101

These are futures contracts that expire on 4/21, which means that if you hold a futures contract at the end of the trading day tomorrow (April 21st), then you are obligated to "purchase" 1,000 barrels (per contract) of oil for -$13 (effectively you get paid $13/barrel to take the oil). But that also means that you have to have the means to transport and ...


89

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: Do you know the laws and regulations for transporting and storing crude oil? Would an oil producer just pay you, an individual, to haul off crude oil in their pickup? I doubt it. They ...


87

Precious metals have primarily been useful as a stable store of value, not a way to make a profit The best argument in favor of precious metals has generally been that they hold their value against inflation while being hard to manipulate by governments/central banks/currency traders/etc. But that's not an investment - that's just a store of value. There's ...


60

Russia and Saudi Arabia have been ignoring production limits set by OPEC. At the same time demand for oil has crashed due to the Covid-19 pandemic and associated lockdowns. The result is an enormous glut of crude oil. Some nations like the US have been filling their strategic reserves, but those are nearing capacity, and storage is getting tight. The ...


41

A futures contract is legally enforceable just like any other contract so the entity at the other end of the contract will have every right to sue you, extract fair recourse per the contract, and quite likely damages as well. In addition, you will very likely never be able to trade again on that exchange as your credit/performance risk would be deemed too ...


38

What should be taken into account that this isn't some random oil that one could take for a low price and store on a rented tanker or at some random storage. The particular contract that went negative was for delivery in Oklahoma through a pipe. The existing storages there are nearly full. Unless you have the means to build a storage facility you are ...


31

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.


30

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) ...


28

You could buy shares of an Exchange-Traded Fund (ETF) based on the price of gold, like GLD, IAU, or SGOL. You can invest in this fund through almost any brokerage firm, e.g. Fidelity, Etrade, Scotttrade, TD Ameritrade, Charles Schwab, ShareBuilder, etc. Keep in mind that you'll still have to pay a commission and fees when purchasing an ETF, but it will ...


20

As long as I can buy it today and sell it at a date of my choosing Typically investors don't purchase shares representing indefinite ownership of commodities, instead they are traded as futures. Oil Futures have a settlement date, i.e. they expire and you have to buy them again. Let's take a look at NYMEX WTI Light Sweet Crude Oil futures. Here we can ...


19

The entire point of these exchanges is to deal commodities for delivery and in the past investors and speculators who didn't want delivery got into some trouble when they forgot to sell out of their futures positions before the maturity date. Indeed even the great (if you like that kind of economics ;) ) Keynes did this accidentally once whilst trading his ...


17

The contract specifies the delivery, generally it is for the buyer to arrange for transport to his location. If the buyer doesn't pick up from the location, he is hit with warehouse charges and the goods are auctioned. The buyer has to make up for the extra payment enforced by the broker... So it's not 2% loss, it can be more. On large contract broker would ...


16

For the simple answer version to your question - yes, a negative commodity price means the seller is willing to pay someone else to take a contract off their hands. This is a feature of commodities where storage, transportation, maintaining production, refining or carrying cost are a part of the equation. In the specific case in question, the interaction of ...


15

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 ...


13

if you bought gold in late '79, it would have taken 30 years to break even. Of all this time it was two brief periods the returns were great, but long term, not so much. Look at the ETF GLD if you wish to buy gold, and avoid most of the buy/sell spread issues. Edit - I suggest looking at Compound Annual Growth Rate and decide whether long term gold ...


12

A million barrels of oil would be a high end tanker, and second hand prices seem to be about $60 to $100 million dollars, so there is a bit of a hole in the budget before you start thinking about running costs. Then there is the issue of finding a suitable deepwater port in Oklahoma. Also, there is the cash flow problem. You need to have the cash to get the ...


10

Here's a good link that can answer your question: How to take delivery of a futures contract The relevant part states: Prior to delivery day, they inform customers who have open long positions that they must either close out the position or prepare to take delivery and pay the full value of the underlying contract. By the same token traders with short ...


10

You can buy "real" commodity on a commodity exchange. Every exchange has rules for every traded commodity. The rules include also the day of delivery (usually few days, weeks after last trading day) and the assigned warehouse, where you should deliver, or pick up your commodity. So even, if the majority of trades are hedges/speculation (you can see it on ...


10

Some futures markets are priced using a fractional pricing rather than decimal pricing. The example you've mentioned, Soybeans, is priced in cents per bushel, and the "tick size" (the minimum amount the price can move) is 2/8ths of a cent. So, 990-4 means 990 and 4/8ths of a cent. Also, it's not just some commodities priced this way - some interest rate ...


9

You're missing the cost-of-carry aspect: The cost of carry or carrying charge is the cost of storing a physical commodity, such as grain or metals, over a period of time. The carrying charge includes insurance, storage and interest on the invested funds as well as other incidental costs. In interest rate futures markets, it refers to the differential ...


8

It has properties of both. Tax authorities will eventually give their opinion on this. Through its properties of finite quantity, fungibility, and resistance to forgery/duplication, it acts as a commodity. It can be sent directly between any two parties anywhere on Earth, without regard for the quantity transacted or physical distance, to act as a ...


8

I am not aware of Steel being offered as commodity in India on regulated exchange. Even if there is one, generally it would be sheets/rolls. These are not directly fit for use. One would need to convert these into required rods by melting process. Most commodities in India are for future deliveries so if you buy something, on the specified date you would ...


8

Not all futures contracts are deliverable. Some futures are specified as cash settlement only. In the case of deliverable contracts, part of the specification of a futures contract will be the delivery locations. As per my answer to your previous question, please see the CME Rulebook for details of delivery points for the deliverable futures contracts ...


7

This BBC article says that nuclear power notes came about when the French energy company EDF purchased British Energy in 2008: The note changes in value with wholesale energy prices and power output levels from British Energy's existing nuclear stations. EDF Energy's website describes these notes under the section titled "Nuclear Power Notes": ...


7

No, it is not for the reason you suspect. Some long-term investors might actually allocate a small percentage of a diversified portfolio to a commodity ETF, as a hedge. Rather, the obvious reason (and it really should be obvious!) is that a hunk of metal or a barrel of oil don't by themselves generate any cash flow. There simply is nothing to distribute. ...


7

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.


6

And you have hit the nail on the head of holding gold as an alternative to liquid currency. There is simply no way to reliably buy and sell physical gold at the spot price unless you have millions of dollars. Exhibit A) The stock symbol GLD is an ETF backed by gold. Its shares are redeemable for gold if you have more than 100,000 shares then you can be ...


6

In order for a commodity to be offered as a future, the exact specifications must be specified by the exchange. This includes not only the particular grade, strain, etc (depending on what we are talking about) but also the exact delivery location (otherwise transportation costs is an issue as you noticed). Once there is a standardized contract, the ...


6

Firstly, steel futures trade on the London Metal Exchange, maybe on other exchanges as well. Perhaps your 32 number was limited to one exchange? I've not researched all the exchanges, but I'd wager there are far more than 32 commodities for which futures contracts can be entered into. How is it determined which commodities get futures and which don't? In ...


Only top voted, non community-wiki answers of a minimum length are eligible