hi I'm Jimmy in this video we're gonna look quickly at what's been happening
with oil and what's been causing all the crazy volatility in oil prices over the
past few days especially but even over the past few months okay so for those of
us who didn't get a chance to see oil prices yesterday well for the first time
ever oil prices went negative and as we can imagine this took a lot of people
off guard since well it's never actually happened before but I do think it's very
important for us to realize what's really going on with the price of oil
and how oil prices could possibly go negative like this okay so I'm sure
we've all heard people say things like oil futures are up two dolls are down
two dollars or in the case of yesterday oil futures went negative for the first
time ever but the most important word for all of us to recognize in those
statements is the word futures because oil isn't traded let's say the same way
as a stock is traded sure when we look at a chart like this it might seem like
this is the exact price of oil over this entire period of time and that is sort
of true and even when we switch over to a long-term chart well this chart goes
all the way back to 1984 and we can see that this drop into negative territory
was truly unprecedented this is the first one of its kind and just so we're
all on the same page WTI has been the benchmark price for American oil for a
long time much like Brent oil generally represents global oil WTI has
represented American oil so just so we're on the same page WTI is all that
comes out of West Texas but what's interesting about this is that when
investors talk about the price of oil generally they're referring to the price
of a futures contract and oil futures are monthly contracts that very
importantly have expiration dates today is the expiration date for the May 2020
contracts so our question is what happens to oil
prices after the may contract expires today well just like WTI does every
month through this entire time period the generic oil
that we see on Yahoo Finance or CNBC or Bloomberg or whatever it is
we'll roll forward to the next month which is June of 2020 now we might ask
how do June oil prices look right now and as you can see on this one-year
chart for the June contracts specifically well oil is down for sure
and it should be but as we could see it's trading at about $20 per barrel so
I'm not sure what's going to happen today with the price of oil but I do
know that tomorrow the price of oil that we see online or on TV or whatever it is
is going to reflect the June contract and the may contract will no longer
exist so we switch back here to the one-year WTI oil price well it's
important for us to recognize that this chart is really a series of future
contracts that expired and rolled into the next one so it's a series of
contracts that have been broken up you just never really see it we never really
get to look at it because it's it appears to be one one streaming price
even though it continues to change from contract to contract okay so let's
imagine that on Wednesday tomorrow the price of oil does snapback and let's
imagine that nothing crazy happens today the day were released in this video and
oils still in about 12 oz of $20 range well that doesn't necessarily explain
while the drop yesterday in the May contracts were as drastic as they were
and there's actually a few contributing factors to this that sort of explained
the craziness of this perfect storm for oil prices so first is tied to traders
so like I said before oil is consisting of a whole bunch of contracts oftentimes
commodities traders get involved in a single contract and they don't actually
want the oil they're just trading it this is a financial transaction for them
they don't want the oil so as expiration comes up on them in the case of
yesterday when oil went nuts well it was two days away as that approaches
generally what they do is they get out and they roll into the next contract
what happens when you get a whole bunch of commodities traders jumping out at
the same time well supply and demand kicks in and the price of crude oil
begins to go down in this case way down now clearly the change of contracts
isn't the only thing happening thanks to the coronavirus demand for oil is
virtually at a standstill gasoline sales are way down
jet fuel sales are way down manufacturing is way down they use a lot
of oil and as we know on top of all of that Saudi Arabia and fan Russia have
been going at it a decent amount and they've when they're going at it in this
spat over production they end up producing more so this really has been
the perfect storm for oil prices so much so that it's being reported that storage
facilities for oil are getting maxed out and since there's no real demand this is
becoming a real problem for oil producers so it's really difficult to
tell how this is going to shake out we are truly in unprecedented times if
we're currently looking at energy stocks I think it makes sense to try to focus
on energy companies that have enough cash to outlast the coronavirus and it's
impossible to know how long their virus is actually going to suppress demand so
we need to find companies that can weather that storm the other issue is a
lot of these companies in the energy industry don't have a ton of cash if we
think it makes sense for me to do some research to see if I could put together
a list of maybe top three or top five energy stocks or something along those
lines please let me know in the comments below that could be an interesting
amount of research to do during these crazy times and if you happen to know
any energy companies maybe some storage energy companies please let me know
those in the comments below as well another choice for us is to simply go
out and pick an energy ETF and then sit and wait for this time to pass now i
actually did a video recently where i look at what's better stocks or ETFs and
if you're curious that could be a good next video for you to watch there's a
link right here and there's a link in the description below and i want to
thank you so much for sticking with me all the way to into the video I really
appreciate it thanks and I'll see in the next video