So why are we still getting robbed here in NZ.

https://www.youtube.com/watch?v=Hc3_P9NCqBI&fbclid=IwAR30m2ZI5S0hKscStERe4DwUV3h35E_pmz-1abQsNctpv5NhdUJz-8o1wdM

So here is the deal... a futures contract is simply a contract to buy something in the future... like next month or next year.

Some futures contracts "settle to cash" which means we determine the price when I bought the contract and the actual real world price on the day of expiration, then one of us pays the other person on the contract the cash difference. Easy.

But oil and most commodity contracts actually settle for the actual product. If you don't close out your soybean contract, you get a call from the exchange telling you that your soybeans are waiting for you in Kansas City and what would you like to do with them?!

Same with oil. Tankers are showing up in houston with millions of gallons of oil and somebody needs to take delivery. Nobody can because all the storage facilities are already full. So people are literally paying you over $30 a barrel for you to take possession of oil. Crazy times.

Edit: This specific contract is for specific delivery to an oil pipeline in Oklahoma, tomorrow. That is the crux of the issue. There is a very localized supply vs demand kerfuffle at a major crude oil pipeline junction in middle America. This is insane. This is unprecedented. But, it is a localized phenomenon.

Its not Oil Prices in General, It is a specific futures contract for WTI (a grade of US produced cruide)

Futures contracts are tied to a physical quantity, i.e if you hold the contract at the end of the term, someone will come and deliver X tonnes/barrels of Oil/wheat/Orange juice to you

The Negative prices is for a contract due to expire in May, ie in a week or so .. But at the moment there is no spare storage capacity to store the product, so basically people are trying to get rid of the contracts, 

If there is no place to store it, what is the value in taking it even if you do get paid? You are still stuck with the oil. You can't just flush it down the toilet.

ajw: https://www.youtube.com/watch?v=Hc3_P9NCqBI

• 16% of GDP
  
• 52% of federal budget revenues
• 70% of total exports

The problem with the futures market is most people don't understand it.. Even some media even wrote really poor stories.

That price was for May futures for oil delivered right now from one particular supplier.. The problem is nobody wants oil right now, they already have lots. NZ as an example has months worth of petrol here and at least a months worth on the way still.

The best way of putting it is to compare it to toilet paper.. If your house had toilet paper in every nook and cranny and you had no space for more the fact toilet paper was -$3 at the supermarket right now is a bit of a moot point - you don't have any capacity to buy more toilet paper.

Pricing for June oil is still up around the mid $20s, and other crude is still around that now.

It's a hugely significant event, and something nobody really expected could ever happen - however it needs to be put in context, and if you don't understand what it really means it is hard to do that.

This summary here is pretty good

 

What happened Monday in the futures market was effectively the opposite of so-called short squeeze, a phenomenon that may be more familiar to investors. In a short squeeze, traders that are short the market fear they will be unable to find the underlying physical commodity and are forced to cover their positions, driving prices up sharply.

 

On Monday, traders with long positions scrambled to get out amid a fear that it would be difficult to find a place to park physical oil amid a rising glut of crude. So in a way, Monday’s price action, while certainly bearish, was also something peculiar to the futures market, with the action in the May contract not necessarily an accurate reflection of supply and demand fundamentals.

 

We're at the end of this chain/less effected (more the w/sale overseas markets)

But stocks up north ARE brimming here. And there is no demand. 

Checked the price recently? it went down another 3c yesterday. Normal pre-discount price in CHC is 97.9 for diesel and 1.69.9

That's a good drop from the 2.19 it was only a month or so ago!

https://www.mbie.govt.nz/building-and-energy/energy-and-natural-resources/energy-statistics-and-modelling/energy-statistics/weekly-fuel-price-monitoring/ 

The weekly components cost is starting to be heavily effected. Questions may be asked shortly about the margin spikes (and no doubt be down to 'not importing this cheap stuff we have enough at the old price.. sort of excuse)

Oblivian:

 

Checked the price recently? it went down another 3c yesterday. Normal pre-discount price in CHC is 97.9 for diesel and 1.69.9

 

Wow...so on that basis, if I calculate the AKL add-ons etc, I should be able to get a litre of 95/98 for less than $8 here on the North Shore! 

Nice!! 

Oblivian:

 

We're at the end of this chain/less effected (more the w/sale overseas markets)

 

But stocks up north ARE brimming here. And there is no demand. 

 

Checked the price recently? it went down another 3c yesterday. Normal pre-discount price in CHC is 97.9 for diesel and 1.69.9

 

That's a good drop from the 2.19 it was only a month or so ago!

 

https://www.mbie.govt.nz/building-and-energy/energy-and-natural-resources/energy-statistics-and-modelling/energy-statistics/weekly-fuel-price-monitoring/ 

 

The weekly components cost is starting to be heavily effected. Questions may be asked shortly about the margin spikes (and no doubt be down to 'not importing this cheap stuff we have enough at the old price.. sort of excuse)

 

Petrol should be cheaper here - even in Aussie it's fallen another 30c in the last week (remembering cycles there across a weel can vary up to 30c anyway) and is down to 80cpl in parts of Melbourne that were $1.10 a week ago.

The problem is the fuel companies aren't selling any petrol - in Australia fuel volumes are way higher than here because they didn't (and still don't) have a full lockdown like we did.

MBIE modelling looks at costings vs retail and it's very clear that margins at the moment show huge spike (and huge profit), however in fairness to the fuel companies that is based off currently oil pricing, and not the fact they paid $$$ more for this stuff 2 months ago.

Petrol however should be cheaper - probably at least another 15c - 20c less than it is now, and they have backed themselves into a corner by always insisted fuel prices need to be based on replacement cost of the product and not necessarily the current cost (which has always been their argument when oil fell and prices didn't). Right now with futures still being in the mid 20s their replacement cost is well under what they're selling for now.

I'd seen people mentioning prices of 90c a litre in Australia and 55c a litre in Canada :)

In NZ it's 1 kidney per litre. Half is sent to the Beehive.

sbiddle: Petrol however should be cheaper - probably at least another 15c - 20c less than it is now, and they have backed themselves into a corner by always insisted fuel prices need to be based on replacement cost of the product and not necessarily the current cost (which has always been their argument when oil fell and prices didn't).

promotion ended, back above $1 now

sbiddle:

 

Petrol however should be cheaper - probably at least another 15c - 20c less than it is now, and they have backed themselves into a corner by always insisted fuel prices need to be based on replacement cost of the product and not necessarily the current cost (which has always been their argument when oil fell and prices didn't). Right now with futures still being in the mid 20s their replacement cost is well under what they're selling for now.

 

I used to have an account with one of the major fuel companies for Avgas. When ever the price shifted we would get a letter saying the prices had gone up or down X cents.

One year as we moved into our winter the "excuse" for the price increase was the northern hemisphere summer which meant their driving season ( I guess people driving away on holiday) had increased the demand for oil and so the price had to go up. However as we moved into summer I received another letter advising of a price increase, this time due to the northern hemisphere winter and extra demand for heating fuel. Can't have it both ways guys. They obviously think we're stupid.

When it come to the price of fuel I'm more than a little sceptical of the way the fuel companies operate. 

A lot of people have pointed out that this event is the first time that an oil price (of any description) has turned negative.

This has been spun as an indicator of how extreme the current situation is.

It is actually, an indication of the fact that environment protection legislation has some teeth.

There have been occasions in the past (great depression for one) when assorted oil prices have headed towards negative. In those times, the solution was simple. Just set the surplus oil on fire.

At least they did not do it this time.