otienosmall wrote:Prices continue to fall. In the US, crude crashed below zero for the first time in history. What does this really mean? Is it that the suppliers of crude are operating at the negative territory? and if so, why continue with the supply.
Once upon a time, some clever people decided to invent something called future contracts. These are promises to deliver a commodity (or any other thing) at a particular price and at a particular date in the future.
Traders, who are in no way concerned about the production or the consumption of this commodity buy these contracts and then sell them just when the due date is looming because if that contract expires and you are still holding it, unless you have space to store that oil, you do not want that oil delivered to your door step.
Presently consumption is low and consumers are not buying these contracts from these traders. Note that these traders bought these contracts sometime in January or February and they are faced with the possibility of incurring storage fees which would be higher than the value of the contract, so what do they do? they would rather pay someone to get the oil of their hands at a small loss.
So the producer is not selling at -ve (at least not yet) but the consumer is buying at at crazy low prices, all thanks to these traders. You gotta love the markets.