Originally Posted by
OldLurker
No, there was intention of delivering physical commodity – that's why prices went negative. Producers had nowhere to put the stuff, so they were paying traders to take it away. The alternative was to shut in wells and stop producing, but if you shut in oil wells of the kind that you find all over the main US oil-producing region, they tend to clag up and need expensve workover to get going again. Rock and hard place. It was a brief dip, and happened only in the US market (West Texas Intermediate). Elsewhere in the world, prices didn't go negative (e.g. Brent crude).
No the “
hedge funds” ( not producers) that held the oil on open contracts over the weekend had nowhere to put it, on Monday morning it dawned on them all the storage capacity had been leased and nobody wanted it. So they panicked and sold at any price until those that had storage picked up the contracts at -$40 a barrel and presumably held until a stable price at $20 a barrel. The main storage terminal at Cushing was at 70% capacity no doubt some of the 30% was leased to those who eventually held the contracts when they closed.
The hedge funds, what ever commodity they are trading have no intention of delivering, it is purely gambling on rises or falls in whatever market, holding any position over a weekend is risky, holding at the end of a contract is dangerous and they got badly burned. Someone else foresaw the potential, made sure there was no storage and made a killing, very well set up.
In the meantime we have the cheapest gas in a generation - and nowhere to go to use it