if I understand correctly, 1 contract = 1000 bbls oil. ~90% of contracts are traded by people w no intention of taking delivery of the underlying oil. A buyer pays $x/contract for delivery of oil at $yy/bbl on future date. Contracts lock in 1 month prior to delivery. If Joe Shmo paid $2/contract in Dec 2019 for $20/bbl oil delivered on May 20, 2020 then Joe is betting that by April 20, the price of oil will be > $22/bbl so Sam Bigoilrefiner will be happy to buy the contract (any intermediate can buy the contract at an time betw Joe’s purchase and Apr 20 so doesn’t have to be a refiner). If oil was ~ $23 betw Jan to March Joe could’ve sold his contract and made ~$0.50/contract.
Unfortunately for Joe, a massive quantity of oil didn’t get consumed betw Dec and April and the Saudis and Russians dumped a crapload of oil on the market so storage space vaporized. prices collapsed so Joe was losing money on his contracts but to add insult to injury, nobody wanted to buy his contracts cuz there’s no storage. So now Joe is faced with either having to take delivery or get sued for failure to perform. So Joe’s only recourse was to pay somebody to take his contracts.
there were enormous losses and gains today. i wont be surprised if there were a few window jumpers because of what happened today.
