About two months ago I delivered to a private client a (monthly-basis) prediction model for ethanol prices that included Brent -- in logarithm -- as a predictor.
I know the monthly spot average of that statistic (fetched from FRED, the Fed of St. Louis system) won't turn negative, but still...
One would think the recent swing in WTI crude oil futures contract prices into deeply negative territory (while Brent futures remained positive) would be all the evidence a person needs to draw that conclusion...
The price of oil futures went negative. The spot price of oil has never and will never hit zero or negative.
You can't use your regular intuition about commodity prices when talking about futures contracts. The negative price was a one-day event, and all it really represents is a higher-than-normal premium on the calendar spread.
My all time favorite wrong call of theirs came in 1999. Oil had dropped to $11 and they were predicting that it could hit $5:
a “normal” market price might now be in
the $5-10 range. Factor in the current
slow growth of the world economy and the
normal price drops to the bottom of that range.
Of course, oil did just the opposite, climbing to about $140 per barrel over the next decade.
Unfortunately you've got a massive term mismatch. You have negative prices today, but a lot of reason to believe that by the time you could bring your storage online the problem will already have resolved itself.
Oil briefly went negative a few years ago. If you decided to build a storage business dependent on negative oil prices for profit, you might just be coming online around now, and very much poorer than you were before. (Of course you would in fact have stopped a long time ago.)
I'd expect oil to be negative in the next few weeks -- refineries are shutting down (and can't take the oil), most of the commercial storage facilities are full, and it's gone down far enough that it's uneconomical to pull it out of the ground (most of the articles that I've read put oil above $40.00 for most wells to turn a profit, and more than $3.50/mcf).
I was in Texas and it was under $2.00/gallon before everything started getting all locked-down due to COVID-19 -- my guess is that gas there will be in the $.80-$1.00 range in the near future. Between the decreased demand due to the "Stay-At-Home" order and the excess inventory (until all of the refineries shut down), we haven't seen the bottom yet.
Crude oil futures were negative for a single day (if my memory serves me correctly) a little over a year ago. The holder of the contract at its expiration has to make arrangements to actually receive it -- you were getting paid to take oil that was very hard to move and very hard to do anything with at the height of the pandemic.
Obviously, the future where nearly all consumption stopped and everybody stayed in their house for the next 3-5 years didn't happen. The opposite did, and the pricing reflects that.
Hey. That looks like what happens with crude/natural gas/agriculture/any commodity. While it is worth being reported, this is Econ 101 supply and demand. Price volatility is part of the market.
I don't know anything about oil, but it seems unrealistic to claim to be able to predict markets. Liquidating all your reserves at current price is unlikely to be seen as a wise move. (And wouldn't selling more oil than the US uses annually impact prices somehow?)
If you magically had knowledge of the range of prices over 10+ years you could do all sorts of money making things.
Edit: Looked into this a bit. Futures on oil 2 years out are already over $50. So "the market" is far less certain then the author. I'd also imagine quite a bit of damage to oil producers if the price stays low. After they shut down, why wouldn't the price rise?
No one with any credibility actually believes he can forecast the price of oil.
Oil is very inelastic in the short term, which is why small drops in supply lead to massive price increases. The long-term effect of unavailable or expensive oil will be "demand destruction"-- many of those who currently use oil will either move to alternatives or go out of business-- and political fallout with unpredictable results.
The price is trying to go to a level to force companies to keep the oil in the ground. If it has to go negative to incentivize that behavior, then it will.
I wish someone would explain how this is supposed to work. So, speculators bid up the price of oil from the "natural" price of $30 a barrel to, say, $100 a barrel. Some of the oil now goes to the speculators. A few months or a year or two down the line, the speculators have to sell. It costs them money to store it after they take delivery. Shouldn't the price then fall below the natural $30 a barrel?
I mean, I know there are lots of speculators in the oil market, but even if they're all evil geniuses, how will they manage to consistently raise prices for everyone over the long term? Unless they don't mind hiding away the oil they bought and never reselling.
I know the monthly spot average of that statistic (fetched from FRED, the Fed of St. Louis system) won't turn negative, but still...
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