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How Oil Went Negative? Oil Price Crashes! - YouTube
Channel: Learn to Invest - Investors Grow
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hi I'm Jimmy in this video we're gonna
look quickly at what's been happening
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with oil and what's been causing all the
crazy volatility in oil prices over the
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past few days especially but even over
the past few months okay so for those of
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us who didn't get a chance to see oil
prices yesterday well for the first time
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ever oil prices went negative and as we
can imagine this took a lot of people
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off guard since well it's never actually
happened before but I do think it's very
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important for us to realize what's
really going on with the price of oil
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and how oil prices could possibly go
negative like this okay so I'm sure
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we've all heard people say things like
oil futures are up two dolls are down
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two dollars or in the case of yesterday
oil futures went negative for the first
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time ever but the most important word
for all of us to recognize in those
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statements is the word futures because
oil isn't traded let's say the same way
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as a stock is traded sure when we look
at a chart like this it might seem like
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this is the exact price of oil over this
entire period of time and that is sort
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of true and even when we switch over to
a long-term chart well this chart goes
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all the way back to 1984 and we can see
that this drop into negative territory
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was truly unprecedented this is the
first one of its kind and just so we're
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all on the same page WTI has been the
benchmark price for American oil for a
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long time much like Brent oil generally
represents global oil WTI has
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represented American oil so just so
we're on the same page WTI is all that
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comes out of West Texas but what's
interesting about this is that when
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investors talk about the price of oil
generally they're referring to the price
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of a futures contract and oil futures
are monthly contracts that very
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importantly have expiration dates today
is the expiration date for the May 2020
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contracts
so our question is what happens to oil
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prices after the may contract expires
today well just like WTI does every
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month through this entire time period
the generic oil
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that we see on Yahoo Finance or CNBC or
Bloomberg or whatever it is
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we'll roll forward to the next month
which is June of 2020 now we might ask
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how do June oil prices look right now
and as you can see on this one-year
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chart for the June contracts
specifically well oil is down for sure
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and it should be but as we could see
it's trading at about $20 per barrel so
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I'm not sure what's going to happen
today with the price of oil but I do
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know that tomorrow the price of oil that
we see online or on TV or whatever it is
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is going to reflect the June contract
and the may contract will no longer
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exist so we switch back here to the
one-year WTI oil price well it's
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important for us to recognize that this
chart is really a series of future
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contracts that expired and rolled into
the next one so it's a series of
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contracts that have been broken up you
just never really see it we never really
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get to look at it because it's it
appears to be one one streaming price
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even though it continues to change from
contract to contract okay so let's
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imagine that on Wednesday tomorrow the
price of oil does snapback and let's
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imagine that nothing crazy happens today
the day were released in this video and
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oils still in about 12 oz of $20 range
well that doesn't necessarily explain
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while the drop yesterday in the May
contracts were as drastic as they were
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and there's actually a few contributing
factors to this that sort of explained
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the craziness of this perfect storm for
oil prices so first is tied to traders
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so like I said before oil is consisting
of a whole bunch of contracts oftentimes
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commodities traders get involved in a
single contract and they don't actually
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want the oil they're just trading it
this is a financial transaction for them
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they don't want the oil so as expiration
comes up on them in the case of
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yesterday when oil went nuts well it was
two days away as that approaches
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generally what they do is they get out
and they roll into the next contract
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what happens when you get a whole bunch
of commodities traders jumping out at
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the same time well supply and demand
kicks in and the price of crude oil
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begins to go down in this case way down
now clearly the change of contracts
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isn't the only thing happening thanks to
the coronavirus demand for oil is
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virtually at a standstill gasoline sales
are way down
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jet fuel sales are way down
manufacturing is way down they use a lot
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of oil and as we know on top of all of
that Saudi Arabia and fan Russia have
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been going at it a decent amount and
they've when they're going at it in this
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spat over production they end up
producing more so this really has been
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the perfect storm for oil prices so much
so that it's being reported that storage
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facilities for oil are getting maxed out
and since there's no real demand this is
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becoming a real problem for oil
producers so it's really difficult to
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tell how this is going to shake out we
are truly in unprecedented times if
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we're currently looking at energy stocks
I think it makes sense to try to focus
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on energy companies that have enough
cash to outlast the coronavirus and it's
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impossible to know how long their virus
is actually going to suppress demand so
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we need to find companies that can
weather that storm the other issue is a
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lot of these companies in the energy
industry don't have a ton of cash if we
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think it makes sense for me to do some
research to see if I could put together
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a list of maybe top three or top five
energy stocks or something along those
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lines please let me know in the comments
below that could be an interesting
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amount of research to do during these
crazy times and if you happen to know
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any energy companies maybe some storage
energy companies please let me know
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those in the comments below as well
another choice for us is to simply go
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out and pick an energy ETF and then sit
and wait for this time to pass now i
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actually did a video recently where i
look at what's better stocks or ETFs and
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if you're curious that could be a good
next video for you to watch there's a
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link right here and there's a link in
the description below and i want to
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thank you so much for sticking with me
all the way to into the video I really
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appreciate it thanks and I'll see in the
next video
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