What's new
By:
USCHO Fan Forum

This is a sample guest message. Register a free account today to become a member! Once signed in, you'll be able to participate on this site by adding your own topics and posts, as well as connect with other members through your own private inbox!

  • The USCHO Fan Forum has migrated to a new plaform, xenForo. Most of the function of the forum should work in familiar ways. Please note that you can switch between light and dark modes by clicking on the gear icon in the upper right of the main menu bar. We are hoping that this new platform will prove to be faster and more reliable. Please feel free to explore its features.

Business, Economics, and Taxes: Capitalism. Yay? >=(

Status
Not open for further replies.
Re: Business, Economics, and Taxes: Capitalism. Yay? >=(

Kepler said:
Interesting that while the May contracts sh-t the bed the June contracts didn't slip a bit.

It isn't as if this is going to be over by June.
Click to expand...

It's because it's localized to Cushing. There's no storage in Cushing to rent and other storage locations around the nation (and world!) are filling up. There's no place to store it. So in order to store it, you'd be forced to build a new API-certified tank with permits in a month. That would cost approximately $infinity so people are willing to dump the contract for anything less than that. (Joking aside, the cost would be transporting to another storage facility with "vacancy" and then paying the lease costs. I'm guessing that would have cost around, just ballparking, $35/barrel.) So people were basically required to dump the oil contracts so they didn't have to find a way to store the oil.

If you, Kepler, had a means to hook up, take delivery, transport, and store that oil, you could have sold it (even ignoring the delay until May 20) for about $20-$25/barrel and made $55-$60/barrel in the transaction. Taking out the pretend costs for transport and storage, you could have netted $20-$25/barrel.

From what I've read, a typical contract holder rolls the contract over to the next month. They usually do this by selling the oil contract to someone who can take delivery and then they take that money and buy the next month's contract. Usually this spread is measured in dimes. Yesterday it was measured in dollars. So that squeeze made it really hard to dump and roll over. Compounding that, the people who hold these contracts for most of the life are using it as a hedge (airlines, for example, buy these contracts to protect themselves against the cost of high fuel) or trying to make a profit (traders, hedge funds, etc.) Since hedge funds aren't known for their oil capital equipment, they were really eager to dump.
 
Re: Business, Economics, and Taxes: Capitalism. Yay? >=(

Spartanforlife4 said:
May expires today and is up to -4 for now.
Click to expand...

That's creativity I'm guessing. Someone found creative ways to take delivery. Watch the news carefully for new oil spills. I wouldn't be shocked if someone literally burned it in one of the red states. Tinfoil hat rumors floating around that oil "spills" are going to dramatically increase as it's more profitable to take delivery and just dump it in the ocean.
 
Re: Business, Economics, and Taxes: Capitalism. Yay? >=(

dxmnkd316 said:
It's because it's localized to Cushing. There's no storage in Cushing to rent and other storage locations around the nation (and world!) are filling up. There's no place to store it. So in order to store it, you'd be forced to build a new API-certified tank with permits in a month. That would cost approximately $infinity so people are willing to dump the contract for anything less than that. (Joking aside, the cost would be transporting to another storage facility with "vacancy" and then paying the lease costs. I'm guessing that would have cost around, just ballparking, $35/barrel.) So people were basically required to dump the oil contracts so they didn't have to find a way to store the oil.

If you, Kepler, had a means to hook up, take delivery, transport, and store that oil, you could have sold it (even ignoring the delay until May 20) for about $20-$25/barrel and made $55-$60/barrel in the transaction. Taking out the pretend costs for transport and storage, you could have netted $20-$25/barrel.

From what I've read, a typical contract holder rolls the contract over to the next month. They usually do this by selling the oil contract to someone who can take delivery and then they take that money and buy the next month's contract. Usually this spread is measured in dimes. Yesterday it was measured in dollars. So that squeeze made it really hard to dump and roll over. Compounding that, the people who hold these contracts for most of the life are using it as a hedge (airlines, for example, buy these contracts to protect themselves against the cost of high fuel) or trying to make a profit (traders, hedge funds, etc.) Since hedge funds aren't known for their oil capital equipment, they were really eager to dump.
Click to expand...

This whole explanation is fantastic. Thank you.

Also: consider being an econ professor. As a class, they are incapable of explaining anything, and you just nailed a difficult phenomenon in plain English with humor and brevity.
 
Re: Business, Economics, and Taxes: Capitalism. Yay? >=(

dxmnkd316 said:
That's creativity I'm guessing. Someone found creative ways to take delivery. Watch the news carefully for new oil spills. I wouldn't be shocked if someone literally burned it in one of the red states. Tinfoil hat rumors floating around that oil "spills" are going to dramatically increase as it's more profitable to take delivery and just dump it in the ocean.
Click to expand...

It's now at +$5.50. Who are these companies that couldn't get someone to pay them to store it and are now paying to store it?
 
Spartanforlife4 said:
It's now at +$5.50. Who are these companies that couldn't get someone to pay them to store it and are now paying to store it?
Click to expand...

CNBC is guessing that some hedge funds got caught with their pants down and needed to sell their "investment" because they realized that this late in the contract cycle, anyone trading for oil contracts needs to be able to take physical storage of the oil.

They said that some hedge funds with experience in this buy into contracts very early as a way to make a profit when they flip it as demand rises.

They're also speculating that some inexperienced hedge funds just got wiped out when they realized that they shouldn't be playing in that market.
 
dxmnkd316 said:
That's creativity I'm guessing. Someone found creative ways to take delivery. Watch the news carefully for new oil spills. I wouldn't be shocked if someone literally burned it in one of the red states. Tinfoil hat rumors floating around that oil "spills" are going to dramatically increase as it's more profitable to take delivery and just dump it in the ocean.
Click to expand...
About that...
 
Re: Business, Economics, and Taxes: Capitalism. Yay? >=(

<blockquote class="twitter-tweet"><p lang="en" dir="ltr">Come the hell on. <a href="https://t.co/2e04l9H5kM">https://t.co/2e04l9H5kM</a></p>— Kevin M. Kruse (@KevinMKruse) <a href="https://twitter.com/KevinMKruse/status/1252672117604220932?ref_src=twsrc%5Etfw">April 21, 2020</a></blockquote> <script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
 
Re: Business, Economics, and Taxes: Capitalism. Yay? >=(

Deutsche Gopher Fan said:
<blockquote class="twitter-tweet"><p lang="en" dir="ltr">Come the hell on. <a href="https://t.co/2e04l9H5kM">https://t.co/2e04l9H5kM</a></p>— Kevin M. Kruse (@KevinMKruse) <a href="https://twitter.com/KevinMKruse/status/1252672117604220932?ref_src=twsrc%5Etfw">April 21, 2020</a></blockquote> <script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
Click to expand...

Republicans always win. Another reason people love to vote for them.
 
Re: Business, Economics, and Taxes: Capitalism. Yay? >=(

Rover said:
Scoobs I just think Nancy Pelosi knows how to handle this better than you. Call me crazy... ;)
Click to expand...

No. I know why they're a joke. And I know Nancy did everything she could. That's what happens when one party has to compromise because the other just wants to watch the world burn.
 
Status
Not open for further replies.
Back
Top