Could I make money off of the negative oil price?

Question

I saw the price of oil did something at about 1 PM Eastern time that is really bizarre: it went negative. This means that you get paid to take oil off the field. But, the oil price is negative now, and I think it could go lower. So, I would like to make money. Is there a way to flare oil offsite without safety risks? Could we drive nonstop on the highway just to burn gasoline in order to get paid at the gas station? Just curious on if it is feasible to make good money from this.

Answer 1

Sure you can make money from this. Just get paid to take barrels of crude oil from a producer, take them home, and sell them to someone once the price increases. Problem is:

1. Do you know the laws and regulations for transporting and storing crude oil?
2. Would an oil producer just pay you, an individual, to haul off crude oil in their pickup? I doubt it. They deal in increments of hundreds of barrels, can you handle that many?
3. Who would buy barrels of crude oil from some random individual like you?

Could we drive nonstop on the highway just to burn gasoline in order to get paid at the gas station?

The gas station will not pay you to get gas. People are still driving around so there is still some demand for gasoline/diesel. Crude oil is the only thing with a negative price. Lots of overhead costs and refining costs to create gasoline.

So in reality, no, you cannot make money from this.

Answer 2

The way to make money off of this would be to buy the futures contracts that are negative then hope that it goes back positive (or at least less negative) before they expire tomorrow. There's no practical way for a retail investor to take delivery of the oil, so the only option is to sell the contract before it expires.

Answer 3

There is nothing really unique to oil here. There are many other things which have a "negative price", and they have it always, not just temporarily like in the case of oil. Waste (especially dangerous chemical or nuclear waste) is one of the most obvious examples. People will literally pay a lot of money (much more money than the current negative oil price) to others who take it away from them.

So, could you make money off accepting nuclear waste and getting payed for taking it away? Sure, if you have the facilities, the permits, the technical expertise, the infrastructure and the highly trained specialists who know how to handle it without causing an environmental disaster. And only if the costs of investing in and maintaining that infrastructure is lower than the amount of money you receive from taking the waste, because otherwise you would operate at a loss. Could you do it as a random person without any expertise and any significant investments in the field? Nope.

Similarly with crude oil. If you have the facilities to store them, sure. Do you have them? They are complex enough that you can't just build them overnight in your backyard. They are expensive to build, and cost a lot of money to maintain. You need a crew of maintenance staff, and many other expenses. Probably the government also requires you to have some certifications.

Another way to make money off of it is to buy it at, let's say, -30 dollars (the seller pays you 30 dollars if you promise to take it) and then find someone who will buy it from you for -20 dollars (you pay them 20 dollars if they take it from you), so you make a profit of 10 dollars without having to even look at the physical oil. The problem is, what if you can't find anyone willing to take if from you for -20 dollars (as you likely don't have the millions of dollars to buy an oil tanker or build a storage facility). This is why it's called speculation. Basically not all much different from gambling. And in this case, buying something for -30 and hoping to sell it for -20 is not at all different from buying it for 50 and hoping to sell it for 60.

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_{And finally, some generic advice about "wondrous opportunities". If something is so easy to do that basically anyone could do it without any expertise or any significant capital, then either}

_{- you are the first person on the whole planet who came up with the idea, in which case you have a chance to get rich before anyone else figures it out. (This basically never happens in the financial world, as you have many competitors with a huge army of experts.)}

_{- or the most you can get out of it is minimum wage.}

Answer 4

The price for physical barrels filled with crude oil isn't actually negative right now in most regions of the world. If you need a barrel of oil for your petroleum refinery, then you will at least have to pay for someone to deliver it to you.

What's negative is the price for futures contacts for oil.

What's a futures contract on a natural resource, you ask?

A futures contract is a piece of paper which says that the owner of this paper will receive these physical natural resources. Investors tend to buy and sell such futures contracts on the open market in order to make profits from price fluctuations. However, the vast majority of these investors don't actually need any crude oil. They never intend to receive a physical delivery. Their intention is to sell those futures contracts to someone who does before the date is reached, hopefully for more than they initially paid for it.

Usually that's not difficult, because oil is always in high demand. But right now, it's suddenly not. So there are more oil futures contracts on the market than there are people who actually need oil. So there are investors who are sitting on contracts.

The problem with these contracts is, they aren't optional! Whoever owns these contracts at the due date, must accept those physical barrels of oil. Which most investors can not, because they work from a desk. They don't have any means to transport or store crude oil. So the investors are desperate to get rid of these contracts. So desperate that they are willing to pay people to take them off their hands.

For more information on this topic, check out the answers to the question What happens if I do not honor a futures contract?

Should you let people pay you to take oil futures contracts off their hands right now?

Only if you are certain that you will find someone you can sell them to before the due date or if you actually happen to have access to a facility which has the means to store large amounts of crude oil.

And no, you can not just store barrels of crude oil in your backyard. It's hazardous material. You very likely need a license for that, and you will only get that license if you can ensure it won't spill into the ground or catch fire.

Answer 5

Free WTI oil is available if the buyer has oil storage. Quantities available are in increments of 500 barrels. But the sale ends tomorrow.

Now stored oil has significant value.

Answer 6

There are very large companies that do this every day at high volume. Their processes are extremely efficient, and the price of oil will raise or lower to exactly the right price for these very large companies to continue to do it efficiently while still making a profit. So really this question boils down to whether it's possible for a layman to perform the physical process without any infrastructure in place, and also do it as efficiently as the existing companies do. The answer is obviously no.

Answer 7

The (somewhat) realistic way to make money from this would be to own, or have the ability to construct before the end of May, regulation-compliant oil storage space in Cushing, Oklahoma. Or in places connected to Cushing via pipeline (there are several big pipelines converging in Cushing), though in that cases you'd also need to pay for capacity in the pipeline. An additional option would be to buy or rent an oil tanker and have it take on the oil in Huston, Port Arthur or Freeport (there are, you guessed it, pipelines from Cushing to those ports).

What all of these options have in common is that they incur considerable cost, and involve paying for things (construction work in Cushing, oil tankers) that are currently in extremely high demand for this reason. And some of that cost is ongoing, with no guarantee that you'll be able to sell the oil at a profit anytime soon.

Which is exactly the reason why those contract prices went negative.

Answer 8

Basically no. You have to have the ability to store significant amounts of oil and be able to take delivery immediately. Do you happen to have an empty oil tanker in the Gulf of Mexico? No? Well, you are out of luck then.

This is very short-term and limited in scope phenomenon - it won't propagate along the delivery chain, you won't be seeing any gas stations giving you money to pump gas.

Answer 9

One could theoretically find a trading platform which both allows oil prices to go below $0, and also has an associated fee in its fees. If they charge 1% of a transaction, and that transaction is for -$300, the bug could cause them to credit you by $3, rather than charging you.

Then sell the futures quickly, before the price has changed enough to wipe out your gains.

Incidentally, a number of trading platforms I’m on have halted trading when the price dropped below $0, and I think it’s likely to prevent situations like this.

Answer 10

Just considering the Finance & Money focus here (and skipping the messy physical oil handling) you could invest in an ETF that follows the oil industry like ProShares Ultra Bloomberg Crude Oil (ticker = UCO). Obviously when everyone goes back to work after the virus activity, the demand for oil will go back up and the price will start rising. Oil futures will go back up, and you will have your money in early while oil futures are beat down.

It's really no different from putting money in UDOW while markets are down. Once markets are back up again, that could be a nice windfall.... theoretically.