Oil under water. Drama and fun

@Garry Kabankin

Apr 22, 2020

A historical event of oil price going negative is quite extraordinary.

People talking a lot about it. Not only in cryptoverse, but almost anywhere.

And it still remains a top topic even 48 hours after it happened.

A significant social volume spike of oil related words on April 20th. Almost 5.5K messages that day

What happened?

U.S. crude oil futures collapsed below $0 on Monday for the first time in history, amid a coronavirus-induced supply glut, ending the day at a stunning minus $37.63 a barrel as desperate traders paid to get rid of oil.

Traders bailed out of the May contract ahead of expiry later on Monday because of lack of demand for the actual oil. When a futures contract expires, traders must decide whether to take delivery of the oil or roll their positions into another futures contract for a later month.

This time there were zero counterparties willing to buy from traders and take delivery of the oil. Storage filling quickly at Cushing in Oklahoma, which is where this sort of oil is delivered.

Never before has the oil industry come this close to testing it's logistics capacity to the limit

International Energy Agency, Oil Market report

Alright, but... Negative price?! How can it be?

Well technically futures do really have this option as a financial tool. Looks like it just never happened before. And traders were ready to pay others to take it off their hands.

One-digit oil (futures) price attracted lots of traders. Easy money! How can oil go deeper from here, they said. And bought hundreds of contracts.

Emotions, yeah?

Then contracts terminated at negative price. Leaving them with unbelievable loss.

What a dramatic story. Like this:

The dramatic crash is the first time oil prices have ever dropped that low. While the historic slump has definitely caused panic amongst economists, it's inspired some seriously amusing and irreverent memes on Twitter, Instagram, and Reddit. And it's to be expected. As 2020 brings one miserable surprise after another, how else can people respond?