Ramin, another great video. Thanks. The depth of your analysis is unbelievable, especially given you've produced this only a few days after prices went negative. Your charts & graphs are always visually superb, I don't know how you produce such great looking data in such a short space of time! Keep up the good work 👍
Thank you for this comprehensive explanation of negative oil price. Very informative. A lot of people are staying away from oil and its related stocks now.
And, with Elon Musk this could be a sign of the future. Ships and heavy industries will go hydrogen. Domestic and local will go electric. Then the shale industry that is KILLING the sub terrain of Mother Earth will collapse - along with the Banks that invested in them
@@CosmicSeeker69 Maybe. All I see is that Mr Musk guzzled billions in subsidies to fund his boy-toys company and to feature on the S&P500. 10 years on, I'm yet to see this "future" his fanclub keeps talking about.
Ramin, this was a very well-structured and timely masterclass. Though I am already familiar with future contracts, I learnt a lot from your breakdown of the US Oil market.
Hey Ramin, great video! You explained this in a very clear manner. I'm away to check out a few more videos on your channel and I will then probably subscribe. This sort of content is going to be extremely useful for me as I have just started a journey into investing in the stock market (currently using Trading 212) so the more I learn, the better. Thanks! 👍
Thanks for the video Could you explain please, Is the future price is the actual oil price? Let's say i want to buy oil (physically) in July, so the price stated on the contract is the amount i be paying for the oil? *If all the factors that move the markets doesn't change
No, because we don't know the future! But it is the future price you agree to pay. It is more of a bet on the future price. If the actual future price is higher than the contract price you are quids in, if it is lower then you bet the wrong way. Some people like/need to fix the price of a commodity in advance, to hedge against unexpected price rises. E.g. airlines worried about future price of jet fuel. Or like fixing your mortgage interest payments as opposed to adjustable rates. It has the advantage you know exactly what you are paying in the future, the disadvantage is you are taking a bet and may pay more than the market rate at the time. For many it is pure speculation.
Hi By_Yoni as james caley says the futures contract simply fixed the price you pay to buy or sell a commodity on the expiry date. For example if you are an airline that needs certainty about its future costs it may hedge its oil exposure with futures. Sometimes hedging pays off (the price for a barrel of oil on the expiry of the contract is higher than the price you agreed) and sometimes it doesn't (the price of oil is less than the futures price). For some futures contract the futures price is fixed by arbitrage i.e. you can buy, store and deliver an S&P 500 basket of stocks so the futures price is fixed by the cost of carrying that basket of stocks until expiry (dividend income minus funding cost for the stocks). I discuss this in detail in my book "A Financial Bestiary". Thanks, Ramin.
Why does lighter oil have a higher density number. Isn't density = mass / volume (surely less dense substances weigh less for the same volume)? Thank you very much for your explanation now I have a better understanding, as I all saw in the news and other youtube videos is people sensationalising the negative oil prices then regurgitate the same lines like there is no capacity, oil companies can't stop pumping and nobody wants to buy it, but offered no insights as to how it all works. But can I ask, if I buy WTI futures for delivery in June 2020 can I get it delivered anywhere or does it all go to Cushing, Oklahoma - e.g. if I want it delivered to UK do I have to arrange my own delivery from Cushing to UK? Lol I wish I knew all this before I lost a huge amount on oil etfs 😭
Question out of the topic, if shorts are dragging price down of my stock. Is it smart to keep buying as it goes down? I know they manipulating the price. I placed buy order few times at 23 and got the stock even cheaper than that! The stock keeps closing at day lowest level for few days in a row. I found out two institutes positioned short with 1%. What can I do?
Does Oil price behave like a "simple" demand/supply in these times ? I'm thinking they'll agree more cuts in productions and some shale firms will go bust as they can't make money.... does this mean prices will go up ?
Superb video - quick question - what if the buyer of the futures waves his right to the delivery of the oil - then delivery doesn’t have to be taken - if you promised to sell me painting next month at a price and I asked you - is it ok if I don’t take but you still keep my money - you might agree to that ? Can that happen with oil ?
Hi Garry Q once the oil has been delivered you are the owner. What you do with it is then up to you. You might be able to get someone else to buy it. But the "free on board" term in the futures contract means that once the oil is delivered to, say, Cushing, you are now responsible for the transportation and storage costs. Page 6 of Chapter 200 of the Nymex Rulebook says that you might be able to agree with the seller to "Alternative Delivery Procedures" www.cmegroup.com/content/dam/cmegroup/rulebook/NYMEX/2/200.pdf But the seller would have to agree to this, and I'm guessing that might be expen$ive! Thanks, Ramin.
The oil collapse is due to oversupply due to the slow down in consumption and lack of storage. The panic occurred because there is literally very little storage available. So the only choice would be to literally dump the oil on the ground, which is illegal. When farmers get oversupplied with milk beyond the ability to process and store the milk, they have to dump. The oil industry can’t do that.
I think they talked about offloading it to the US Strategic Petroleum sites in order to save 'dumping it on the ground'. Although from a quick study online, it seems they are near full capacity also..
Great video its a shame you only cover americas future economic situation with oil i understand russias economy is very tied to oil also and it would of been nice to of heard about them in this vid
Oil in the long term will pick.up.but not.without it's risks: demand will pick up once this whole corona ends, but might be lower in the long run due to electrification, people working from home, climate change regulations etc. So invest with precaution but defo not something to stay away from in the long term as oil will always be needed just need to time it right which has it's risks.
OK, so if someone was long on oil to the end of the expiration day he has to show up in the Oklahoma to the end of the May and take the oil from there. But what if he doesn't? What are the repercussions?
I am not sure you have to be there in person! But I thought the point of delivery is basically the point at which the contract crystalises and you either make money or you don't. Maybe I have that wrong though.
They have to find a place to put the oil, other than Oklahoma or pay for storage there which was probably full cause the sellers had to pay for it to be taken away. It's pretty much a supply demand problem
@PensionCraft Everything you said is true, but you missed the most important part, this wild fluctuation was due to irresponsible credit injections from the Fed. Everything you mentioned beautifully explains oil storage, its relation to the futures market and how that created a backup. But why was there so much oil and who financially backed the buying of all this oil? With the economy basically stopped due to corona, strange there should be that kind of liquidity floating around the market for investment bankers to wildly speculate isn't it? But you ignore this in your video... Where are the speculators getting their funds? Is it Investment Banks? Are these the same banks currently receiving the spoils of the Q.E. process or whatever they're calling now? Isn't the Fed injecting them all with endless sums of credit right now, am I wrong? Seems like ignoring this fact is the same as endorsing the privatization of profits and the socializing of losses. Looks more like heads they win tails we all lose, a.k.a. standard Fed Policy. It's easy for speculators to take huge risks when not risking their own assets especially when they get to keep the spoils if they win and let the Fed cover it if they lose. Btw I like your videos I just like to play devil's advocate and keep you on your toes. I'm curious to your response, thanks for you videos, I enjoy multiple perspectives when it comes to the world of finance.
Hi Tim, thank you for keeping me on my toes. In fact, about a third to a quarter of the futures were owned by ETFs like USO which is mostly owned by retail investors. So this is people taking a punt on oil prices and getting burned which is the point of the video - don't buy what you don't understand. Investment banks are no longer allowed to speculate on prices, prop desks are a thing of the past. Investment banks act as market makers for oil ETFs for example. The exchanges where futures are traded, such as CME also take no directional positions. So pointing the finger at "investment bankers" is not justified. And the Fed has stabilized markets rather than destabilized markets by providing liquidity where it is needed e.g. in the repo market and secondary credit market. Thanks, Ramin.
I think you conveniently forget that nobody could have ever forecast a total shutdown of main retail activities and major industries as it is now the case with lockdowns and confinements. There is no point looking for "whodunnit" when there is blood on every single street in the world. Focus instead on learning from this and building a better future for yourself and the people in your community. This too shall pass. :)
US energy industry is safe because of shale gas. Oil can go to $0 but shale will survive off the revenue from natural gas. Also a lot of costs are porportional to the oil price. A deal might be 30% of revenue for the land owner. At $100 oil you pay the land owner $30. At $10 oil you pay him only $3
Ramin, another great video. Thanks. The depth of your analysis is unbelievable, especially given you've produced this only a few days after prices went negative. Your charts & graphs are always visually superb, I don't know how you produce such great looking data in such a short space of time! Keep up the good work 👍
Hi Michael, that's very kind of you - thanks! Ramin.
Thank you for this comprehensive explanation of negative oil price. Very informative. A lot of people are staying away from oil and its related stocks now.
And, with Elon Musk this could be a sign of the future. Ships and heavy industries will go hydrogen. Domestic and local will go electric. Then the shale industry that is KILLING the sub terrain of Mother Earth will collapse - along with the Banks that invested in them
@@CosmicSeeker69 Maybe. All I see is that Mr Musk guzzled billions in subsidies to fund his boy-toys company and to feature on the S&P500.
10 years on, I'm yet to see this "future" his fanclub keeps talking about.
that was awesome.......best explanation i have found so far.....
Ramin, this was a very well-structured and timely masterclass.
Though I am already familiar with future contracts, I learnt a lot from your breakdown of the US Oil market.
Thanks Nachannachle i'm please you could get something from it. Ramin
Unbelievable video thanks so much!
Thank you for watching! I'm pleased you liked it. Ramin
Excellent as always... thanks a ton
My pleasure! Thank you for watching. Ramin
perfect as always! thank you sir!
Thanks mohammad rahmaty, that's so nice of you to say. Ramin
Ask who gains from negative oil? This is deliberate
wow,,,,great job,,,,thanks
Hi Rod Gray, Thank you for watching! Ramin
I like this vid.Good insight
Hi GerrysPlace thanks, Ramin.
Good video, very informative. Thanks!
Hi Flying Scotsman, you're very welcome, I'm please you liked it. Thanks Ramin
That was fun! Thank you
Hi Kamil, Glad you enjoyed it! Thanks Ramin
Hey Ramin, great video! You explained this in a very clear manner. I'm away to check out a few more videos on your channel and I will then probably subscribe. This sort of content is going to be extremely useful for me as I have just started a journey into investing in the stock market (currently using Trading 212) so the more I learn, the better. Thanks! 👍
Hi Ian, I'm glad it was helpful! Thanks Ramin
Thanks for the video
Could you explain please, Is the future price is the actual oil price?
Let's say i want to buy oil (physically) in July, so the price stated on the contract is the amount i be paying for the oil?
*If all the factors that move the markets doesn't change
No, because we don't know the future! But it is the future price you agree to pay. It is more of a bet on the future price. If the actual future price is higher than the contract price you are quids in, if it is lower then you bet the wrong way. Some people like/need to fix the price of a commodity in advance, to hedge against unexpected price rises. E.g. airlines worried about future price of jet fuel. Or like fixing your mortgage interest payments as opposed to adjustable rates. It has the advantage you know exactly what you are paying in the future, the disadvantage is you are taking a bet and may pay more than the market rate at the time. For many it is pure speculation.
Hi By_Yoni as james caley says the futures contract simply fixed the price you pay to buy or sell a commodity on the expiry date. For example if you are an airline that needs certainty about its future costs it may hedge its oil exposure with futures. Sometimes hedging pays off (the price for a barrel of oil on the expiry of the contract is higher than the price you agreed) and sometimes it doesn't (the price of oil is less than the futures price). For some futures contract the futures price is fixed by arbitrage i.e. you can buy, store and deliver an S&P 500 basket of stocks so the futures price is fixed by the cost of carrying that basket of stocks until expiry (dividend income minus funding cost for the stocks). I discuss this in detail in my book "A Financial Bestiary". Thanks, Ramin.
james caley thanks for the answers:)
PensionCraft thanks you 👍🏻
thank you
You're welcome Sung Keum! Ramin
Why does lighter oil have a higher density number. Isn't density = mass / volume (surely less dense substances weigh less for the same volume)? Thank you very much for your explanation now I have a better understanding, as I all saw in the news and other youtube videos is people sensationalising the negative oil prices then regurgitate the same lines like there is no capacity, oil companies can't stop pumping and nobody wants to buy it, but offered no insights as to how it all works. But can I ask, if I buy WTI futures for delivery in June 2020 can I get it delivered anywhere or does it all go to Cushing, Oklahoma - e.g. if I want it delivered to UK do I have to arrange my own delivery from Cushing to UK? Lol I wish I knew all this before I lost a huge amount on oil etfs 😭
Question out of the topic, if shorts are dragging price down of my stock. Is it smart to keep buying as it goes down? I know they manipulating the price. I placed buy order few times at 23 and got the stock even cheaper than that! The stock keeps closing at day lowest level for few days in a row. I found out two institutes positioned short with 1%. What can I do?
Does Oil price behave like a "simple" demand/supply in these times ? I'm thinking they'll agree more cuts in productions and some shale firms will go bust as they can't make money.... does this mean prices will go up ?
how can this be shown on a supply and demand diagram?
Superb video - quick question - what if the buyer of the futures waves his right to the delivery of the oil - then delivery doesn’t have to be taken - if you promised to sell me painting next month at a price and I asked you - is it ok if I don’t take but you still keep my money - you might agree to that ? Can that happen with oil ?
Hi Garry Q once the oil has been delivered you are the owner. What you do with it is then up to you. You might be able to get someone else to buy it. But the "free on board" term in the futures contract means that once the oil is delivered to, say, Cushing, you are now responsible for the transportation and storage costs. Page 6 of Chapter 200 of the Nymex Rulebook says that you might be able to agree with the seller to "Alternative Delivery Procedures" www.cmegroup.com/content/dam/cmegroup/rulebook/NYMEX/2/200.pdf But the seller would have to agree to this, and I'm guessing that might be expen$ive! Thanks, Ramin.
PensionCraft My idea was to ask the seller if he wishes to keep the oil even though I’ve paid for it.
The oil collapse is due to oversupply due to the slow down in consumption and lack of storage. The panic occurred because there is literally very little storage available. So the only choice would be to literally dump the oil on the ground, which is illegal. When farmers get oversupplied with milk beyond the ability to process and store the milk, they have to dump. The oil industry can’t do that.
I think they talked about offloading it to the US Strategic Petroleum sites in order to save 'dumping it on the ground'. Although from a quick study online, it seems they are near full capacity also..
Hi Eric, that's at 7:48 ua-cam.com/video/sR6lb3cclZc/v-deo.html Thanks, Ramin.
Great video its a shame you only cover americas future economic situation with oil i understand russias economy is very tied to oil also and it would of been nice to of heard about them in this vid
Oil in the long term will pick.up.but not.without it's risks: demand will pick up once this whole corona ends, but might be lower in the long run due to electrification, people working from home, climate change regulations etc. So invest with precaution but defo not something to stay away from in the long term as oil will always be needed just need to time it right which has it's risks.
OK, so if someone was long on oil to the end of the expiration day he has to show up in the Oklahoma to the end of the May and take the oil from there. But what if he doesn't? What are the repercussions?
I am not sure you have to be there in person! But I thought the point of delivery is basically the point at which the contract crystalises and you either make money or you don't. Maybe I have that wrong though.
They have to find a place to put the oil, other than Oklahoma or pay for storage there which was probably full cause the sellers had to pay for it to be taken away. It's pretty much a supply demand problem
@PensionCraft Everything you said is true, but you missed the most important part, this wild fluctuation was due to irresponsible credit injections from the Fed.
Everything you mentioned beautifully explains oil storage, its relation to the futures market and how that created a backup. But why was there so much oil and who financially backed the buying of all this oil? With the economy basically stopped due to corona, strange there should be that kind of liquidity floating around the market for investment bankers to wildly speculate isn't it?
But you ignore this in your video...
Where are the speculators getting their funds? Is it Investment Banks? Are these the same banks currently receiving the spoils of the Q.E. process or whatever they're calling now? Isn't the Fed injecting them all with endless sums of credit right now, am I wrong?
Seems like ignoring this fact is the same as endorsing the privatization of profits and the socializing of losses. Looks more like heads they win tails we all lose, a.k.a. standard Fed Policy. It's easy for speculators to take huge risks when not risking their own assets especially when they get to keep the spoils if they win and let the Fed cover it if they lose.
Btw I like your videos I just like to play devil's advocate and keep you on your toes. I'm curious to your response, thanks for you videos, I enjoy multiple perspectives when it comes to the world of finance.
Hi Tim, thank you for keeping me on my toes. In fact, about a third to a quarter of the futures were owned by ETFs like USO which is mostly owned by retail investors. So this is people taking a punt on oil prices and getting burned which is the point of the video - don't buy what you don't understand. Investment banks are no longer allowed to speculate on prices, prop desks are a thing of the past. Investment banks act as market makers for oil ETFs for example. The exchanges where futures are traded, such as CME also take no directional positions. So pointing the finger at "investment bankers" is not justified. And the Fed has stabilized markets rather than destabilized markets by providing liquidity where it is needed e.g. in the repo market and secondary credit market. Thanks, Ramin.
This is why the dollars gonna crash soon as more and more people wake up to this reality
I think you conveniently forget that nobody could have ever forecast a total shutdown of main retail activities and major industries as it is now the case with lockdowns and confinements.
There is no point looking for "whodunnit" when there is blood on every single street in the world. Focus instead on learning from this and building a better future for yourself and the people in your community. This too shall pass. :)
i dont think oil will stay so cheap for long, speculators cant help themselves going long oil
US energy industry is safe because of shale gas. Oil can go to $0 but shale will survive off the revenue from natural gas. Also a lot of costs are porportional to the oil price. A deal might be 30% of revenue for the land owner. At $100 oil you pay the land owner $30. At $10 oil you pay him only $3
1 st!