You are all seeing the news flash talking about oil price going negative. So here is a very brief simplified explanation for what's happening
1. Most of the oil is traded via Futures Contracts. There is a Spot Price as well, which is taken into account while arriving at the "theoretical futures price"
2. There are two main Futures Contracts (remember this is simplified) - The WTI and the Brent
3. WTI refers to the Oil from North America, while Brent refers to oil from Middle-east, Europe and Russia
4. There are a million variants, but we will omit those for the moment, since they complicate the discussion without really adding any clarity
5. The "Oil Price" that's gone negative is the settlement prices for the May 2020 Delivery Contract (ONLY THAT ONE)
6. Some more complexity - There are two forms of settlements for Crude Oil Futures Contracts (and for most commodities), viz Net Settlement and Physical Delivery
7. Net settlement allows the buyers of the contracts to settle the financial difference between the buying price and the settlement price
8. If a buyer of a Futures Contract doesn't opt for net settlement on or before the "Notice Date", which passed last week for the May 2020 Delivery, then they are assumed to be taking physical delivery of the underlying quantity of Crude Oil
9, And that's the "technical problem" that's pushing the settlement price of May 2020 Delivery Contracts to become negative. There is a buyer, or a series of buyers, who are stuck with physical delivery option that they can't actually use, ie they can't take physical delivery of the underlying crude oil because they don't have the storage capacity to store this
10. The negative price indicates that they are getting some buyer, probably a refiner, or a storage facility or a driller, to take the delivery off their hands by PAYING them to buy the oil that's ready for May delivery
11. It's never happened before in the history of Crude Oil Futures trading. It's a very unique situation
12. However, the June delivery WTI futures are still trading in positive territory at $20+/ BBL. And the Brent Futures for June 2020 delivery are trading at $25+/ BBL
13. Will this have implications: surely so. It means that the US Crude Oil producers are now facing a glut and if they don't stop drilling, they will have to give the oil away free, and/or pay people to buy that oil.
14. This oil can't be dumped or disposed off, since that will cause an environmental disaster and result in billions of dollars of penalty (Exxon Valdez, Deepwater Horizon, etc.)
But now problem is drilling cannot be stopped as cost of drilling high & cannot be kept idle.
1. Most of the oil is traded via Futures Contracts. There is a Spot Price as well, which is taken into account while arriving at the "theoretical futures price"
2. There are two main Futures Contracts (remember this is simplified) - The WTI and the Brent
3. WTI refers to the Oil from North America, while Brent refers to oil from Middle-east, Europe and Russia
4. There are a million variants, but we will omit those for the moment, since they complicate the discussion without really adding any clarity
5. The "Oil Price" that's gone negative is the settlement prices for the May 2020 Delivery Contract (ONLY THAT ONE)
6. Some more complexity - There are two forms of settlements for Crude Oil Futures Contracts (and for most commodities), viz Net Settlement and Physical Delivery
7. Net settlement allows the buyers of the contracts to settle the financial difference between the buying price and the settlement price
8. If a buyer of a Futures Contract doesn't opt for net settlement on or before the "Notice Date", which passed last week for the May 2020 Delivery, then they are assumed to be taking physical delivery of the underlying quantity of Crude Oil
9, And that's the "technical problem" that's pushing the settlement price of May 2020 Delivery Contracts to become negative. There is a buyer, or a series of buyers, who are stuck with physical delivery option that they can't actually use, ie they can't take physical delivery of the underlying crude oil because they don't have the storage capacity to store this
10. The negative price indicates that they are getting some buyer, probably a refiner, or a storage facility or a driller, to take the delivery off their hands by PAYING them to buy the oil that's ready for May delivery
11. It's never happened before in the history of Crude Oil Futures trading. It's a very unique situation
12. However, the June delivery WTI futures are still trading in positive territory at $20+/ BBL. And the Brent Futures for June 2020 delivery are trading at $25+/ BBL
13. Will this have implications: surely so. It means that the US Crude Oil producers are now facing a glut and if they don't stop drilling, they will have to give the oil away free, and/or pay people to buy that oil.
14. This oil can't be dumped or disposed off, since that will cause an environmental disaster and result in billions of dollars of penalty (Exxon Valdez, Deepwater Horizon, etc.)
But now problem is drilling cannot be stopped as cost of drilling high & cannot be kept idle.
Saw this discussion in a professional group of chartered accounts...Thought of sharing with you
I know many of you wouldnt be having knowledge of Futures since they are part of CA Final syllabus...but i assume you wl b able to get some sense of what happened yesterday in US due to which Oil prices crashed
I know many of you wouldnt be having knowledge of Futures since they are part of CA Final syllabus...but i assume you wl b able to get some sense of what happened yesterday in US due to which Oil prices crashed
Time Table of Mock Tests.pdf
247.3 KB
Emailing Time Table of Mock Tests.pdf
Forwarded from CA Inter Knowledge Portal
After great success in CA Foundation,Launching Question Bank for CA Inter Law by CA.Sahil Grover...Most comprehensive with lots of case studies and MCQs..
MRP-Rs 500(including courier)
First 50 orders at special price of Rs.400
For order click
https://avjknowledgeportal.com/BuyB.aspx?id=Corporate%20And%20Other%20Laws%20Question%20bank
For demo:
https://drive.google.com/file/d/1H5vWSalbKog4U0CYpZTR34GD-gxMuxcH/view?usp=drivesdk
For enquiries call
AVJ Academy
9310824912
MRP-Rs 500(including courier)
First 50 orders at special price of Rs.400
For order click
https://avjknowledgeportal.com/BuyB.aspx?id=Corporate%20And%20Other%20Laws%20Question%20bank
For demo:
https://drive.google.com/file/d/1H5vWSalbKog4U0CYpZTR34GD-gxMuxcH/view?usp=drivesdk
For enquiries call
AVJ Academy
9310824912
Very very important uodate for July and Nov 2020 exams...Pls do watch..wl clarify your doubts
The above video contains some very practical tips for prepration for CA exams...these tips will help u save a lot of.time and increase your efficiency
Important Update guys...Facility of changing exam centre shall open from 7th June for August 2020 exams.
centre change appliction.pdf
100 KB
Emailing centre change appliction.pdf
Students who wish to Opt out of July 2020 exams or change the exam centre, can follow the procedure explained in video