one thinks we can losse any dollars when we buy oild at negative prices, but in reality, you can absolutely face with this situation. Let's have a look at what Matt Levine - an expert at Bloomberg, just shared:



On one level, I feel like I can explain why the price of West Texas Intermediate crude oil futures for May delivery was negative $37.63 on April 20. The most basic explanation, which I offered shortly before the price actually went negative, is that most people who buy oil futures do not actually want to take delivery of 1,000 barrels of smelly toxic explosive goo, and if you are long May futures at the end of April 21, you are going to get a delivery of oil. There is not much demand for oil right now, what with the collapse of the global economy due to a pandemic, and oil storage tanks near Cushing, Oklahoma—which is were you’re getting the oil, if you own those futures—are pretty full. So everyone who was long abstract oil via futures on April 20 tried to get out before it turned into real oil, nobody wanted to buy, and prices collapsed. Oil storage isn’t free, and oil isn’t that valuable if no one is driving or flying, so if you had oil and wanted to get rid of it, you had to pay someone to take it off your hands.




That’s fine as far as it goes, but it’s not wholly satisfying. We are talking about one day. On April 17, the trading day before April 20’s collapse, the May futures settled at $18.27. On April 21, the final day of the contract, they settled at $10.01. Not all that much changed over that period; it’s not like the demand for oil was robust, or lots of storage was available, on April 17 and 21 but not on April 20. If you wanted to get out of the May contract before taking delivery, you could have done it before the last possible minute, to avoid a rush to the overcrowded exits, and in fact most big financial oil investors (exchange-traded funds, etc.) did get out of the May contract by April 17, at normal positive prices. But if you insisted on waiting for the last minute, you were also fine; the contract settled at a positive price on its last day. A huge rush of panic selling on the second-to-last day, preceded and followed by relatively orderly trading at normal prices, is … possible, but unsatisfying.



So it would be nice to find more technical explanations, glitches, manipulations, cascades of oddities. We talked about trade-at-settlement futures last week; you could spin an entirely hypothetical story about how hedging or manipulation by traders of those futures could have driven down the settlement price to uneconomic levels. I have heard other speculative hypotheses about futures brokers liquidating margined positions (if you’re not selling for your own account, you might not care about selling at a negative price), about physical oil traders who owned oil in storage and hedged with short futures that they’d ordinarily roll (and that they might wait to roll to take advantage of price dislocations), about “whether the storage capacity data posted by the U.S. Energy Information Administration accurately reflected the actual availability of space.” It would be satisfying if there was a villain, or a brilliant trader implementing a big short bet, or a dumb trader making a fat-finger error, or a reporting error confusing the market, or something. Some mechanical thing you could point to and then fix. As opposed to just “supply and demand, whaddarya gonna do?” 



Anyway at Institutional Investor, Leah McGrath Goodman has a look “Inside the Biggest Oil Meltdown in History.” It doesn’t quite provide the elusive neat explanation that I want for how it happened, but it’s a terrific story of what happened on April 20 and how weird it was:



In the minute between 2:08 p.m. and 2:09 p.m., 83 futures contracts for West Texas Intermediate light, sweet crude oil, scheduled for May delivery to the oil hub of Cushing, Oklahoma, rapidly exchanged hands at $0 a barrel. With each contract consisting of 1,000 barrels, this meant that, at least on paper, 83,000 barrels — or 3.5 million gallons of oil — effectively went off the market for free. That same minute, oil prices, encountering little resistance, jackknifed lower to trade at minus 1 cent a barrel, touching off an unprecedented freefall into negative territory. …



Andy Hall, the legendary oil trader who retired in 2017 from Astenbeck Capital Management, his multibillion-dollar hedge fund, was looking over prices that day, as is his wont. 



“I do still watch it every day,” he says. “I suppose old habits die hard. What I saw was very chaotic. I saw a lot of buying and selling toward the end. I am sure a lot of people thought, ‘If I buy at zero, what can I lose from that?’ Well, it turns out you can lose over $40 a barrel.”









The story also features this all-time classic financial-markets quote from Tom Kloza, the “global head of energy analysis at oil price service OPIS”:








At 2:29 p.m. on April 20, one minute before settlement that Monday, a single May crude futures contract traded at the jaw-dropping price of negative $40.32 a barrel, marking the lowest handle ever witnessed in the most liquid crude oil contract in the world — a previously unimaginable nadir. “Between 2:25 p.m. and 2:30 p.m. it was like watching a Fellini movie,” says Kloza. “You’re able to appreciate it, but no one really knows what’s going on. The screen was just going nuts.”



One, that is just a hilarious assessment of Fellini. But, two, it is a wonderful description of the aesthetic experience of financial markets. There you are, making or losing millions of dollars on an unprecedented event reflecting chaos and disaster in the real economy. Numbers are moving fast, fortunes are being made and lost, everyone is screaming at you, no one knows what is going on, and you are sitting there thinking “this is like a movie, this is amazing, I don’t even understand it but I am moved deep in my soul by this progression of numbers across my screen, this is art.” 



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