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Crude oil futures at NYMEX settled at -37.63 today. How does this even work? The crude oil future is a futures contract (CL) where the expiry date happens once a month, and all buyers holding the contract on expiry must take delivery of physical crude oil at Cushing, Oklahoma.
As a buyer, you just have to take delivery, and a seller will deliver the crude to the location. To avoid this most traders will simply "rollover" to the next month, a few days before expiry.

Whoever didn't rollover and stayed in the April contract saw something horrendous.
I explained, in the @capitalmind_in Premium Slack: There is no storage available, and no port for someone to send a ship over. So delivery today = simply not possible.
Why would a price go below zero? If I'm a buyer and I don' t have any storage, I might lose a lot in penalties/fines if I don't take delivery. So, I'm willing to offer you lower and lower prices. Desperately, I offer to pay you to sell you my crude oil. Price goes negative.
This has repurcussions, but it's not like there's no demand for crude - the Brent contract is still above $20, and the June contract - the next month - is also about $20. Basically this was a problem of delivery today.
Where is the impact, though? The buyers of such contracts, on the exchanges, have to pay up. It's a fairly large sum of money, and we will see defaults or some funds hurt big time - data on this soon.

And it hurts Indian markets too. The MCX, specifically.
The MCX crude oil contract also expires on April 20, but the settlement will be on the NYMEX CL contract settlement. Which, in rupee terms is roughly -383,000 per lot.

Buyers at MCX will have to cough up Rs. 383,000 per lot tomorrow.
This is weird - because a buyer pays to buy, and on expiry the contract has some value so he gets money back. Usually.

But crude oil closed negative this time, so the buyer has to pay a lot more again. There could be broker/client level defaults tomorrow. Watch out.
Turns out indeed that buyers have to pay a truckload of money - and this will be due. economictimes.indiatimes.com/markets/commod…
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Deepak Shenoy
@deepakshenoy
There is no need for RBI to directly pay the government for its bonds; that is monetization.

It can however buy bonds from the market, and the govt can issue bonds to the market. RBI has done this consistently for the last 10-20 years.
This is also how the west does it. The central banks buy from the market, the government issues new bonds. India's govt debt to gdp is MUCH smaller than any of these nations, and they have tiny interest rates because of central bank action.
If the RBI kept long term interest rates at 4% or even at repo (4.4%) by buying gsecs, India's fiscal deficit would fall hugely. Because the govt pays over 500,000 cr. in interest alone! Interest cost is nearly 60% higher than the next highest category of expenditure: defence.
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Deepak Shenoy
@deepakshenoy
RBI Announcements
- Rev repo down to 3.75%
- TLTRO, for NBFCs only, of 50K cr
- No dividends from banks
(Thread)
Targeted Long Term Repo (TLTRO) for another 50K cr. Banks can borrow at repo if they lend the money straight to NBFC. Half of this money to small NBFCs. Only in their CP or Debentures (can't be loans).

Must be deployed within one month of the auction
Banks can park excess cash with RBI every day, the rate for that was 4%. Now it will be down to 3.75%. Reduces income for banks. Reverse repo rates also drive lower end of money market rates now, and overnight funds too will see lower returns.
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Deepak Shenoy
@deepakshenoy
There are first order effects of this crisis. And second order effects. Everyone thinks in the now. Like
* People won't go to restaurants
* No theaters to watch movies
* There will be very little demand for air travel

That is first order. The second order effect is different.
Restaurants aren't a place to eat food. Theaters aren't a place to watch movies. Coffee shops aren't a place to drink great coffee.

We go there for the experience. You do not get that experience at home, eating the same food, watching the same movie, or drinking better coffee.
The second order is that when things get better - and they will get better - we will desire that very experience. I will watch a crappy movie, for that experience. I'll take that airline, if I can get to the beach or that mountain. It's second order.
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