Hey,
Thanks for reading these every week, it makes me so happy.
I would love your input going forward, please see the form near the bottom!
Apologies that the podcast disappeared just as soon as it got some momentum going, unfortunate timing but it will be back, promise.
Initially, I didn’t like the idea even attempting it remotely, but on proper consideration, it actually would definitely still be good… so I should just get my act together.
Also, the C’mere to me hoodies launched the same week I had to close the shop, again unfortunate timing but who could have predicted this.
Although I could technically still sell the hoodies online, I had an issue with the prints for a while so closed up the whole shop.
It was somewhat fortunate though, I’ve now had a few weeks to improve everything, infact completely changed the supplier to better the quality and to offer more colours, I’m buzzing to show you, stay tuned.
Anyway, C’mere to me…
Oil dropped to Negative
(Worth a quick read, even if business is not your thing)
All of Monday evening the oil market was being tossed around like a grenade from which someone had pulled the pin, no one wanted to be the last one holding it…
I’ll keep this short, both as I know not everyone is interested in the details and I am by no means qualified to delve in.
The economic concept of a negative price is absolutely mad though, and I think is certainly worth taking two mins to try and wrap your head around.
Oil is traded in futures, so it was the May contract that was up yesterday evening, don’t worry, you don’t need to understand that, but it is important context for those that do.
Take a look at this historic pricing of oil… that drop… that was yesterday evening!
Image: Bloomberg
That particular graph has the close at -$18, but infact it continued much further to almost -$40.
The unusual aspect of trading oil and options is that it is by nature a physical commodity, unlike say trading shares in a company.
Transactions are therefore closed by the delivery of actual goods, oil.
The coronavirus has caused most unusual circumstances for the oil industry.
Fossil fuel extraction is a continuous process, which is incredibly costly to shut down, and therefore until very recently, it didn’t slow at all.
With the world’s aviation industry grounded, motorists stuck in their homes and so many more big consumers not using oil, the demand has gone through the floor, so naturally, if the supply continues as is, the price drops.
Not only does it cost money to store vast amounts of oil but there is also a finite amount of infrastructure in place to do so, which all quickly filled up, so the negative price is due to the fact that there is quite literally nowhere to put it.
A big additional factor is that more often than not, the financial players and market stakeholders aren’t always actually oil consumers, especially trading futures and options.
Imagine, I had bought oil at a certain price, with the objective of selling it on, and thus making a profit.
However, then the price collapses, so I can no longer sell it on, unlike shares in a company which I could, in theory, just hold on to and wait for it to climb back up, oil is a physical asset and therefore someone is due to deliver me a million barrels of oil…
A million barrels of oil are currently on the way and I’ve nowhere for them to go, oh and storage around the world is full…
So I am effectively now paying hand over fist per barrel for it not to be delivered to my door in the city (not literally but honestly kind of)
The negative price is people trying to offload it.
Not only is it worthless, you are paying someone to take it… mad right?
notes:
1. The price will magically be back to $20 this morning, as that that is what the June futures contracts are at.
2. This does not mean petrol is suddenly free, far from it unfortunately, but it could be a good thing for the planet on the other side of COVID-19.
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C'mere to me…
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