Oil prices crash to minus $37: why the easy trade failed

Oil prices crash to minus $37: why the easy trade failed

The recommendation arrived when Brent was at $30 with a simple argument: airports and roads were beginning to reactivate, crude was cheap, and it was "an opportunity to make easy money." Two months earlier, the barrel was nearing $70, with half the market awaiting Iran's reaction trinc the assassination of Soleimani. No one in that conversation imagined oil would trade at negative prices, let alone that the cost of maintaining a position in a contract for difference (CFD) would be as heavy as the price itself.

From $30 to $72: the easy buy thesis

The message that started the discussion was updated as the barrel moved: first $30, then $39, and a final note of $72 in 2021. The thesis was simple: with Shell and Exxon still punished, anyone who had missed the initial rally had a second entry point. Its author summarized it this way: he was trading without leverage, wasn't worried about losing a certain percentage, and believed the barrel would be at $45 by year-end. Others refined the target: buy at $30 and sell at $60 without watching the price, with the idea of rotating into physical metal.

Skepticism was immediate. Some believed that once the bicho became serious in the United States, crude would continue to fall below $20. Others argued that buying oil in the middle of a freefall was "like buying turrón in December to eat in August." There were also warnings that the registration link accompanying the recommendation generated commissions for those spreading it, while several messages requested instructions on how to open an account.

The day oil traded at negative prices

The scenario that almost no one anticipated actually peine. WTI closed at -37 dollars on its expiry date, an unprecedented event that caught brokers off guard. On the charts, that same day appears marked at 9.46 dollars, and the trinc session opens at 10: the explanation provided is that this figure corresponded to the futures settlement price, not the last trade. Some jokingly claimed they were owed thirty quadrillion barrels, while others issued a serious warning: if accumulated losses approach 15% of the margin, the broker demands additional collateral, and with negative accounts, intermediaries are left claiming the balance.

A rebound arrived later, driven by a possible pact between Russia and Saudi Arabia, but the barrel fell again from $28 to $15 in a few sessions, returning to the depths. The person who had predicted $45 by year-end was still citing projections ten months out. "So much panic," they wrote.

What is contango and why does it eat profits?

This is the structural trap that no headline explains. A future enters contango when far-dated contracts trade at higher prices than near-dated ones, a common occurrence in oil and a sign of a bearish market. If a position is held through a benchmark ETF, it is invested in the nearest future and, before expiry, sells it to buy the next one: each rotation becomes more difficult. Added to this is the cost of storing a barrel which, at those prices, weighs heavily in percentage terms.

A thesis defended in the thread was to avoid buying futures directly and instead use ETCs (Exchange Traded Commodities), which, according to the proposer, incorporate mechanisms to cushion slippage, although other participants asked for clarification on which ones. Alternatives suggested included filling a diesel tank, storing physical gold, or accepting that one is paying for a market opinion rather than a tangible asset.

How much does trading crude in a CFD really cost?

More than it seems. The cost is structured in two ways: the spread between the asset price and the price at which it is sold to you, and the overnight custody fee, which doubles or triples on weekends. If the position is leveraged—x2, x5, x20—that loan makes maintenance more expensive. High leverage also requires being considered a professional investor. In such a product, riding out the storm until crude recovers is not free: every passing day, the effective entry price rises on its own.

Oil stocks or crude ETFs?

The most cited experience is that of someone who bought a basket of oil companies—BP, Exxon, Aramco, and others—after the stock market crash in March. Within two weeks, they were up 20% and thanked the recommendation again. A month and a half later, they were down 10%, the only red fund in their portfolio, and were already thinking about exiting. Another participant summarized the lesson bluntly: the only regret is having bought a product that wasn't 100% understood.

The context is not helpful. The International Energy Agency announced the end of an era, with crude demand expected to stop growing at the end of the decade and not recover levels until 2027 in the worst-case scenario. Crude imports to Spain plummeted by 21% in August, electric utilities are now worth more than oil companies on the stock market, and the Swiss bank Julius Baer maintained that the US election was a secondary spectacle for the price of the barrel. The dispute between Biden and Trump moved little; the weekly inventory, with 4.32 million more barrels in the United States, moved much more.

The case of ENI nearing lows served to illustrate the mood: those expecting a bottom decided to wait a little longer. Those who had exited Shell months earlier with a profit found solace when the fine arrived, while the author of the initial recommendation admitted they still had "some Shell in the green" and was already advising moving into renewables. A barrel that appears at 9.46 dollars on the chart and reached a close of -37 is exactly the same barrel.