Oil just closed at NEGATIVE $37 (bankruptcies ahead)

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Oil just closed at NEGATIVE $37 (bankruptcies ahead)

Joe Cassandra
Rental Property Investor · Woodstock, GA · Member since 2017 · 517 posts · 772 votes

If you follow the financial market...

Oil just closed at NEGATIVE $37. Meaning, oil producers are paying to have their oil taken off their hands. (just 7 years ago, oil cost over $100 per barrel)

There are many people that think we will see a V-shape recovery once the economy opens up again. 

We're about to see massive bankruptcies in oil. 

...oil employs 500,000 Americans alone...many are losing their job.

...towns that boom thanks to oil...rough times ahead

...retirees living off oil dividends...broke

...banks financing these oil companies...losing money hand over fist

...holders of junk oil bonds and companies loaded up on debt...bankrupt

...countries that rely on oil production to make their economy run...recession

None of this is meant to scare anyone as there are still a lot of UNKNOWNS. 

But for anyone: 

1) thinking the stock market is just "UP" from here...be careful

2) thinking the economy is about to go back to normal...be careful

3) thinking this is just a 'short term' recession... be careful

I'm an optimist, but it's important to tread carefully based on external economic factors. Yes, this recession is not caused by real estate bubbles like 2008, but it will feel affects.

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Charles East
Rental Property Investor · Augusta, GA · Member since 2018 · 58 posts · 51 votes
6y

Oil producers aren’t selling oil at negative prices, speculators are selling to close their futures positions prior to expiration because they aren’t able to or don’t want to take physical delivery of 1000 barrels of oil. 

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  • Kevin Paglia
    New to Real Estate · Las Vegas NV · Member since 2020 · 90 posts · 46 votes
    6y

    I come from Bakersfield which was dead center of Kern County.  An oil town.  when OPEC oil prices went up, Kern saw a boom in their oil value.  They will be hit hard by this as well.  BIG oil community not far from me where my parents and brother still live

    1Reply
  • Karen MargraveBusiness Member
    Moderator
    Realtor, General Contractor, and Developer · Redding, CA · Member since 2009 · 7k+ posts · 4k+ votes
    6y

    Remember, there are 2 sides to every coin. There are those that will create new technologies, find new treatments,create new ways to do business, etc and thrive from this. Sometimes just surviving is winning. Buckle up.. it may be a bumpy road ahead, and many will get to find out what they're made of. 

    5Reply
  • David Trevino
    Odessa Tx · Member since 2015 · 21 posts · 8 votes
    6y

    Im from odessa texas permian basin west texas is an oil boom town as well i also work in the oil and gas industry you could not find a single family home built in the 1950 2/1 900 sq ft for anything less then $1,800.00 this will have  massive impact always look at the positive side as so true 

    @Karen Margraveundefined

    3Reply
  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    6y

    I don't invest in one economy towns. At least Austin and some other parts of Texas have some Tech jobs and not just all oil. I don't like areas where one industry can make or break that local economy.

    Cheap gas can help people traveling once they can get out more and drive around. For oil producers about 60 dollars a barrel makes them ok money. Anything over 100 they usually do real well. When oil starts going over 100 a barrel it affects the economy and spending and most people's money is going into filling gas tanks instead of patronizing other businesses.

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    5Reply
  • Charles East
    Rental Property Investor · Augusta, GA · Member since 2018 · 58 posts · 51 votes
    6y

    Oil producers aren’t selling oil at negative prices, speculators are selling to close their futures positions prior to expiration because they aren’t able to or don’t want to take physical delivery of 1000 barrels of oil. 

    12Reply
  • Kris L.
    San Antonio, TX · Member since 2019 · 930 posts · 836 votes
    6y

    @Joe Cassandra

    It’s a small subset of futures contracts that couldn’t roll over that this happened to. Is a commodity equivalent of a short squeeze in reverse.

    6Reply
  • Joe Cassandra
    OP
    Rental Property Investor · Woodstock, GA · Member since 2017 · 517 posts · 772 votes
    6y
    Originally posted by @Joel Owens:

    I don't invest in one economy towns. At least Austin and some other parts of Texas have some Tech jobs and not just all oil. I don't like areas where one industry can make or break that local economy.

    Cheap gas can help people traveling once they can get out more and drive around. For oil producers about 60 dollars a barrel makes them ok money. Anything over 100 they usually do real well. When oil starts going over 100 a barrel it affects the economy and spending and most people's money is going into filling gas tanks instead of patronizing other businesses.

    I agree. The sweet spot for oil is about $85. That keeps demand about status quo barring any massive drill shortages. 

    Unfortunately, though, gGas is only a fractional part of oil demand. 

    50% of a barrel of oil goes to manufacturing goods: 

    Asphalt used in road construction is a petroleum product as is the synthetic rubber in the tires. Paraffin wax comes from petroleum, as do fertilizer, pesticides, herbicides, detergents, phonograph records, photographic film, furniture, packaging materials, surfboards, paints, and artificial fibers used in clothing, upholstery, and carpet backing.

    If people aren't buying those goods due to not having money...it's still going to keep oil down.

    Major issues arise with one economy countries (like those in OPEC) who live and die from oil. If their economies collapse, it could have a ripple effect.

    1Reply
  • Joe Cassandra
    OP
    Rental Property Investor · Woodstock, GA · Member since 2017 · 517 posts · 772 votes
    6y
    Originally posted by @Kris L.:

    @Joe Cassandra

    It’s a small subset of futures contracts that couldn’t roll over that this happened to. Is a commodity equivalent of a short squeeze in reverse.

     Yes, contracts for May. Once June rolls over, it'll likely crater again. The futures contract caused it to drop negative...demand will keep it at bearish levels. 

    Even if oil goes back to $15-$20, companies are bankrupt. (As mentioned above)

    This would only accelerate it overnight.

    1Reply
  • Chris Mackinlay
    Midland, TX · Member since 2015 · 90 posts · 75 votes
    6y

    We'll see what happens. I live in Midland, oil is the industry here.

    A lot of people in town are optimistic about coming out of it. If you've been in oil for any amount of time, you've seen ups and significant downs. Maybe not this significant, but like I said, people are optimistic and hopeful.

    I had 3 conversations today with people telling me to "buy oil"!

    2Reply
  • Pat L.
    Rental Property Investor · Upstate, NY · Member since 2012 · 3k+ posts · 3k+ votes
    6y

    "..I had 3 conversations today with people telling me to "buy oil"

    some are Already prepared :)

    7Reply
  • Victor S.
    WorldWide · Member since 2016 · 1k+ posts · 1k+ votes
    6y

    those traders didn't want to end up like Brad in this (fictional?) story: https://thedailywtf.com/articl...

    1Reply
  • Scott Mac
    Austin, TX · Member since 2019 · 5k+ posts · 5k+ votes
    6y

    Banks may take some pretty big hits from this virus thing too.

    And the only ones who always make money in commodities are: https://www.youtube.com/watch?v=7EjdC0pjo1A

    Just my 2 cents.

    0Reply
  • Joe Cassandra
    OP
    Rental Property Investor · Woodstock, GA · Member since 2017 · 517 posts · 772 votes
    6y
    Originally posted by @Chris Mackinlay:

    We'll see what happens. I live in Midland, oil is the industry here.

    A lot of people in town are optimistic about coming out of it. If you've been in oil for any amount of time, you've seen ups and significant downs. Maybe not this significant, but like I said, people are optimistic and hopeful.

    I had 3 conversations today with people telling me to "buy oil"!

     I agree oil will come back...how long is the hard question whether to invest :)

    1Reply
  • Joe Cassandra
    OP
    Rental Property Investor · Woodstock, GA · Member since 2017 · 517 posts · 772 votes
    6y
    Originally posted by @Scott Mac:

    Banks may take some pretty big hits from this virus thing too.

    And the only ones who always make money in commodities are: https://www.youtube.com/watch?v=7EjdC0pjo1A

    Just my 2 cents.

     Well the brokers may end up being the Federal Reserve by the end of this...not sure how they're going to balance out the oil market without a ton of bankruptcies here.

    1Reply
  • Bill B.
    Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
    6y

    Quick question:

    If fictional company A goes bankrupt in (insert state here) and new or existing company B buys their wells and assets/equipment at the bankruptcy auction. I understand company A gets hurt and the lender gets hurt, but does anyone else? Or is company B just in a much better position with a much lower capital cost?

    0Reply
  • Jarrod Frankum
    Wholesaler · Lubbock, TX · Member since 2015 · 103 posts · 85 votes
    6y

    I will pay $1 per barrel of oil. Looking for 5000 barrels.

    1Reply
  • Bill B.
    Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
    6y

    Dang it @Jarrod Frankum, I was going to say they only had to pay me $10 a barrel to take their oil. Then you go an undercut me actually paying for oil when OBVIOUSLY oil is a liability not an asset. Just read the news. 

    1Reply
  • Karen MargraveBusiness Member
    Moderator
    Realtor, General Contractor, and Developer · Redding, CA · Member since 2009 · 7k+ posts · 4k+ votes
    6y

    All I know is that I was driving down the street, saw a sign saying 1.98 a gallon and almost stopped the car to take a photo! Seeing 4.99 a gal in CA the lower price was exciting to see!! 

    1Reply
  • David D.
    San Diego, CA · Member since 2017 · 19 posts · 8 votes
    6y

    @Joe Cassandra They will be bailed out.

    1Reply
  • Joe Cassandra
    OP
    Rental Property Investor · Woodstock, GA · Member since 2017 · 517 posts · 772 votes
    6y
    Originally posted by @David D.:

    @Joe Cassandra They will be bailed out.

     Bailouts don't do anything if oil is still sub-$20. That's still highly unprofitable for any oil producer. It's like putting gas into a car with a leak in the bottom. It's a waste. 

    What would need to happen (much like the airlines did in the 2000's), they consolidate to conserve resources. Mass layoffs take place. Only then would a bailout make sense. 

    That would lay the groundwork for re-building.

    0Reply
  • Joe Cassandra
    OP
    Rental Property Investor · Woodstock, GA · Member since 2017 · 517 posts · 772 votes
    6y
    Originally posted by @Bill B.:

    Quick question:

    If fictional company A goes bankrupt in (insert state here) and new or existing company B buys their wells and assets/equipment at the bankruptcy auction. I understand company A gets hurt and the lender gets hurt, but does anyone else? Or is company B just in a much better position with a much lower capital cost?

    This is exactly what a consolidation of industry is. It's the normal cycles of every industry. 

    1) Lots of players in space

    2) Many go bankrupt or get bought out

    3) Industry consolidates...monopolies form...prices go up

    4) Something happens to break up industry again

    ----

    Full cycles that have happened: 

    1) Cable television. Now, there are about 4-6 major media companies. There used to be dozens in the 80's-90's. Now they're being disrupted by instant streaming

    2) Airline companies. There were many in the 90's...bankruptices and consolidation in 2000s...prospertieis in the 2010's...likely to see many new players enter in 2020. 

    3) Gold companies are going through massive consolidation as we speak. There were many that were created during the 2010-2012 surge in gold. Many are going bankrupt from lack of new findings. 

    4) Search engines ---> TONS in 90's. Only a couple now...who's going to knock off Google? 

    5) Social media ---> Facebook was a dominant player in 2000's...now many new ones are popping up. Facebook knows this cyclical cycle I'm talking about and trying to buy as many as they can. 

    ***
    I'm sure there are many other examples, but those are off the top of my head right now :)

    1Reply
  • Dennis Vo
    Long Beach , CA · Member since 2018 · 34 posts · 24 votes
    6y

    @Joe Cassandra, yes there is much uncertainty in our economy at the moment, but isn't this the best time for investors to get actively involved?  There are a few big companies in the energy sectors (as well as other industries) that will have a high chance of surviving the storm, and you can pickup their stocks for a 1/3 of their original prices (which you will never dream of buying those stocks at that value a few months ago).  If you diversified your selections well, the ROIs in the future with all the "qualified dividends and growth" will be phenomenal.

    I am still investing in my 401(K), simple IRA, Roth IRA, and Real Estate, but will diversify my portfolio with stocks when the value is this low.

    Opportunity + Research + Risk = Reward 

    Peace and good luck

    0Reply
  • Joe Cassandra
    OP
    Rental Property Investor · Woodstock, GA · Member since 2017 · 517 posts · 772 votes
    6y
    Originally posted by @Dennis Vo:

    @Joe Cassandra, yes there is much uncertainty in our economy at the moment, but isn't this the best time for investors to get actively involved?  There are a few big companies in the energy sectors (as well as other industries) that will have a high chance of surviving the storm, and you can pickup their stocks for a 1/3 of their original prices (which you will never dream of buying those stocks at that value a few months ago).  If you diversified your selections well, the ROIs in the future with all the "qualified dividends and growth" will be phenomenal.

    I am still investing in my 401(K), simple IRA, Roth IRA, and Real Estate, but will diversify my portfolio with stocks when the value is this low.

    Opportunity + Research + Risk = Reward 

    Peace and good luck

    Eh...you don't want to invest in individual companies right now.  You don't know who is going bankrupt and who isn't. Some companies will go bankrupt. Maybe they'll get bought out at fire sale prices and their stock doesn't go right to $0 (which is usually very unlikely), but it can still drop low. 

    Sure, something like the XLE right now is fine to invest in for dividend growth. 

    If you want to risk it with a lot of upside, you can try USO. 

    XOP is another interesting one that could triple. 

    Here's the issue: ---> we don't know how long this oil crisis could play out. How long are you interested in sitting on 0 - negative % returns? 

    I've been sitting on Bitcoin for 3 years waiting to make a profit in it. Still holding...making 0% (negative actually). Would rather have put that money elsewhere and waited for it to breakout above 10k again.

    0Reply
  • Michael King
    Rental Property Investor · Navarre, FL · Member since 2019 · 913 posts · 640 votes
    6y
    Originally posted by @Karen Margrave:

    All I know is that I was driving down the street, saw a sign saying 1.98 a gallon and almost stopped the car to take a photo! Seeing 4.99 a gal in CA the lower price was exciting to see!! 

     I was in West Plains, MO a few days ago and I saw it for $1.15 a gal. 

    1Reply
  • Victor S.
    WorldWide · Member since 2016 · 1k+ posts · 1k+ votes
    6y
    Originally posted by @Joe Cassandra:
    Originally posted by @Dennis Vo:

    @Joe Cassandra, yes there is much uncertainty in our economy at the moment, but isn't this the best time for investors to get actively involved?  There are a few big companies in the energy sectors (as well as other industries) that will have a high chance of surviving the storm, and you can pickup their stocks for a 1/3 of their original prices (which you will never dream of buying those stocks at that value a few months ago).  If you diversified your selections well, the ROIs in the future with all the "qualified dividends and growth" will be phenomenal.

    I am still investing in my 401(K), simple IRA, Roth IRA, and Real Estate, but will diversify my portfolio with stocks when the value is this low.

    Opportunity + Research + Risk = Reward 

    Peace and good luck

    Eh...you don't want to invest in individual companies right now.  You don't know who is going bankrupt and who isn't. Some companies will go bankrupt. Maybe they'll get bought out at fire sale prices and their stock doesn't go right to $0 (which is usually very unlikely), but it can still drop low. 

    Sure, something like the XLE right now is fine to invest in for dividend growth. 

    If you want to risk it with a lot of upside, you can try USO. 

    XOP is another interesting one that could triple. 

    Here's the issue: ---> we don't know how long this oil crisis could play out. How long are you interested in sitting on 0 - negative % returns? 

    I've been sitting on Bitcoin for 3 years waiting to make a profit in it. Still holding...making 0% (negative actually). Would rather have put that money elsewhere and waited for it to breakout above 10k again.

    I wouldn't touch USO right now. Their futures strategy had undergone a complete do-over due to this fiasco. Read recent news articles and comments under them for this vehicle: https://seekingalpha.com/symbo...

    I would, though, look into the midstream sector and make your picks. 

    0Reply
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