Oh the Irony of Wall Street Speculators Being Forced to Take Possession of Oil They Gamble On

By AFP Staff

Wall Street speculators, who gamble on the price of commodities like oil, drive up the price, and make a few bucks, could be forced to take possession of physical barrels of oil as the price of oil continues to drop to record levels during the global pandemic. It is a sweet irony that is coming out of these tough times.

By some estimates, Wall Street speculators, who never produce or even touch a commodity like oil, drive up the price of gas for Americans by as much as $30 to $60 per barrel. This means that hardworking Americans pay money out of their pockets for nothing else but so others may profit by doing nothing but gambling on the market price of oil.

Now, as the price of a barrel of oil has plunged into the negative territory, these speculators, who have gambled on future prices, could be stuck with having to take possession of that oil or lose huge amounts of money. The image of millions of barrels of crude oil being delivered to mansions in the Hamptons was being tossed about by critics of Wall Street, who understand the game and have been critical of financial speculation for many years now.

The New York Times reported on this phenomenon with oil prices in an April 20 article.

“Oil prices have skidded as travel restrictions and lockdowns to contain the spread of the coronavirus curbed global fuel use, with demand down 30% worldwide. That has resulted in growing crude stockpiles with storage space becoming harder to find,” reported the Times. “The main U.S. storage hub in Cushing, Oklahoma, the delivery point for the U.S. West Texas Intermediate contract, is now expected to be full within a matter of weeks.”

In fact, reports The Wall Street Journal, oil was actually trading in the negatives on April 20, meaning oil producers were actually paying people to take stock off their hands. It looks like futures have stabilized, though, with oil projected to trade in the $30 range in the coming months.

In another article on these strange times, the “Midland Reporter-Telegram” explained what happens next this way: “Permian Basin oil producers were likely not surprised Monday morning when crude prices began falling on the New York Mercantile Exchange. But as the day progressed, they watched with deepening disbelief as prices not only continued to fall but, for the first time since futures trading began, turned negative—significantly negative, closing at -$37.63. Plains All-American issued a posted price bulletin with the price for West Texas Intermediate at -$41.25.”

Kirk Edwards, president of Latigo Petroleum, told the Midland Reporter-Telegram, “You are seeing the May contract that has two more days left on it. What is happening is all of the oil speculators got caught trying to hold the May contract too long. If they can’t sell it, they have to take physical delivery of the oil, which, of course, no one can do since there is no storage. This is called a short squeeze and it is devastating to those speculators. I bet there are some bankruptcies just from today’s actions.”

This is part of the reason why some government officials are agitating so hard to re-open the economy despite what recommendations from scientists and doctors to maintain the social distancing for at least another month while testing and new treatments ramp up for covid-19.

Sen. Ted Cruz (T-Texas) took to Twitter to relate what many in the oil market are saying: “Absolutely devastating. As I wrote in @dallasnews, the best way out of this crisis is to safely re-open our economy. U.S. energy producers are on the brink of bankruptcy and millions of jobs, as well as our hard-earned energy independence, hang in the balance. There are steps Congress and the admin can take now to help weather this storm, including funding the [Strategic Petroleum Reserve] and ensuring energy producers have critical access to capital. We will defeat this pandemic, and when we do, we will need our energy producers to help fuel our economic recovery.”