The Full English Accompaniment – Oil’s sticky slide

It’s been a funny old week. The price of oil fell through the floor, getting below a dollar a barrel (1). Makes a good headline.

The measure we’re talking about is a West Texas Intermediate (WTI), although Brent Crude also saw a substantial slide. Why this happened is also fairly straightforward; this is a futures market. These were traded prices of a barrel of oil to be delivered before the end of May. Worldwide demand for oil has slumped due to global lockdown, and the storage facilities are full. Ergo, if you hold a contract for oil to be delivered in May, and there’s nowhere to store it and nobody wants to buy it then what the hell do you do with it? Flog it quick (2, 3, 4). And if you can’t? Well there’s always the probably apocryphal story of the futures trader who took delivery by accident (5).

This had wider knock-on effects. The contract price for June also started to drop (6). Oil specific ETFs re-structured (7). With stock investors banking on the “Fed put” (8), the business front-page looked even more oxymoronic.

Futures markets for oil fall well into the realm of day trading that I consider speculation rather than investing (can you tell I’m reading The Intelligent Investor). Easy to lose money quickly, as Barstool Sports founder Dave Portnoy shows; down $647,000 (9).

Slow and steady wins the race, and oil futures ain’t that. Oil’s a dying business. Renewables are getting dramatically cheaper (10). Frugality, environmentalism and renewable energy sources go hand in hand (11). Big oil companies are moving to other energy sources, pivoting to the wind (12). The DIY Investor UK is evidence the growth of renewable energy can provide financial growth (13).

Leave the speculation and drama to the day-traders and the headlines.

Have a great week,

The Shrink

News:

Opinion:

References:

  1. https://www.economist.com/graphic-detail/2020/04/20/american-crude-oil-has-fallen-to-less-than-nothing
  2. https://moneygrower.co.uk/explaining-the-negative-oil-price/
  3. https://www.foxymonkey.com/gemfinder-q1-2020-free-oil/
  4. https://www.cnbc.com/2020/04/22/billionaire-investor-howard-marks-calls-oil-crash-completely-rational.html
  5. https://thedailywtf.com/articles/Special-Delivery
  6. https://www.bloomberg.com/news/articles/2020-04-21/oil-meltdown-spreads-beyond-expiring-contracts-as-wti-slumps-42
  7. https://www.ft.com/content/11cf8aeb-2d74-4c25-a111-943be6d8bf39
  8. http://bankeronfire.com/doom-gloom-and-negative-oil-prices
  9. https://www.businessinsider.com/barstool-sports-founder-dave-portnoy-tries-day-trading-and-loses-2020-4?r=US&IR=T
  10. https://theescapeartist.me/2018/01/07/is-renewable-energy-now-cheaper-for-you/
  11. https://www.frugalwoods.com/2017/05/26/you-cant-buy-your-way-to-green-how-frugality-is-environmentalism/
  12. https://www.theguardian.com/business/2018/dec/26/shell-says-it-wants-to-double-green-energy-investment
  13. http://diyinvestoruk.blogspot.com/2020/04/portfolio-review-to-end-march-2020.html
  14. https://www.bbc.co.uk/news/business-52371062
  15. https://www.bbc.co.uk/news/business-52390860
  16. https://www.theguardian.com/business/2020/apr/22/cornish-copper-find-metal-mining-industry
  17. https://firevlondon.com/2020/04/19/my-isas-need-a-topup/
  18. https://theescapeartist.me/2020/04/24/how-the-magic-money-tree-works/
  19. https://gettingminted.com/short-term-thinking/
  20. https://averagemoneymanagement.wordpress.com/2020/04/19/prioritising-goals-at-the-beginning-of-your-fire-journey/
  21. https://www.finumus.com/blog/grinding-halt
  22. http://bankeronfire.com/key-reflections-and-takeaways-from-our-most-recent-net-worth-update
  23. https://zerotofreedom.org/simply-investing-report-review/
  24. https://earlyretirementnow.com/2020/04/22/three-equity-investing-styles-that-did-ok-in-2020/
  25. https://sparklebeeblog.wordpress.com/2020/04/22/hows-lockdown-going/
  26. https://indeedably.com/character/
  27. https://pathtolife2.com/2020/04/24/the-thrill-of-a-free-share-starting-my-mini-share-portfolio/
  28. https://medfiblog.wordpress.com/2020/04/24/to-me-to-you/
  29. https://playingwithfire.uk/car-finance-why-it-is-stopping-you-reaching-your-financial-goals/
  30. http://diyinvestoruk.blogspot.com/2020/04/google-portfolio-addition.html
  31. https://monevator.com/the-alchemy-of-turning-uncertainty-into-risk/
  32. https://monevator.com/the-reality-behind-investment-trust-revenue-reserves/
  33. https://monevator.com/how-diversification-worked-during-the-global-financial-crisis/
  34. http://www.moneyforthemoderngirl.org/thought-experiment-covid-19-edition/
  35. http://quietlysaving.co.uk/2020/04/21/thought-experiment-10-covid-19-edition/

 

 

 

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