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I saw the price of oil did something at about 1 PM Eastern time that is really bizarre: it went negative. This means that you get paid to take oil off the field. But, the oil price is negative now, and I think it could go lower. So, I would like to make money. Is there a way to flare oil offsite without safety risks? Could we drive nonstop on the highway just to burn gasoline in order to get paid at the gas station? Just curious on if it is feasible to make good money from this.

Rodrigo de Azevedo
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    I don't think the EPA would like you burning tens of thousands of barrels of oil, and there's a lot that has to happen to go from crude oil to gas in your tank. – D Stanley Apr 20 '20 at 20:04
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    The price at the gas station is not going to go negative. Start with the negative price of raw crude and add costs of transportation (still positive, as pipelines need to be maintained and tank trucks need to be driven) and refining (still positive) and taxes (still positive) and you're taking off a few cents at the pump but not even changing the order of magnitude, let alone going below zero. – Ben Voigt Apr 20 '20 at 20:04
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    Technically, you don't take it from the field, for each WTI futures contract there will be 1000 barrels in a tank farm in Cushing OK, that you have to arrange to move or pay to store. – user662852 Apr 21 '20 at 07:00
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    It's worth pointing out that damaging the environment and people's health, while wasting resources that do have value except for a quirk of unstable markets, in hopes of making a quick buck, is profoundly unethical regardless of whether it's possible. This is a shameful proposal. – Reid Apr 21 '20 at 22:36
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    If all you want is gasoline, what are you going to do with the other 53%? - How much does it cost to refine a barrel of crude oil? : $89, from which you can extract $63 worth of gasoline, assuming you have the equipment to do so and the EoS to make it profitable, but if you aren't selling the other 53% ("20% is heating oil, 8% is jet fuel, 18% natural gas" - 7% "the rest being coke, greases and asphalt"), then you're minus $26 a barrel. – Mazura Apr 21 '20 at 22:54
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    You'd need to get paid $115 per barrel to break even selling just the gasoline, and that's ignoring operational costs. - You can make money on it if you own storage and a cracking tower; basically everything they have in The Road Warrior, besides the derrick. – Mazura Apr 21 '20 at 23:01
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    @Reid Last sentence of OP is obvious sarcasm to make a point. There are jobs called trucking and essential services that already get good wages to not mindlessly waste fossil fuels. – NoBugs Apr 22 '20 at 03:20
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    Generally speaking, if you could reasonably make a profit doing it, so could everyone else. If everyone could make a profit doing it, the price of the barrels would go up until an equilibrium is reached. The few notable exceptions to this tend to be illegal or morally questionable. – Rob P. Apr 22 '20 at 04:55
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    Now I wonder if sales tax on a negatively priced asset means I'm getting money from the tax man for buying the negatively priced stuff? :) – gerrit Apr 22 '20 at 14:51
  • Put that stuff in your tank, and you'll be going nowhere! Probably helping to stem global warming, etc., so go for it!!! – Tim Apr 23 '20 at 07:31
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    @Reid Isn't that how capitalism works though? You try to profit, without breaking the rules / law. The environmental damage is subjective. Ethicality is also sets of subjective rules. – Tom Raganowicz Apr 23 '20 at 09:27
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    @RobP. If there's a legal but morally questionable exception, that means that the only way to make a profit is morally questionable. That's probably the case more often than we'd like it to be. – JollyJoker Apr 23 '20 at 10:02
  • @Tim it would probably run an old school diesel tractor, or bunker oil engine. But yeah. Not your everyday pick-up truck. – Stian Apr 23 '20 at 10:19
  • To see why this won't work, consider getting rich by taking up a loan. We have had negative interest rates in the EU for years, and some fraudulent pseudo-banks even advertize negative interest on loans. So, yeah sure, I'll happily take a 100 million loan, and get paid a -0.1% interest for doing so! Except, well except it's all lies (or call it "creative accounting" if you will). Nobody is going to pay you for taking their oil (or gold, or diamonds), and nobody is going to give you money and pay you to take it. And no, nobody is going to sell you a "free money" future contract or such. – Damon Apr 23 '20 at 12:30
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    @RobP. I'd cross out "morally questionable" from that list. The only exceptions are illegal things. If it's legal but morally questionable, there are still plenty of people doing it. – user253751 Apr 23 '20 at 14:30
  • @NeverEndingQueue the environmental damage is not subjective. Evidence can be obtained for or against its occurrence. Whether we care about it, is what’s subjective. – jez Apr 23 '20 at 19:18
  • @RobP. I would question the "everyone else" could part. Different people are good at different things, presumably a negative price could attract those who might have an advantage at storage and/or using the product for something at this particular price point and time. –  Apr 23 '20 at 20:20
  • @BenVoigt just a nitpick, but in Australia we are seeing a change in order of magnitude. Prices for standard unleaded petrol normally cycle between 170 and 130-ish cents per litre (i.e., of the order 10^3) and are now below 80 cents per litre (of the order 10^2). It only just barely makes the order switch, but it does get there. – Jim Cullen Apr 23 '20 at 23:09
  • @Michael - That's why I said 'Generally speaking'. The truth is that for every 10,000 people who aren't uniquely qualified/aren't experts, who think they see an opportunity to make a lot of money, real easy, 9,999 of them just haven't done enough research to realize it won't work. There is almost always an equilibrium between risk, reward, talent, ability, training, capital, etc, etc...such that there is never 'easy money'. If they have to ask, the answer is always 'no'. The price of oil wouldn't be negative if regular people could (reasonably expect to) make money buying it. – Rob P. Apr 24 '20 at 07:54
  • @RobP. True, but given some of the answers showing exactly how negative it would have to be for the "average" person to make money leads me to believe that there are quite a few people - experts even - actively participating in the market who can make money above that level which have prevented the price from being bid far more negative than it actually was. –  Apr 24 '20 at 18:35
  • @NeverEndingQueue Capitalism works when everyone follows the rules. Some rules are written down; most aren't. Following only the rules that are written down and you can't weasel out of isn't capitalism. – Reid Apr 27 '20 at 15:16
  • @Jim, wouldn’t it have to be above 316 to round up to 10^3? – prl May 18 '20 at 15:09
  • Ah whoops. I meant to say 80 is of the order 10^1 and 316 is 10^2. Always truncating rather than rounding. – Jim Cullen May 20 '20 at 11:12

10 Answers10

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Sure you can make money from this. Just get paid to take barrels of crude oil from a producer, take them home, and sell them to someone once the price increases. Problem is:

  1. Do you know the laws and regulations for transporting and storing crude oil?
  2. Would an oil producer just pay you, an individual, to haul off crude oil in their pickup? I doubt it. They deal in increments of hundreds of barrels, can you handle that many?
  3. Who would buy barrels of crude oil from some random individual like you?

Could we drive nonstop on the highway just to burn gasoline in order to get paid at the gas station?

The gas station will not pay you to get gas. People are still driving around so there is still some demand for gasoline/diesel. Crude oil is the only thing with a negative price. Lots of overhead costs and refining costs to create gasoline.

So in reality, no, you cannot make money from this.

Nosjack
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    What's worse is that the 'barrels' being talked about are units (like liters), not physical barrels. If you were to 'buy' 100 barrels for negative $3,000, you'd have someone in a tanker show up and ask what to pump it into. No handy dandy barrel included. – Carl Kevinson Apr 21 '20 at 19:33
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    Also the contracts being traded here generally operate at the scale of 1000 barrels. So you need to hold at least 1000 barrels. – David says Reinstate Monica Apr 21 '20 at 21:38
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    Also, the specific contract that went negative is specified for delivery through a pipe in Oklahoma. – Riking Apr 21 '20 at 23:05
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    @CarlKevinson "No handy dandy barrel included" — what? This is bullsh—. I want my negative money back. – Paul D. Waite Apr 21 '20 at 23:22
  • @PaulD.Waite if you had your negative money back wouldn't you be paying someone instead? – user17915 Apr 22 '20 at 01:01
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    @user17915: huh, I guess so, maybe. If they give me a barrel I'll be happy. – Paul D. Waite Apr 22 '20 at 01:36
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    @CarlKevinson In fact I think you would be expected to provide the tanker. – Taemyr Apr 22 '20 at 10:50
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    also, crude oil is extremely toxic and could easily kill someone who doesn't have the equipment and training to handle and store it. – Woodrow Barlow Apr 23 '20 at 13:45
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    @WoodrowBarlow I don't read these data sheets for a living, but it looks like a normal level of toxic to me, not "extremely" toxic. – user253751 Apr 23 '20 at 14:32
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    @Taemyr Worse than providing a tanker, I think it is expected that you have fixed storage space in Cushing, OK already connected to the pipelines there. – Drew Stephens Apr 24 '20 at 14:47
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The way to make money off of this would be to buy the futures contracts that are negative then hope that it goes back positive (or at least less negative) before they expire tomorrow. There's no practical way for a retail investor to take delivery of the oil, so the only option is to sell the contract before it expires.

D Stanley
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    If you're lucky enough to have a broker that can handle negative prices. My broker forced everyone to close their oil futures positions yesterday before it went into negative territory. They had no idea what would happen in that unprecedented situation. Their trading platform doesn't even support entering negative prices for orders. – 7529 Apr 21 '20 at 13:40
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    @7529 But negative prices are not that uncommon (though not in the case of our usually beloved oil). For example, money nowadays can have a negative price. Or just think about a property that would be worth 1000$ if there were no toxic chemicals buried in the ground that take 2000$ to get rid of. - Dunno why a broker doesn't know how to handle the situation. (Then again, I recall all those software updates that were suddenly needed the first time interest rates became negative) – Hagen von Eitzen Apr 21 '20 at 18:04
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    @HagenvonEitzen How does money get a negative price? – SomeoneSomewhereSupportsMonica Apr 24 '20 at 01:17
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    @SomeoneSomewhereSupportsMonica exactly. Money can't have a negative price, borrowing money can have a negative price. – Erwin Bolwidt Apr 24 '20 at 13:21
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There is nothing really unique to oil here. There are many other things which have a "negative price", and they have it always, not just temporarily like in the case of oil. Waste (especially dangerous chemical or nuclear waste) is one of the most obvious examples. People will literally pay a lot of money (much more money than the current negative oil price) to others who take it away from them.

So, could you make money off accepting nuclear waste and getting payed for taking it away? Sure, if you have the facilities, the permits, the technical expertise, the infrastructure and the highly trained specialists who know how to handle it without causing an environmental disaster. And only if the costs of investing in and maintaining that infrastructure is lower than the amount of money you receive from taking the waste, because otherwise you would operate at a loss. Could you do it as a random person without any expertise and any significant investments in the field? Nope.

Similarly with crude oil. If you have the facilities to store them, sure. Do you have them? They are complex enough that you can't just build them overnight in your backyard. They are expensive to build, and cost a lot of money to maintain. You need a crew of maintenance staff, and many other expenses. Probably the government also requires you to have some certifications.

Another way to make money off of it is to buy it at, let's say, -30 dollars (the seller pays you 30 dollars if you promise to take it) and then find someone who will buy it from you for -20 dollars (you pay them 20 dollars if they take it from you), so you make a profit of 10 dollars without having to even look at the physical oil. The problem is, what if you can't find anyone willing to take if from you for -20 dollars (as you likely don't have the millions of dollars to buy an oil tanker or build a storage facility). This is why it's called speculation. Basically not all much different from gambling. And in this case, buying something for -30 and hoping to sell it for -20 is not at all different from buying it for 50 and hoping to sell it for 60.

And finally, some generic advice about "wondrous opportunities". If something is so easy to do that basically anyone could do it without any expertise or any significant capital, then either

- you are the first person on the whole planet who came up with the idea, in which case you have a chance to get rich before anyone else figures it out. (This basically never happens in the financial world, as you have many competitors with a huge army of experts.)

- or the most you can get out of it is minimum wage.

lly
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vsz
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  • "...is not at all different from buying it for 50 and hoping to sell it for 60." - Except that the loss is not directly linked to the price. – Taemyr Apr 22 '20 at 10:58
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    @Taemyr : My point is that buying something at -30 and hoping it will get up to -20, but then ending up with it dropping to -40 will end up with the exact same loss as buying it at 50, hoping to sell it for 60, but then the price dropping to 40. And in neither case (-30 starting price or 50 starting price) do you have the infrastructure to get it physically delivered to you, so in both cases you will have to sell it before its expiration date. – vsz Apr 22 '20 at 12:36
  • what if you can't find anyone willing to take if from you for -20 dollars — well? What then? According to answers here, the oil wouldn't be actually delivered to Wall Street. What happens instead? – gerrit Apr 22 '20 at 14:55
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    @gerrit : You would then be forced to sell it for example for -40, so you'll be at a loss. And if you didn't sell? I would guess lawsuits and fines, but I'm no legal expert. You might want to ask this as a separate question at law.stackexchange. – vsz Apr 22 '20 at 15:34
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    @gerrit So suppose you payed me 30$ to take your toxic waste, and then I refused to actually take it. Sure I "can" do that, and you'd not even get consumer protection as this is supposedly B2B, but I'd get in contract law trouble anyway. – mafu Apr 23 '20 at 07:08
  • @mafu Yes, but if I'd pay you $30 to take my toxic waste I'd verify you have the ability to take it at all, I'd be looking up references. Apparently those future traders are now being paid to take oil when they don't have the ability to take it, they just hope to find somebody who will. That sounds like risky gambling to me. – gerrit Apr 23 '20 at 07:34
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    What a nice explanation. I spent a while the other day trying to explain this to people ... if I'd come here first I could have saved myself some time. – Bean Taxi Apr 23 '20 at 10:26
  • @gerrit I think all the brokers know this which is why they will sell the oil for you, the day before it's actually due for delivery, even if you don't. (Unless there's absolutely nobody who wants the oil, not even for a million dollars a barrel. I don't know what would happen then) – user253751 Apr 23 '20 at 14:36
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    @gerrit: “Paying someone to take the waste away” shouldn’t be taken too literally. What is being sold here is the ownership of the oil, waste, or whatever, which is distinct from paying someone to actually move the stuff around. When you pay me to take ownership of your waste, it probably stays in the same store, and you don’t need to verify my facilities: what you’re paying for is that I take legal responsibility for handling it. I also acquire the rights to it. Usually, for oil the rights would outweigh the responsibilities, and vice versa for waste; but as now, that can change. – Peter LeFanu Lumsdaine Apr 23 '20 at 17:30
  • @PeterLeFanuLumsdaine Shouldn't it? If I have waste on my property and I pay you to get rid of it, I expect you to do so (or have someone else do so)... – gerrit Apr 23 '20 at 17:51
  • @gerrit : and that's exactly what happens. I, as a broker, make a contract with you that I will take that waste from you. Then I will go to people who actually have the means to do so, and sell that contract to them at a profit. Why do you choose me instead of going to those people yourself? Because in exchange for the profit I make in this I also overtake a large portion of the risk: if, nearing the deadline, the demand has changed, it might happen that fewer people want to buy that contract from me so I will have to sell it at a loss (up to and including paying them to take that contract). – vsz Apr 24 '20 at 05:52
  • @vsz Yes, and if you fail to find people who take that waste from me I'm going to be complaining to you. – gerrit Apr 24 '20 at 07:42
  • @gerrit Indeed. And for me to avoid such a lawsuit, I would be inclined to offer lower prices, (even going negative), until someone does want to take it from me. The fewer people can take it, the higher this price will be (so the more "negative" the value of the commodity). For example, if the value of oil is 50 dollars but storing or disposing it costs 80 dollars (as storage is limited) then it will sell for -30 dollars. Those who can store it cheaper than 80 dollars will want to buy it for -30 or less, and those who can't, will want to sell it for -30 or more. This is how the market works. – vsz Apr 24 '20 at 08:31
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The price for physical barrels filled with crude oil isn't actually negative right now in most regions of the world. If you need a barrel of oil for your petroleum refinery, then you will at least have to pay for someone to deliver it to you.

What's negative is the price for futures contacts for oil.

What's a futures contract on a natural resource, you ask?

A futures contract is a piece of paper which says that the owner of this paper will receive these physical natural resources. Investors tend to buy and sell such futures contracts on the open market in order to make profits from price fluctuations. However, the vast majority of these investors don't actually need any crude oil. They never intend to receive a physical delivery. Their intention is to sell those futures contracts to someone who does before the date is reached, hopefully for more than they initially paid for it.

Usually that's not difficult, because oil is always in high demand. But right now, it's suddenly not. So there are more oil futures contracts on the market than there are people who actually need oil. So there are investors who are sitting on contracts.

The problem with these contracts is, they aren't optional! Whoever owns these contracts at the due date, must accept those physical barrels of oil. Which most investors can not, because they work from a desk. They don't have any means to transport or store crude oil. So the investors are desperate to get rid of these contracts. So desperate that they are willing to pay people to take them off their hands.

For more information on this topic, check out the answers to the question What happens if I do not honor a futures contract?

Should you let people pay you to take oil futures contracts off their hands right now?

Only if you are certain that you will find someone you can sell them to before the due date or if you actually happen to have access to a facility which has the means to store large amounts of crude oil.

And no, you can not just store barrels of crude oil in your backyard. It's hazardous material. You very likely need a license for that, and you will only get that license if you can ensure it won't spill into the ground or catch fire.

Philipp
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    What happens if those "Wall Street" investors fail to sell their oil futures even at a negative price, when they cannot take delivery? Sued for breach of contract by whoever physically holds the oil right now? – gerrit Apr 22 '20 at 15:03
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    @gerrit They will likely have to pay a penalty for breach of contract to the physical owner of the oil. I have also read some opinions that they will then have to pay a company to dispose of the oil as toxic waste. – Philipp Apr 22 '20 at 15:08
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    This may be better asked as a separate question, but couldn't you "buy" these futures contracts, receive the payment and then deny that you own them? It's not as if there is a blockchain or anything to prove who currently owns them. – JDL Apr 23 '20 at 09:11
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    @JDL I am not familiar with the details of futures exchanges, but I would assume that such trades either go through an exchange or through the oil company whose oil is subject of the futures contract. So they are always aware of who they currently have the contract with. A futures contract is a bilateral contract, not just a financial instrument. – Philipp Apr 23 '20 at 09:58
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    The price of the futures contract should converge on the price of the actual good as the contract nears expiration, right? So that means actual oil should have actually been negative (at that time at that exchange). – user253751 Apr 23 '20 at 14:37
  • @gerrit : ... well, the price can get even more negative, until there comes someone who accepts it. The current price is highly likely around the cost of storage, so that the "average" storage owner would get even. Someone who can arrange for a cheaper storage could be inclined to take the offer, and if not, then take it later when the price drops even lower. – vsz Apr 23 '20 at 16:33
  • @user253751 "The price[s] should converge ... right?" Not at all. In fact, it is very normal for prices to drop when nearing the delivery date. The holder of the futures contract, likely a speculator, does not have the capability to take physical delivery and so must sell, with an increasingly diminishing time to do so. The people who are able to take delivery are a minority and don't necessarily need to buy. This imbalance of power towards the buyer is what creates the divergence. – Michael Apr 24 '20 at 12:15
  • @JDL You might be interested in this question: What happens if I do not honor a futures contract? – Philipp Apr 29 '20 at 08:44
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Free WTI oil is available if the buyer has oil storage. Quantities available are in increments of 500 barrels. But the sale ends tomorrow.

Now stored oil has significant value.

S Spring
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    but storing barrels costs a lot, that's basically why prices went negative when it becomes cheaper to give money to get rid off it instead of keeping it. Same story if you pay a local box to store you old car. In the end you're better off paying someone to throw it away instead of paying monthly rent. – None Apr 22 '20 at 02:40
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    The cost to store large quantities of oil can be less than the contango value that can be earned. Otherwise there wouldn't be trading companies that arrange future delivery. But presently oil storage is full and that means that the cost of oil storage is higher which then means that those with oil storage benefit from a resulting higher contango. – S Spring Apr 22 '20 at 19:42
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There are very large companies that do this every day at high volume. Their processes are extremely efficient, and the price of oil will raise or lower to exactly the right price for these very large companies to continue to do it efficiently while still making a profit. So really this question boils down to whether it's possible for a layman to perform the physical process without any infrastructure in place, and also do it as efficiently as the existing companies do. The answer is obviously no.

TTT
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The (somewhat) realistic way to make money from this would be to own, or have the ability to construct before the end of May, regulation-compliant oil storage space in Cushing, Oklahoma. Or in places connected to Cushing via pipeline (there are several big pipelines converging in Cushing), though in that cases you'd also need to pay for capacity in the pipeline. An additional option would be to buy or rent an oil tanker and have it take on the oil in Huston, Port Arthur or Freeport (there are, you guessed it, pipelines from Cushing to those ports).

What all of these options have in common is that they incur considerable cost, and involve paying for things (construction work in Cushing, oil tankers) that are currently in extremely high demand for this reason. And some of that cost is ongoing, with no guarantee that you'll be able to sell the oil at a profit anytime soon.

Which is exactly the reason why those contract prices went negative.

Michael Borgwardt
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Basically no. You have to have the ability to store significant amounts of oil and be able to take delivery immediately. Do you happen to have an empty oil tanker in the Gulf of Mexico? No? Well, you are out of luck then.

This is very short-term and limited in scope phenomenon - it won't propagate along the delivery chain, you won't be seeing any gas stations giving you money to pump gas.

ventsyv
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One could theoretically find a trading platform which both allows oil prices to go below $0, and also has an associated fee in its fees. If they charge 1% of a transaction, and that transaction is for -$300, the bug could cause them to credit you by $3, rather than charging you.

Then sell the futures quickly, before the price has changed enough to wipe out your gains.

Incidentally, a number of trading platforms I’m on have halted trading when the price dropped below $0, and I think it’s likely to prevent situations like this.

Tim
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Just considering the Finance & Money focus here (and skipping the messy physical oil handling) you could invest in an ETF that follows the oil industry like ProShares Ultra Bloomberg Crude Oil (ticker = UCO). Obviously when everyone goes back to work after the virus activity, the demand for oil will go back up and the price will start rising. Oil futures will go back up, and you will have your money in early while oil futures are beat down.

It's really no different from putting money in UDOW while markets are down. Once markets are back up again, that could be a nice windfall.... theoretically.

John Joseph Morga
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  • Securities positions in oil, held against extreme contango, will have immediate short term losses if the price of oil just holds. Physical oil can be held to earn a premium of a future delivery but that oil is hedged such that the only profit is the premium of future delivery. Or a sell of a long-term futures contract, while holding short-term oil as a futures or as an ETF, can benefit from oil just holding it's price. That position is usually also expected to benefit from a rising price but is hurt by a declining price. – S Spring Apr 22 '20 at 20:20