This is amazing and simply shouldn't happen. You hear the media...

This is amazing and simply shouldn't happen.

You hear the media saying "we've run out of storage" just like they say "Tesla is next Amazon" but in reality, what is happening here is something that shouldn't happen.

The United States Oil Fund ($USO) has had monumentus inflows of retail funds in the last month from retail investors trying to play contrarian and get direct exposure on the price of oil. The $USO strategy is to buy front month contracts and roll into the next month, time after time. This is well in good when there isn't SUPER CONTANGO and is even better when there is steep backwardation, however....we are where we are and we have SUPER CONTANGO. Excuse the caps, but this really is something super. Obviously it's not all $USO's fault but they have crowded the market like never before....

Why does it matter? The retail investors have pumped in so much money into $USO that they now hold (or did until today) c30% of the May-20 contract. Let that sink in. This is said to be the biggest and most active traded commodity future in the world and the $USO holds 30% of it.

So why does it matter? Well, the $USO has NO INTENTION to take physical delivery of the May-20 contract and therefore sells before the contract expires and rebuys into the following month..... again, let that sink in. $USO and other speculators are selling onto futures market where nobody wants to take physical delivery of oil and they own 30% of the total contract. This is why we saw $15, $14.....$10.....$8.....$4....and at time of writing $2 oil.

It's not because storage is full....it's the old saying of Buffett - "In the short term, it's the voting machine but in the long term its the weighing machine."

Now, there's talk this could happen again next month. And I 100% agree...unless:
1. The world economy reopens and demand comes back, or;
2. The supply shuts in quickly enough to offset demand destruction...

...there is a good chance it occur again next month. Amazing.

Disc: I have an arbitrage position on long spot vs short Jun-20 futures. This is not without risk however.