The news on the Today Programme at six o'clock this morning was screaming about US oil prices turning negative for the first time in history, without throwing any light at all on what this extraordinary development might mean. The common sense interpretation would be that suppliers were paying customers to take the black stuff off their hands.
Luckily for you, when I did my MBA my final project was called "Delayed Cash and Carry Arbitrage Opportunities on the New York Mercantile Exchange." It was about oil futures.
A futures market is a central financial exchange where people can trade standardized futures contracts; that is, a contract to buy specific quantities of a commodity or financial instrument at a specified price with delivery set at a specified time in the future. Futures markets are used for hedging, and cleared off against each other with money. No product changes hands.
The negative price was for NYMEX futures maturing in May for West Texas Intermediate (WTI), the benchmark for US oil.
We need to contrast futures markets with spot markets. A spot market is a public financial market in which financial instruments or commodities are traded for immediate delivery. As I write this, the WTI Crude Oil Spot Price is $28.36. A negative spot market price ain't gonna happen because suppliers will shut down production first.
Myself: Happy?
Prodnose: Ecstatic ..... words can hardly express ........ thanks for sharing
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