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04-APRIL 21-2020

As Employee-of-the-MonthGood morning.
It was a weird feeling on Monday morning seeing the expiring futures contract for oil trade at $11, but it got even weirder as it began trading in negative territory just before close.  While this is certainly bearish for oil, the active oil futures contract finished at around $21.50.
The issue is that nobody wanted to finish the day long the expiring contract as there is virtually nowhere to store the oil once delivered.  This is such a crazy time in the markets as these occasions clearly point out how illiquid things really are.

YES!!!  Coronavirus finally got kicked from the headlines…

Yesterday, the crisis in the oil market took center stage.  With demand falling, capacity filling up, and a bit of wonkiness in the futures market, prices actually went negative on Monday.  Oil prices won’t stay negative, of course.  And I’m sure you are wondering where they’re headed next.  But the more impor-tant thing is what this decline means for the companies that produce it.
Unfortunately, oil and gas producers are tied to what they sell.  It’s that simple…
If oil prices fall below a certain level, oil producers run at a loss.  And eventually, some of them will go out of business.  There’s no way to get around it.  And no matter where oil settles after this week’s crash, that’s the reality many oil producers are facing today.  The cost to produce oil is higher than what they can sell it for.  The entire sector is in a massive downtrend as a result.  And history says those lows could lead to double-digit losses from here.

April 21, 2019

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