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oil price volatility

 

 

 

 

 

 


Me:  I would like to buy some oil.

Oil Seller Person:  No problem, oh by the way we will actually pay you to take the stuff.  How does $37 a barrel sound?

Me:  Deal. (I am such a good negotiator)

So, the above scenario did not actually happen to me or likely to anyone you know, however this month May futures contracts for West Texas Intermediate (WTI) crude oil closed negative.  That means if you were the holder of a futures contract for delivery of oil in May and you didn’t actually want the oil (most holders do not), you had to pay someone to take delivery of that oil for you before that contract expired.  (Think of it as a game of hot potato, whoever is left holding it at expiration ends up with 1,000 barrels of black goop!)  Check out this great video by someone much smarter than me to break it down: https://youtu.be/njlGQPsjn-k 

What does it all mean for you?  Well, are you a commodities trader/speculator (think Randolph and Mortimer Duke from Trading Place)?  If not, the single event probably does not mean a whole lot in the grand scheme of things.  Huge negative demand shock from the global shut down (a lot less planes, cruise ships, and automobiles puttering about these days) coupled with the OPEC/RUSSIA price war have weakened oil prices and a single months contract trading negative, doesn’t upset the entire global energy market. 

Don’t get me wrong, the price of oil is important to the US and world markets.  Companies affiliated with the industry benefit from higher prices and they power (figuratively and literally) large parts of our economy.  Just do not let a big headline distract you from your ultimate goals and where your plan could take you.  It is about course adjustments to your intended destination, not panic maneuvers at high speed.  This price weakness could call for a road trip this summer in the Griswold Family Truckster instead of being trapped in a germ tube in the sky or Petri dish at sea!  If only there was somewhere to go…

 

Photo by lewis pratt on Unsplash