Oil Crash Resumes: When Does It Stop?

Crude for June delivery plunged below the $10.00 level and those futures could go negative as well.

Anyone rolling oil futures is in a world of hurt. Yesterday it was mainly the small traders who got wiped out. Today 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.” 

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.” https://t.co/91S1lntJS2 via @CFR_org

— Amy Myers Jaffe (@AmyJaffeenergy) April 21, 2020

COT Position

(Click on image to enlarge)

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

We will never let the great U.S. Oil & Gas Industry down. I have instructed the Secretary of Energy and Secretary of the Treasury to formulate a plan which will make funds available so that these very important companies and jobs will be secured long into the future!

— Donald J. Trump (@realDonaldTrump) April 21, 2020

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?

1. When producers stop drilling oil that is not needed.
2. 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

Bravo Mish!

"Stop the bailouts.
Let the oil speculators go bankrupt.
Let the financers take it on the chin as well....
That's the only plan we need."
—@MishGEA https://t.co/kIb6jsFO5k

— Price is Primary (@PriceIsPrimary) April 21, 2020

It's time for personal responsibility, not bailouts of favored industries.
That's the only plan we need.