The Netherlands once knew the bulb frenzy. England had the South Sea Bubble and the US the stock market crash on Wall Street.
But in this century’s maddened and insane financial derivatives circus, where every product—from grain and timber to oil and gas—passes through the hands of dozens of speculators before delivery, anything is possible that was completely unimaginable in previous centuries. .
An example of this is the negative interest rates in recent years, which led to money having to be paid on savings deposits. The oil price has also been negative for a while. On April 20, 2020, the price for a barrel of US oil WTI on the futures market fell to -37.67 dollars for delivery in June, meaning that the buyer got almost 40 euros on a barrel of oil.
Due to the lockdowns as a result of corona, companies have come to a standstill, as has commuter traffic. There was no more flying. But oil was still being extracted on a large scale, because the producers (Opec+ but also the American shale oil companies) could not reduce production quickly enough.
In no time, the storage tanks became full and the oil tankers at the entrance to the European ports served as reserve storage. Unfortunately for motorists and other energy guzzlers, this blissful moment only lasted a moment. Despite the continuation of the pandemic, the economy recovered faster than expected. And the installations were easier to shut down than to start up, causing shortages and prices quickly exploding from $20 to $80 and later over $100 a barrel.
The same thing happened this week with the gas price. It was also negative twice. On Monday morning, the TTF gas futures contract fell to -15.78 dollars for a so-called next hour contract. This means that the gas is delivered within 40 minutes. Later, another contract was sold in which the buyer was paid $8.50.
Nobody wanted these contracts because there was no storage space available at such short notice. The warm autumn weather and the abundance of solar and wind energy meant that gas demand was low, while a huge amount of liquefied natural gas had been purchased for fear of a harsh winter. Sixty LNG tankers were anchored off the various port cities in Europe and served as temporary storage. And the addition of regasification installations cannot be done within a week, let alone forty minutes.
On the futures market, the price of one-month gas supply forward contracts fell below $100 per megawatt hour from $350 in August. But there were no candidates for deliveries within an hour. The seller – probably a speculator who also doesn’t have a terminal in his backyard – had to get rid of it by force before a tanker pulled up. Then sell it with money.
With the arrival of so many derivatives and financial parties, the 21st century speculation frenzy in the global market is the most bizarre ever.