There are too many moving parts to predict this with any accuracy such as:
1. What happens with interest rates? Powell's replacement will be Kevin Warsh who has seemingly promised to lower interest rates in a short-term ploy aimed at the midterms. Should this happen, it'll likely be a disaster for inflation and the dollar;
2. How and when this impasse ends? Ending tomorrow is still singificantly better than ending in September. Also, there could be a comprehensive deal or Trump could simply walk away and declare victory, essentially leaving the situation unresolved but basically allowing Iran to charge a toll;
3. How bad will inflation get? I think I heard that in 2008 households still saved on average 10% of their income. That's basically 0% now. There simply is no buffer;
4. Does the AI market crash? That could happen but I'm not betting it will. Lookk at how long the market has remained irrational about TSLA;
5. How bad is the energy crunch going to get in Asia and Europe in particular? Unlike 1973, the US might get expensive gas but as a net energy exporter now, there won't be no gas like there was then. Asia and Europe (particularly for heating come winter) are in a different category;
6. What regimes are going to fall from all of this? I don't know what that number will be but I suspect it won't be zero;
7. What political realignments will take place because the US security guarantees (particularly for the GCC) and guarantees of maritime trade (since WW2) have been broken; and
8. How bad are the food shortages going to be? Developing countries will bear the brunt of this of course.
The actual real world price for immediate delivery is called the spot price. The price of the future is just the price for a contract to have it delivered on a certain date.
As I understand it, Oil Futures come in two varieties, one kind result in you actually taking the oil when they happen, which is why that negative price craziness years back because if you're holding the futures and haven't got anywhere to put that oil that's a problem for you. The other kind though is some sort of cash equivalent, I guess maybe it resolves to the current spot price or something at the moment it stops being a future ?
So, for these mispriced Futures, what happens? If I buy $1M of Brent Crude futures and then just wait, and when my futures resolve that much Brent Crude would be worth $1.5M at spot prices do I... get $1.5M and somebody in the oil industry just lost their shirt? Do they just ship me enough Brent Crude to sell it for $1.5M at spot prices? What if they were lying and they can't deliver ?
Yes, there are physically settled and cash settled futures. The futures price converges to the settlement price (tied to spot) as the expiration date approaches.
Futures are marked to market every day and gains and losses are paid out daily in cash. So in the example you gave, you would have received $500K profit between when you bought the futures at $1M and when they expire at $1.5M. For cash settled futures that's the end of the story - a final small adjustment happens, in cash, your position disappears, and that's it.
For physically settled futures, the story is the same, but on the day of delivery, you (as the buyer) would be required to pay $1.5M cash to receive the oil, and whoever held the other side of the contract (as the seller) would be required to deliver it to you at some named location, typically a storage facility.
Who loses the $500K? The seller (who was short the contract) has been paying the losses daily as the price moved against them. The payments are handled through the exchange/clearinghouse and their brokerage.
What if they can't deliver? The exchange steps in and provides guarantees.
If I bought $1M of Brent Crude Futures settled by delivery so I can make fuel for cars and you "step in and provide guarantees" rather than delivering I cannot refine "guarantees" into fuel for cars.
Ordinarily I'm sure such "guarantees" are enough, maybe for 10% above spot price we can get enough oil to my refinery to make that fuel and the exchange is able to cover this cost from their operating budget. But when the deliveries don't even resemble sold futures that stops working, that oil isn't available at any price and so those "guarantees" become worthless.
This is the other end of the problem the ETFs had last time. The ETFs couldn't go negative because an ETF is just paper so if my ETF had a notionally negative value I don't pay I just tear up the ETF instead whereas the notionally negative value of an oil delivery was like yeah, this is nasty toxic black sludge, you're going to need to put that somewhere.
The other end is that ETFs aren't actually oil, if I have an ETF but I need diesel that's not a thing you can make from the ETF. Even if my ETF tracked the price perfectly, I still don't have diesel, I need to find somebody who wants to sell the diesel and maybe if supplies are tight that's not one of the options.
It's truly a sad reflection on the state of our government that when I read the DoJ's press release about these charges, all I could think is that the charges are probably not legitimate and are instead politically motivated. This administration has no credibility left whatsoever.
Then to see Fidelity take a political stand - well, given my terrible experiences with that company, I can't say I'm surprised.
So crypto fraud gets deprioritized, with cases like the one against Nader Al-Naji dropped entirely, while Trump and his family profit massively from crypto and corruption themselves.
Yet prediction market fraud is made an enforcement priority, except to say that nobody close to Trump's own cabinet will be prosecuted - the little guys will be made an example of to make it seem like those at the top are taking the moral high-ground. "Every accusation is a confession."
Equally, will offering a presumably unprofitably large quota of Codex tokens at $20 to retain non-enterprise customers turn out to be the right move for OpenAI?
Would not be surprised to see OpenAI follow suit.
Or perhaps OpenAI's LLMs are just so more compute efficient that they can actually offer that sustainably...
Feels to me it's a battle between who has the most compute. OpenAI does not seem to be struggling with their x2 usage on the new 100 Plan, which is very close to unlimited usage with the best performing model on the highest reasoning setting. Not mentioning the resets every 1 million customers, or the other generous usage multipliers last months. Meanwhile Anthropic seems to be desperately trying to cut down on inference with their changes to reasoning effort and more lately, so they might be focusing on what they consider to be more valuable customers for their long-term strategy. The 20 plan with Opus had gotten so bad on CC they might've just pulled the plug to stop people from complaining about usage limits. If OpenAI can burn money longer and capture the market from the bottom, I think they'd win in the long run.
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