THE NEGATIVE OIL STORY

In normal economies, the product does not have a negative price. If a company is at loss they just stop production and shut down the unit.

But unfortunately that is not the case with oil, its different. Once an oil well is started, it is costly to shut down permanently or temporarily and then restart. This was the reason the price of oil futures gone done by 300% of the West Texas Intermediate(WTI) not the actual crude oil that you buy from the local gas stations.

Yes, like any other commodities gold, silver you can invest, speculate, or hedge in oil futures. So the question arises what is the oil futures and how can you invest in that? There are basically three major oil futures you can invest in it.

Brent Crude - Roughly two-third of the crude contract around the world is of the Brent. As it is waterborne in nature so it is easier to transport and cheaper to buy.

West Texas Intermediate - The oil extracted from the US oil well and send by pipeline to Cushing, Oklahoma. As supplies are landlocked so it is expensive to ship and buy.

Dubai/Oman - They are slightly lower in quality than Brent or WTI. So they have less demand in the world.

Oil futures help you buy non-physical oil today and it will convert to physical oil after the day your contract expires. If the price at which you bought rises you make a profit else you lose. As an investor, you invest in the rising price of the oil, not the oil itself. Now if your contract expires you sell the contract to someone else and buy for the next month and never collect the oil itself. This is called rolling the future. But what happened with the WTI its storage facility got fulled and all the investors knowing this fact wanted to sell their contract at a discounted price and getting liquidated, as no one wants a physical delivery, so there is no buyer of these contracts. Resulting in the crash of prices of the WTI oil prices.

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