February 7, 1998.
The March futures contract was set to expire on the 21st, exactly two weeks away.
And small changes had begun to stir.
– Clack.
"Still no word on production cuts?"
"...No, sir."
The crude oil traders at the Chicago Mercantile Exchange were beginning to sense that the new product, which had launched after a long lull, was heading into a crisis.
Derivatives were inherently unstable, and even more so when it came to newly introduced ones—so it wasn’t exactly unusual. But this time, the scale was too large to ignore.
Traders were growing increasingly uneasy. There was simply no sign of the contango narrowing.
"This makes no sense... I mean, how can they not agree to production cuts when there’s no storage left?"
And yet, that irrational scenario was unfolding in real time.
Traders’ anxious eyes darted across the financial pages, but there wasn’t a shred of good news to be found.
All they saw were overly optimistic predictions that the oil-producing nations’ production war would end “soon.”
[Oil Prices Plunge... Russian Government Meets with OPEC. Analysts Expect End to Overproduction War Imminent.]
Of course it’ll end eventually!
There’s no space left to store the oil—how could they possibly keep pumping more? Cushing's storage tanks were already 90% full.
“...Where’s the April contract? The April one.”
– Clack.
The March contract, due for delivery on the 21st, was hovering between $7 and $8. The April futures had just dropped to $12.
"...Haaah."
A deep sigh rang out. A 50% price difference for just a one-month gap—utter nonsense.
A sudden thought occurred.
‘Will it go up?’
Who knew. If Saudi or Russia were to wave the white flag now, prices could stabilize instantly.
But... what if the production cut agreement got delayed?
Then it would be a bloodbath. Something had to be done.
They couldn’t just keep holding onto this like an ostrich burying its head in the sand.
“...Who’s holding this? Not the handful of people actually planning to take physical delivery, but people like us who bought it as an investment?”
“It’s heavily weighted in those popular crude oil ETFs.”
One of the staff members hesitantly answered. He was a guy who had worked on Wall Street but had blown up his fund during the dotcom crash.
“All right, then who’s issuing those ETFs? Blackstone? Vanguard?”
“Probably both. After the dotcom bust, people started avoiding anything remotely risky, so ETFs became the hot thing...”
He clicked his tongue.
“Unbelievable. Even if it’s a crude oil ETF, it’s mostly futures, right? And they’re calling that safe?”
“Well, that’s how trends go, don’t they? Honestly, back during the dotcom bubble, things looked pretty safe... Actually, now that I think about it, MS really was a safe bet. Why the hell did I sell it...”
The rookie trader grumbled, shaking his head—then suddenly swallowed hard.
He remembered something a friend had said recently.
“Oh, come to think of it... I heard Tiger Fund is investing in crude oil ETFs these days.”
“Robertson? That guy? Why?”
“No idea. I mean, he made billions during the dotcom era—maybe he knows something...”
This was the gist of what he’d heard:
– Oil prices will rise again eventually. Oil-producing nations can’t afford to endure these low prices forever. So when production cuts begin, crude oil futures ETFs will generate massive returns!
“Hmmm...”
It made sense. The problem was, no one knew when that would happen.
But... did no one really know?
That thought wouldn’t go away. After all, hadn’t Alpha Fund and Tiger Fund both made billions—hundreds of billions—just by nailing their timing?
Rumor had it that Alpha Fund’s youngest director was preparing for retirement before even turning twenty. Given her incredible looks and constant tabloid rumors, the common theory was that she’d returned to Korea to raise a love child she’d left behind.
In any case, the point was this:
The traders at the Chicago Mercantile Exchange didn’t trust their own judgment. Even if the writing was on the wall, if someone walked in with a calm expression, they’d hesitate and follow.
Especially if that someone was a famous investor.
Maybe it was because most of the traders still in Chicago hadn’t made the move to New York, and were the ones who’d been “left behind” in an era of digital automation.
“Phew... Well, let’s keep looking. There might be news we’ve missed.”
“Ah, yes. Understood.”
The traders, nervously combing through WTI futures-related reports, finally found a lead they could trust—and clapped their hands in relief.
[Alpha Fund’s Director Yoo Ha-yeon Returns... Rumored to Have Released Dozens of Reports on Mortgage-Backed Securities and Futures ETFs]
[Three Years After Kobe Earthquake, Busan Port Emerges as New Hub...]
[Korea National Oil Corporation Completes Giant Storage Facility. Dozens of DWT 100,000-Class Tankers Ordered In-House]
After the destruction of the Port of Kobe by the earthquake, Busan had risen to become the world’s third busiest cargo port. And, for some reason, a massive oil storage facility had been built there by Korea’s national oil company just a few months ago.
“Busan, huh... Mmm! That’s close to Seoul. And Director Yoo is from Seoul, right? Makes sense.”
A trader from Texas nodded at the world map. A European trader beside him looked skeptical at first, but after reading that Yukong had recently been acquired by one of Director Yoo Ha-yeon’s relatives, he nodded too.
Director Yoo Ha-yeon had supposedly gone back to her hometown on vacation, but there was no way she’d gone home just to rest. Not for three months.
Yeah, come to think of it, Director Yoo was single. That’s what she said in interviews, anyway. A love child? That kind of tabloid trash couldn’t be trusted. Probably just yellow press nonsense.
Whatever the source, the most plausible explanation was that she had foreseen this situation and started scouting for oil storage facilities in advance.
“At this point, we can safely assume Alpha Fund is watching oil prices closely.”
And that meant oil prices would stabilize soon. There were still some oil storage spaces left on this planet.
Feeling a little more at ease, the traders confidently purchased additional March contracts. Apparently, word had spread among other investors, too—the March contract price had risen a bit more.
.
.
.
But there was still no news of production cuts, and Cushing remained flooded with oil.
***
February 10.
By now, an unusual phenomenon had begun to emerge—oil tankers were arriving faster.
Even though the producing countries were still increasing output, they couldn’t keep up with the volume themselves, so they started sending tankers ahead of schedule.
Naturally, the recipients were overwhelmed—and so, a bizarre traffic jam formed in the open sea.
Tankers that couldn’t dock began to circle aimlessly offshore. The senders were pushing them to hurry up, while the recipients begged for just a little more time—a predictable result.
“They say Cushing’s full... Still, it’d be nice to finally unload this damn thing.”
The tanker captain muttered in frustration. Airplanes without fuel rested peacefully in hangars, but tankers filled to the brim with crude oil could only drift endlessly across the blue ocean.
Like Odysseus, cursed by Poseidon, endlessly circling just short of home.
.
.
.
WTI futures contracts are settled by physically receiving oil from storage tanks in Cushing, Oklahoma.
To the average person, this is absurd. In any other business, if you overproduce and can’t sell, you eat the loss. It’s one of the most common and painful lessons in commerce. Ask any business owner—this would probably be their top nightmare.
A typical business would’ve adjusted their contracts long before it got this bad. Going bankrupt with inventory stacked to the ceiling is an age-old tale, and the best companies know how to avoid it.
But the oil business isn’t like that. This is an industry that has almost never lacked demand. Cities in modern society are oil-guzzling monsters, and those monsters are everywhere. It was rare for demand to ever drop this low.
Besides, the existence of futures contracts eroded what little restraint remained. Futures exist to prevent exactly the kind of “unsellable product crisis” that terrifies most businesspeople. Oil sellers aren’t fools—they don’t offer cheaper prices out of kindness.
It’s because someone else is bearing the risk to make stable contracts possible.
And...
There’s always a chance that risk explodes. It just happened to be now.
***
February 10.
The white-haired legend of Wall Street had come to Cushing himself.
He could tell—through experience—that something was very wrong.
“Why... why are you still producing? There’s no storage left, and you’re paying premiums just to sell it! Wouldn’t it make more sense to stop?”
“...We can’t.”
The Exxon executive, pale as a sheet, grit his teeth as he replied. Dressed in a business suit and safety helmet—a bizarre look—his trembling hands revealed just how dire Exxon saw the situation.
A corporate executive being dragged onsite meant things were serious.
“You can’t stop? Why?”
“Oil drilling takes place hundreds—sometimes thousands—of meters underground. And the hydraulic fracturing method we’re using now is a sensitive, emerging technology...”
Seeing the investor’s confused expression, he let out a deep sigh.
“...Damn it. Let me put it simply. If you shut this down, it’ll take forever to restart. Do you know how power plants keep running even when electricity demand drops? It’s the same for oil fields! If crude starts flowing upward and suddenly drops back down, you’re essentially pressing that whole weight back into the ground. If you stop drilling recklessly, the ground could collapse, and we might never be able to extract oil there again.”
“...Huh.”
The Exxon executive gazed at the still-pumping oil field with a grim look.
The oil they were extracting flowed immediately through pipelines to Cushing, Oklahoma—into the already-bulging tanks that looked ready to burst.
“We don’t have a choice. And it’s not just us—Mobil and the other companies are in the same boat. Imported oil might be different... You can at least redirect the tankers elsewhere.”
But they both knew.
There was no one left who could receive that oil. They were already using tankers as makeshift storage tanks, and most regular facilities were stuffed full.
Rumor had it that some newly built storage tanks had been opened even before the cement had dried—just to shove in more oil.
“...So it’s impossible to stop. Even if it’s a loss, stopping production itself is not an option.”
Crude oil production was like a runaway train. Once the pumps were on, it took a long time to hit the brakes.
The reason the crude futures market had grown so massive, despite high demand, was simple: oil wells couldn’t just be flipped on and off, and capitalism was bound by impossibly complex contracts.
“So then... would you like to take it now? If you want, you’re welcome to carry off some oil right here. Isn’t that what crude futures are for?”
The Exxon executive said it ❖ Nоvеl𝚒ght ❖ (Exclusive on Nоvеl𝚒ght) like a joke.
Everyone knew it wasn’t serious—which made it a pretty good bit of black humor.
After all, what Wall Street investor would own an oil tank?
He wasn’t a physical delivery trader.
And neither were most people who played in the crude oil futures game.