Oil traders experienced a manic Monday this week when the physical futures market for the commodity saw the price plummet into negative territory for the first time.
— Ian Croasdale (@croasdale01) April 21, 2020
According to industry specialists, such as HSMarkit’s energy vice president Roger Diwan, the key word here is ‘physical’ – as opposed to ‘cash-settled’ – which means that the individual or company left holding the contract at the end of the trading window has to take physical delivery of the oil they bought on the futures market.
With a current global glut in oil and only limited cuts to the amount of barrels churned out per day agreed by the main producers, storage facilities are already approaching capacity. All of which means, traders could find no buyers for their contracts and neither could they roll them over into the new trading cycle so were left with no other option than paying someone else to take the contract off their hands.
Never Happened Before
While none of this directly correlates with cryptocurrencies or blockchain, oil prices going negative was a momentous “never happened before” event that sparked a flurry of comments surrounding the different asset classes.
Ethereum’s figurehead Vitalik Buterin was one of the first to weigh in with a comparison between the merits of ETH as it positions to move to a proof of stake model and oil futures.
It now costs -144 barrels of WTI crude oil to purchase the 32 ETH necessary to become an eth2 staker.
Yes, that’s a negative sign. https://t.co/4uQq4sn5rv
— vitalik.eth (@VitalikButerin) April 20, 2020
One of the leading advocates for Bitcoin and recognised as an authority within the blockchain space, Andreas Antonopoulos, refrained from passing judgement himself but did retweet a tongue-in-cheek message poking fun at mainstream economists.
— 🔨Robert Brrrrrrrrreedlove (@Breedlove22) April 20, 2020
The Block’s News Director, Frank Chapparo, drew a broader picture of the current financial landscape but still managed to encapsulate the unpredictability of most markets and the expectations of Bitcoin supporters.
People say bitcoin is wild.
Throughout this crisis, we’ve seen spine-tingling equity volatility, Treasury yields hit record lows, oil prices fall below zero, unprecedented Fed printing and bond purchasing.
Right now, bitcoin might be more stable than anything else.
— Frank Chaparro (@fintechfrank) April 21, 2020
In a year that is delivering “never happened before” scenarios on an almost weekly basis, it will be interesting to see whether the next financial domino to fall is a commodity, a currency, or government/corporate bond that spontaneously morphs from an asset into a liability.
It may still take a few more indicators to demolish the prevailing normalcy perceptions but if they are as large as this recent oil shock, a new clarity of the old economic scaffolding will hove into view for many and should provide a clearer picture of what is to come.
Whether that equates to 2020 perfect vision remains to be confirmed.