So does this mean that without bids there are potentially many traders, not refiners or tank farms, holding those contracts still? That those traders will get stuck with taking delivery because they couldn't unload their contracts?

Yes

People with just a paper office, used to deal in numbers rather than anything physical, and with no place to store physical goods, will now have to figure out where and how to store lots of oil?

Having worked in the finance industry my entire career, most (responsible) firms have means for dealing with taking physical delivery. Less responsible firms, not so much and may be royally screwed if they have to take delivery. I've heard anecdotally of a firm that had to take physical delivery of a shipment of coal. They didn't have plans in place, but because they had an address on a river, the coal arrived via barge. No, I don't recall the name of the firm, and yes, it's just an anecdote/hearsay.

That story, or at least a very similar one is documented on the the daily WTF:

https://thedailywtf.com/articles/Special-Delivery

I've no idea if it is true, but it makes for a funny story at least.

As told on the Daily WTF: https://thedailywtf.com/articles/special-delivery

They would if they didn’t offload the contracts somehow, hence the negative prices. They are paying to get rid of that obligation.

They already know how to store lots of oil. They can and do rent supertankers for example.

No. Their prime brokers will force them to sell it at the low (negative) price.

You still haven't answered the question...

I'm going to try and translate the simplest concept that tempsy is saying.

The sellers were looking to sell for most of last week, however there fewer buyers as the contract approached its end, and those who were willing to buy wanted a lower price:

Volume of transactions on Friday was 344k, Thursday was 111m, Wednesday was 147m. In the past 30 days, the low was 686k (ex Friday), and the high was 459m. Traders slowed their buying so the market became one sided.

Because trading is hard and sometimes humans are dumb.

-Former dumb oil trader

> -Former dumb oil trader

+1 just for admitting it. :)

That still doesn't answer: why wasn't it anticipated and reflected in earlier pricing (even if volume-weighted it would be a much smaller drop, it still seems to have been missed even from futures options)?

If you have the answer to the question you are asking, you should change careers into oil contract trading; you'll probably make a bundle.

In short, the reason nobody anticipated it is because the future is unknown. The reason any market is unpredictable is because there are too many variables to account for.

I think he's asking why the market didn't have a better estimate of storage capacity and utilization and what changed in the estimate from yesterday to today.

I think that has to do with how people sometimes do analysis for trading. There's fundamental analysis, which looks at exactly that when attempting to determine the price to bid for a security, but then there's the bubblier "technical analysis" which really just looks at historical and current trends and attempts to divine whether buying now means you might be able to sell in the future.

I'd imagine people just assumed perfect liquidity here, and that they'd be able to sell even "at a small loss which is better than nothing," not realizing that nothing or negative (i.e. you're gonna pay somebody to take this oil off your hands or build your own tanks) is a valid outcome.

> assumed perfect liquidity

too bad the oil market is ... viscous.

I'm going to take a stab at a possible reason the "market" didn't see this coming: Everyone expected the US to top off its strategic reserves, which so far hasn't really been happening. Now that You could be paid like $37 (west Texas crude closed at -$37.63) dollars/barrel, maybe the US will reconsider. I certainly wish I could store a few thousand barrels...

US companies don't want to stop producing oil. Couple that with the Russia/Saudi Arabia skuffle going on over oil prices, I'm not surprised. What surprises me is the absolutely rapid/rabid decline in the price. It just seems like pure insanity to me...

> Now that You could be paid like $37 (west Texas crude closed at -$37.63) dollars/barrel, maybe the US will reconsider.

Indeed, it looks like the US is reconsidering:

President Donald Trump said Monday the U.S. is "looking to" add as many as 75 million barrels of oil to the Strategic Petroleum Reserve. Trump spoke after an historic day in the oil CL.1, +103.61% markets, in which the May WTI crude contract closed at -$37.63 a barrel, a one-day drop of 306%. Trump said he was considering the move "based on the record low price of oil," and that the action would "top it out." Speaking at a White House press briefing, Trump said, "we'd get it for the right price."

https://www.marketwatch.com/story/trump-says-us-looking-to-a...

Based on a vague memory from years ago - so I could be totally wrong here - you're assuming knowledge he doesn't have.

Correct me if I'm wrong, but: The people doing the trading are middlemen, and have no capacity period. They expected to be able to sell it all off to the energy companies, even at a loss, so they normally don't accept any physical product. But the energy companies ran out of capacity - something the middlemen (traders) don't have direct knowledge of - so got caught unexpected with contracts they can't sell, and now have to accept the physical product.

> That still doesn't answer: why wasn't it anticipated and reflected in earlier pricing

Because despite the people that like saying all future events are reflected in current prices, the fact is humans, both individually and aggregated into markets, are imperfectly prescient, thus future events are basically never perfectly priced in to to current market prices.

Nobody says that. All KNOWN future events are priced in. We are not doing divination here.

> Nobody says that.

People say things to the effect of “if it is going to happen, it is already priced in” all the time, on HN even.

> All KNOWN future events are priced in.

There are no such thing as known future events. Market participants estimation of the likelihood of future events, weighted by inclination and capacity to invest, are priced in.

The answer is, literally anyone with cash could sign up today and have an oil contract tomorrow. It is extremely easy to take part in oil contracts trading and those people who basically just have an office can't actually keep the contracts now and must unload. Contrary to what people think, you don't have to be an expert or have any special knowledge to trade physical contracts.

It might go negative - no, just has, as I write - if you were bag holding on Friday you might carry on in the hope of some recovery, but you don't want physical delivery so you were always going to sell today no matter what; closer it gets to expiry, or to $0, the more push has come to shove and you're finally closing your position.

Most traders don't have any oil to sell. What is left are those who have storage space making a deal on the traders too stupid to get out already. This isn't many, but since there is no demand those with storage space can offer very low prices and get the rest of them.

things happen when you get closer to contract expiration. Today is closer than Friday.

-$37.00 is a distress price, just for the unwitting investors who agreed to play “Hot Potato: Bloodsport.”

By definition, you’re looking at the price for people who wouldn’t want to play, if they could avoid playing. They are literally over a barrel. If they don’t get out, the broker gets to screw them even worse at the deadline.

Volume was up, because some people were going through heroics to close their position at all costs.

But the end of day price is for those who got screwed: the truly unaware who didn’t realize they were out of time, or didn’t think about it going past $0. It’s probably relatively few people, despite today’s volume. When you lose control, someone agrees for you that you’ll pay $37/bb to get out.