Nowhere to run to, nowhere to hide. Oil can't go below zero. Oh, yes, it can.

  Nowhere to run to, nowhere to hide. Oil can't go below zero. Oh, yes, it can.

After the CME Group clarified that point, it created an oil crash unlike anything ever seen in the oil futures contract. While we have had particular oil delivery points for oil, the concept of negative oil opens up a whole new world of risk in the global oil market with comprehensive storage facilities filling up. Storage wars have begun. Those with storage can prosper, if not you have to pay to get rid of your oil.

It also is a devastating blow to the oil industry. The short term in this oil market will be all about demand destruction, yet for a long time, we will look at this time in history as the point that oil production destruction began. It also makes the ability of beleaguered shale companies to borrow money because the concept of negative oil price may be too much risk for many banks to bear. While the back end of the oil curve is signaling that things will get better, the plunge in the May contract and the possibility of sharply negative prices are shaking confidence in even the solid back end of the curve. That inability to have confidence will lead to what could become the most significant pullback in investment in history. The longer-term ramifications of this sub-zero price action are yet to be felt.

President Trump suggested that the sell-off was a "financial squeeze”. "The problem is no one is driving a car anywhere in the world, essentially…Factories are closed, businesses are closed," Trump said. "We had a lot of energy to start with, oil in particular, and then all of a sudden they lost 40%, 50% of their market." He said about OPEC and Russia that, "They have to do more by the market, it's the same thing over here. If the market is the way it is, people are going to slow it down, or they're going to stop. That's going to be automatic, and that's happening," he said.

Overnight reports that Russia is demanding the Russian energy producers cut production by 20% while at the same time saying that yesterday's negative oil price was not a concern. Kremlin spokesman, Dmitry Peskov, reportedly said that the negative oil prices are just a "trading issue" and that "this isn't a reason for overly negative assessments of the current reality.”

All eyes today will be on the June Contract that is giving up the ghost. It tried to stay healthy in the world of negative oil but is losing confidence.  One has to remember that this negative pricing is just the delta in the calculations.

If the lockdown is extended to May end then even the june contract will fall to zero. And, the negativity is That there is a storage cost of $7 then there is insurance of another $5 and then comes the insurance of the shipping costs which is to the tune ranging from $15 to $23. If you add all this up you will straight away get $35 negative. but, all this is only in theory.

Courteous- Kushal Thaker- The Specunomist