The negative price has to do with the short delivery date, and the lack of storage at the (landlocked) delivery point. June 2020 WTI is still over $20/barrel.
If anyone had storage to bring online in the next few weeks, in Cushing, Oklahoma, they'd make a killing. At this point, they're going to need to ship it to a port, to get on a tanker.
Add blue collar people to the mix and it acts like a NIMBY rage multiplier. I'm picturing the movie plot now:
A bunch of gulf coast fisherman, effectively unemployed by Corona hatch a plan to make a buck by taking advantage of the negative price of oil futures. They pool their resources and somehow get their hands on a derelict Venezuelan tanker, cheap because of favorable exchange rates, in order to take delivery of some obscene amount of crude as part of a scheme to make money on futures. Being on a budget of course they crew the thing themselves, it's a ship after all, just a little bigger than the ones they usually handle. Things don't exactly go as planned when they travel to Venezuela to take possession of the ship. Their journey from there to the Port of Houston to pick up their cargo is mired by an incompetent coast guard, environmental activists and a vengeful ex-wife turned local politician.
Who does want a million barrels of crude in their back yard? As a very rough estimate, you'd have to stack them the better part of a mile high in mine.
I don’t think space is the issue. Shipping and safety (dealing with the one barrel that leaks) could easily eat $40/barrel if you’re not already set up for it.
If the oil tanker can hold 2,000,000 barrels at -$35/ barrel you are being paid $70 million to store the oil for a few months...
Of course, the next question is who pays for transport to/from the tanker, labor, dock fees, employees in ship (unless you can simply "park" it for a fee)
Yeah, I was wondering. I think if someone had the experience needed to put this together quickly it would likely be profitable.
It looks like most tankers are ~200,000 metric tons which at ~8 barrels per metric ton is roughly 1.6 million barrels. You also really only need to store it for a month, I think June futures are around $20 still, and so it's a diff of ~$60/barrel.
Better yet you can play hedging games with your oil. Sell a june delivery contract to lock in your profit now. If June prices collapse buy a contract to take delivery in June and sell one to deliver in July. You never have to get to Port until prices are high enough to be worth actually making a delivery, and you make money every month.
Details of the above are important to get just right. It works out if you get all the details right.
The point of futures is that I could sell my oil _today_ to be delivered in June for $20. Any change in June oil prices from that point onwards doesn’t matter once I’ve sold the contract.
If the price collapses for June you buy a june pick up contract, trade it for your June delivery contract, and sell a July delivery contract. So long as you have the oil and can deliver you can make money on it until prices return to where it doesn't work out at which time you deliver your oil.
If anyone had storage to bring online in the next few weeks, in Cushing, Oklahoma, they'd make a killing. At this point, they're going to need to ship it to a port, to get on a tanker.