How to Lose a Billion Dollars by 2:30 PM

 

Yes! Absolutely you, me and us all live in an era obsessed with the intangible----WHaT??

We trade digital currrencies even often attend meetings in the metaverse. But in the middle of all this I find myself endlessly fascinated by a substance - "The Crude Oil" not because it powers our cars though I don't have a car but still!! but because it is the only asset that functions as a 'Geopolitical Ultimatum'. 

You cannot synthesize it in a lab at least not without bankrupting yourself and unlike Bitcoin you cannot simply put it on a hard drive when you run out of space.

Yes I'm not here for checking your white matter, just want to share something...just because I want it to be shared!!

Let's begin with "Cushion"....my bad!, it's Cushing, Oklahoma, USA. To those of us who watch geopolitical chessboard, it is the "Pipeline Crossroads of the World". As this small town holds about 90 million barrels of storage capacity and acting as the global buffer between production and consumption.

It is the designated delivery point for West Texas Intermediate(WTI) crude and from here only the prices of oil are decided. For example, when you see oil trading at $75 a barrel that is the price for delivery specifically at Cushing.

Now comes the interesting part! 

So on April 20, 2020, a law was broken. For the first time in the history of finance the price of the world's most critical commodity did not just fall to "zero" but it was something like a Day Trader is screaming hard!!! "hey! Come on, I'll give you $40 if you just take this barrel away from me." That means for the first time in the history of finance and global economy the prices became negative for which even the softwares were not ready to reflect that.

Now the question comes, How did we reached this point of insanity???

So it was all because of the pandemic that the world had stopped driving and flying. At the same time both Russia and Saudi Arabia were locked in a reckless price war. Now one can ask, why didn't we store then rather than selling it at negative prices?! Because oil well is not like a light switch which we can off anytime rather it's a pressurized puncture in the earth's crust and shutting down a well risks permanently damages the reservoir allowing water to infiltrate the rock and  in response this creates a fascinating "curse of continuity".

So this physical bottleneck is what broke the market. On that historic Monday, the May futures contract was set to expire the next day and hence the "paper traders" realized that if they did not sell their contracts by 2:30 PM then they would be proud owners of millions of barrels of oil with literally nowhere to put it....panic set in!!! The desperation to avoid taking delivery was so intense that the price collapsed to -$37.63/barrel.

So we are just impulsive shoppers with really...reallyyyyy bad spatial awareness!

Bye bye!! Let me drink a cup of oil today!!!

                                                                                                                                        -Tanu ki kalam se..


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