The following is a detailed write-up of in investment idea that we covered on Large caps live this morning and thought it would be of interest to readers here. 

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For those who’ve not noticed there is a battle going on in the twittersphere. It has been kicked off by the dislocation in the oil price, which in turn has been a consequence of covid19. Let me start with a brief history.

Despite increasing green technology, oil demand over the last decade has increased from about 86mbd in 2010 to just over 100mbd in 2019. Estimates were for it to be 101mbd in 2020.

 Until, that is, governments around the work implemented a complete lockdown, travel bans and working from home protocols to try to prevent the exponential transmission of Covid19 overwhelming health services.

This meant that some 20-30mbd were taken out of global demand in under a month. OPEC reacted swiftly by convening a meeting, which then saw Saudi & Russia fall out and both countries reacting by INCREASING oil production rapidly to go after market share.

This meant the front month WTI actually went negative last month. People who owned contracts that meant they had to take physical delivery were unable to obtain the storage they needed and had to sell at any price to avoid taking physical delivery, in effect paying others who had got storage access to take the oil off their hands.

It seems so otherwise fairly sophisticated traders got caught out by this, and we saw Interactive Brokers admit to a potential $80m liability from customer accounts as a consequence of this move.

The negative oil price was only in WTI, since this has to be settled physically in Cushing, Oklahoma – the US oil pipeline crossroads. More flexible contracts such as Brent, named after the UK’s biggest oil field discovery in the 1970s have been weak but nowhere near as volatile as WTI.

The role of storage has kicked off the current twitter debate which centres…

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