So oil dips into negative territory, the media bombards us with sensationalist headlines and the President calls for an oil bailout. This is all combined with a 2% sell-off in the overall stock market. But while the monkeys and analysts are busy spinning their heads off trying to convince us that this oil crisis was just because of the Beer Bug, we need to remember that they were in a crisis long before they accounted for nearly 91% of defaulted debt in the third quarter of 2019. A quarter with a near-perfect economy.

This beer bug crisis is really just revealing the industries that were already screwed up. But what what does all of this information mean And how can I use it to make money? Because look folks, at the end of the day, we as traders were not philanthropists. So get off your high horse and let's figure out how to make some money. So previously on worldwide oil crisis on a sunny and virus infested day in early March oil crashed by the most since 1991 as Saudi Arabia launched a price war by dumping oil onto the market.

This resulted in the first of what would be an extended drop. Drop it like it's hot folks, but no problemo! After this point the media loudly proclaimed that we shouldn't even be worried because we have hit a floor and they called people stupid for even saying that oil could go down further because of course the media, the analysts at these big firms they know better than you and I But of course the analysts wrong. And as the week's went on, demand for oil dried up even further as people were locked in their homes and businesses were shuttered. But at the same time, supply for oil boomed as producers continued dumping more hen, more oil onto the market and an escalation of this crisis.

So in many ways, we had the highest level of production for oil at a time when we had the lowest need for it, the lowest demand. This massive increase in supply and massive decrease in demand created the perfect storm. Or there's just so much oil, but not much use for it. That caused prices to plummet massively and this all culminated in oil prices dropping as low as negative 37 dollars as shown in this chart that I stole from The Washington Post.

But it got so bad that companies couldn't even find places to store their oyel much like you can't find places to store all that ravishing missile you have to hit that ravishing like button. But anyways, what negative prices mean is that the oil is worth as much as it costs for the buyer to find a home for the barrel. If you're buying oil futures, you have to literally pay someone to take it off your hands, but very quickly. How can prices go into the negative? Well, that's because oil is traded via an instrument called futures.

That just means that people buy an electronic contract for a certain date at which they need to buy oil. And so when you look at a chart like this, you are really looking at the prices of separate contracts. It's not literally oil, but rather contracts to buy oil. As you can see here, this is June's contract and here's Mays contract.

But the thing is that if you buy a contract and then you hold that contract until when it expires, that means that you have to actually take a delivery of oil. So if you're buying oil but you don't actually want oil barrels, and you're buying oil futures, that means that a if you don't close out of the position before the expiration date, then you're going to end up with literal barrels of oil. and that expiration date was right after this. So that's why people sold off so quickly because they wanted to close out of their positions and all the traders did this at the same time because they needed to close their position.

So yesterday, all oil contracts were worth as much as it costs for the buyer to find a home for the barrel. But anyways, that's futures trading in a nutshell. But how and why does this impact the market? Because look, it sold off. But Charlie you idiot.

Lower prices for oil means that consumers have to pay less for gas. That means that everything gets cheaper. That means that I don't have to pay as much at the pump. Obviously, Obviously, that's good for the economy.

Well, it's not as simple as that. You're right when oil prices go down snow to transportation costs, so do you consumer goods that are being transported. But so do all of firm's revenues. And the US oil industry has a high cost of operation.

So crashing prices below cost of production essentially freezes and locks up the entire industry. which is a problem. not just because the industry accounts for 7.6 percent of U.s. GDP but also because the oil and gas industry as a whole is overburdened by debt.

And like I said earlier in 2019, the oil industry was already defaulting on their debt even though the economy as a whole was quite healthy. So if you have an with massive amounts of debt, that means that if the industry can't then go and pay that debt. The banks that loan did are now operating at a loss. if they are operating at a loss that continues rippling into the greater economy and creates even more destruction.

and this is greater worsened by the fact that much of this debt is due right now in this current period. But this is really just the tip of the iceberg. or should I say the bottom of the barrel. Huh? Get it huh? Because if oil companies and oil rigs start to go bankrupt and shut down, that means our ability to produce oil will go down as well.

Less oil rigs means less ability to produce oil. It's pretty easy to understand that if you don't have the ability to produce something, then well, you can't produce it. And honestly, having less means of production in terms of producing oil right now? Well, that's that's. fine because there's not much demand for it.

but eventually there will be demand as countries reopen and well, the economy starts getting back to normal. But it's going to happen in phases and each phase is going to require more oil. and when that happens, we'll find that very quickly. We get into this area where there's way too much demand, but too little supply as many of these firms that we're producing oil have now shut down.

Obviously, if you just pause your production, that means that when the crisis is over, you can just go back to producing. But if you literally shut them down and you get rid of your means of production, all of a sudden we're in this area where we have less producing power. This will cause less supply, which will cause prices to rebound in the other direction and we'll have insane costs of oil and the government sees how important this is to fix. However, it's yet to be seen how a bailout would play into this and help us avoid the crisis.

But that's enough with the news. Obviously, my viewers are greedy, so the real question is, how can we use this news to well make money? Well, first, you need to understand what it is that we're actually looking for. In terms of catalysts, what's going to move the price of oil? So on the demand side, we're looking for anything that is going to indicate an increase in demand for oil? Is that countries loosening social distancing requirements Is that companies completely opening and unshackling businesses? And on the other side, we have the supply side, our oil producers reducing the production of oil, Or are they continuing to dump oil onto the market? Those two things have completely different results, and it's really the combination of both supply and demand that's going to dictate where the prices are going. But that's pretty simple economics.

But let's actually go into the practical nature of how we can take advantage of this and getting into the tickers. The most obvious players: Heather our Yuko and ESCO So Yuko leverages the upward movements in oil and ESCO leverages the downward movements in oil. So if you know oil will go up, that means you co will go up. you're going to want to play Yuko And if you know oil will go down, you want to play ESCO ESCO Basically bets against oil.

so if oil goes down, ESCO goes up. But getting into the actual strategy if you wanted to take a position in something like ESCO as oral sells off how you do it is by waiting for a confirmation, buying in at the first candlestick of priced, ranked, and then selling out when we break said price strength by going back under that blue SMA line. This is really how we trade any type of play If you go throughout our channel, it's always a focus on these mechanics buying into conformation and out at validation. but it's also about other things too, right? Like what is the actual catalyst, what is actually moving it Is it an increase in demand, what is actually moving it per day, and what other elevating factors you have? Do you have a really low price based on the previous day? Do you have a really high price based on the previous day? There's different factors that lead you to buying in a confirmation and then selling out at validation, but the mechanics are always the same confirmation and validation.

and the reason that we do this is simply because it gives you clean runs to profit off of, but also allows you to protect your downside. And honestly, folks, as lockdown loosen, we're going to see tons of insane run ups and oil and probably more subsequent beat downs as this whole crisis wages on and no one can say for certain what's going to happen. So why don't we play both directions with both you co and SK But there's also ways to take advantage of overreactions if you look at you. Co Back in the early days of March, it was selling off, but every reaction is an overreaction.

and so being Direction independent means that hey, you can then go and profit off the initial upward push before it continues to sell off. So be realistic about picking directions, be open-minded to playing both sides. And of course, if you're trying to invest in these for the long term, don't because these are leveraged Etfs and that means they have decay. For those of you who are looking to take a long-term position in oil, you could hypothetically invest in Us.

Oh, but I wouldn't recommend doing that because that would involve locking up your capital for what could be a very long time and it's likely that oil prices will continue either staying flat or get worse before they actually get better. So instead of being dependent and locking up your capital, what I recommend is exploiting both the upward and downward movements by trading both Yuko and ESCO Aside from that, the other way to take advantage of the movements in oil is to trade sort of the externalities of it. Gas companies. companies like BP Exxon and some others are going to have some insane fluctuations because they've been beat down so much due to the fact that their product isn't really in demand anymore.

And as we go further through this crisis, we're going to see some serious upside which provides tons of opportunities to trade off of ok and quick Plug for folks who are looking to grow their account and forge their skill set. We are continuing our $50 off offer on Zip Trader. You all you have to do is type in coupon code stay home 20 20 at checkout and it'll give you that $50 off. but make sure to look over what we offer on Zip Trader you to determine whether or not it is a good fit for you.

Anyways folks I do hope that this video is helpful. If you have any questions whatsoever, feel free to reach out to us in the comment section below or join us on Zip Trader Circle if you're wondering what broker to trade these thoughts on. We always like to send new traders over to Weeble and you will get not one but two free stocks when you sign up and deposit in the amount with our link below. Of course they are a free broker and it's a pretty powerful platform so might as well try it out anyways.

folks, have a great day and I'll see you in the next video.