WTH is going on??? I just turned the TV on and FB says oil is trading at -$37.54??? How in the heck is that possible?
I did my crude attempt at an explanation, but it sounds like (1) the market is deliberately being crashed, and (2) There are a lot of people holding oil futures that CAN’T take delivery and HAVE to offload the contracts, whatever the loss.
What is happening is that people who bought a $110,000 contract on the price of oil for $1000 discovered that they were on the wrong side of the trade and have to cough up $109,000 to the counterparty. This means margin calls, so it should affect other markets to include the stock market and precious metals.
This is why I don't play with derivatives.
I have an agreement (contract) with an oil producer for crude delivery in July. 100 bbls at $40/bbl.
Since there will be almost no delivery of crude in July, I’ll sell you this contract for 5-cents/dollar, cash.
You give me $200 CASH and I give you the contract.
See, I don’t want to wait for it have the same value as when I bought it. My company survives on CASH flow and commodity turnover. You, on the other hand might see this contract as either a gamble or a time-certain risk.