The 3 winners and 3 losers when oil prices collapse - Business Insider

For the first time in history, the price of US crude oil reached negative double-digits on Monday, falling to about minus $38 a barrel.“Fortunes were made and fortunes were lost,” said Tom Kloza, the head of energy analysis at Oil Price Information Service, a division of IHS Markit. Those who came out on top are storage and pipeline companies, and large oil traders, Kloza said. On the flip side, inexperienced retail traders who were stuck with oil futures that no one wanted likely lost millions, he said.Visit Business Insider's homepage for more stories.

The oil market meltdown on Monday reminds Tom Kloza of his grade school math class, when he had to face an imaginary number, the square root of negative 1. “I feel as though I'm living that fear and dread once again,” Kloza, the head of energy analysis at Oil Price Information Service, a division of IHS Markit, told Business Insider. “But they're not imaginary, however negative they may be.” Kloza is referring to the price of May futures of West Texas Intermediate (WTI) crude oil, which plunged into negative double-digits on Monday for the first time in history. By market close on Monday, WTI had settled at minus $37.63.On Wednesday morning, after May futures expired, WTI to be delivered in June was trading at about $15 a barrel, which is down more than 75% since the start of the year. Read more: The price of US crude oil just went negative for the first time. Here's what that really means and why it's not free to fill up your car.

The price meltdown sent tremors through the global energy economy, with some people and firms churning out massive profits and others suffering deep losses, he said.“Fortunes were made and fortunes were lost,” Kloza said.

“If you have pipeline space, it's kind of like having the first-class cabin reserved on a flight to the Superbowl,” Kloza said.

REUTERS/Todd Korol

The winners: Firms with pipelines and storageWTI crude turned negative on Monday, in the final trading hours for May futures contracts. Oil traders, who are not equipped to take physical deliveries, scrambled to sell the contracts to buyers who could, Kloza said.But with oil demand at historic lows, in the wake of a pandemic that has crippled the transportation sector, oil storage is nearing its limits.

Click here to subscribe to Power Line, Business Insider's weekly clean-energy newsletter.As a result, hardly any physical buyers wanted oil deliveries in May, so traders were paying them to take their futures contracts for fear of having to receive an oil delivery.If a trader had 1,000 barrels worth of May futures, they'd be paying someone as much as $38,000 to get rid of them at some points on Monday.That means anyone who has available storage comes out on top. Kloza said that large oil traders such as Glencore and Mercuria specialize in storage and can see these market dynamics coming and book storage well in advance.

Firms that have storage capacity, such as BlueKnight Energy Partners, are also winners, Kloza said. In what's called a carry play, companies store oil at today's price for as little as 50 cents a barrel and upsell it in a few week's time. “It's a nice tidy way to make a huge profit,” he said. Companies that own pipelines that move oil from Cushing, Oklahoma, where WTI is delivered, to Houston are also winners, Kloza said. “There was a period a week or so ago where it made no sense to move crude from Cushing to the coast because prices on the coast are cheaper,” he said. “That's not true anymore. So if you have pipeline space, it's kind of like having the first-class cabin reserved on a flight to the Superbowl.”

The price of contracts for near-term US crude oil fell to nearly minus $40 on Monday.

Markets Insider

The losers: Retail investors, oilfield service companiesTraders with long positions on Monday and Tuesday, who were forced to pay buyers to take their contracts, likely lost a lot of money, Kloza said.

These are typically retail investors that don't understand how to trade in a “super contango” market, which describes a situation in which future oil prices are much higher than those today. But the alternative could be worse for anyone who doesn't have access to storage in Cushing. “If I'm going to take delivery of oil, what am I going to do？ Put it in a garbage bag or like a thousand garbage bags？” he joked. When oil prices plunge into the ground, it also “motivates large producers, whether they be public or private companies or whether they be sovereign nations, to cut production.”A coalition of nations known as OPEC Plus agreed to voluntary cuts on the order of nearly 10 million barrels per day earlier this month.

But with market-driven cuts fueled by the falling price of oil, Kloza said he thinks those cuts will be more like 17 million bpd in reality. Cuts on that scale will “hasten the rebalance,” he said, “but it will also be devastating for jobs in oil and shale” as producers shut-in wells and cancel contracts with the people who operate them. “This is such a painful, painful experience for anybody in crude oil production,” Kloza said. Several of the world's largest oil companies including Halliburton and Apache have already announced layoffs, and experts say more are coming. The energy consulting firm Rystad Energy says more than a million oilfield workers could lose their job.

Gas prices at a gas station in Pearl, Mississippi on March 31

Julio Cortez/Reuters

For gas station owners, it's more complicatedWhen the price of oil falls, so does the price of gasoline you buy at the pump. On Wednesday, the national average was down to just $1.80 a gallon, according to AAA.

At face value, that's good news for gas station owners, who set their own prices — because they could enjoy wider profit margins. “Gas stations right now, they have never seen the economics better, ever,” said Patrick De Haan, an analyst at GasBuddy who's been tracking the prices closely. “If this environment could stay consistent, you'd be seeing hundreds of gas stations open up.” But don't be mistaken, Kloza said: This is not a good thing. Road fuel consumption is down a third this month, according to Rystad. Plus, gas isn't where stations make their money. It's in sales of jerky, chips, and other in-store purchases that depend on foot traffic, which has all but evaporated.