Negative Oil Prices: April 2020

Why the price went below zero

A futures price can only go negative when the holder of a contract faces a cost to receive the underlying commodity. NYMEX WTI light sweet crude futures are physically delivered at Cushing, Oklahoma. Anyone still holding a long May contract when trading closed on 21 April would have to receive 1,000 barrels per contract in May, and needed pipeline and tank space to do so.

In April 2020 that space was scarce. COVID-19 lockdowns had cut world oil demand by roughly 20 million barrels per day at the low point, while production cuts were only beginning. Traders who had bought May contracts without access to storage had to sell before expiry. On 20 April, the day before the last trading day, there were not enough buyers with storage, and sellers paid up to $37.63 per barrel to get out.

Expiry mechanics, step by step

1. Last trading day. A WTI contract stops trading three business days before the 25th calendar day of the month before delivery (four if the 25th is not a business day). For May 2020 this was Tuesday 21 April, since 25 April was a Saturday.
2. Rolling. Most futures holders, including index funds and ETFs, sell the expiring month and buy the next one well before expiry. The CFTC found that most traders had done this before 20 April.
3. Thin liquidity. With few natural buyers left, the remaining longs without storage had to sell into a market where those with tank space could demand to be paid.
4. Super-contango. The June contract was still trading above $20 on 20 April. The gap between months, known as contango, had become extreme, reflecting the cost and scarcity of storage.

The next day the May contract expired at a positive price, and the EIA WTI spot price was $8.91 on 21 April. The negative print lasted one session, but it showed how a physically delivered contract behaves when storage runs out. For a general guide to the roll, see oil futures rollover.

Who lost money

• Retail investors in structured products. In China, investors in Bank of China's "Crude Oil Treasure" product, which tracked the May WTI contract, lost their deposits and in some cases were asked to cover negative balances. China's banking regulator later fined the bank.
• Brokers. Some retail brokers' systems could not handle negative prices, and at least one large US broker reported significant losses on clients' positions it had to cover.
• Oil ETFs. The United States Oil Fund (USO) moved its holdings into later-dated contracts to avoid the expiry, changing its investment approach. The episode showed that oil ETFs do not track the spot price. See oil ETFs explained.
• Producers. Cash prices for some inland US crude grades also briefly fell below zero, and producers shut in wells.

The OPEC+ response and recovery

On 12 April 2020, OPEC+ agreed a record cut of 9.7 million b/d from 1 May. Together with lower US output and the gradual reopening of economies, this drained storage from May onward. Cushing stocks peaked at 65.4 million barrels in the week to 1 May and then fell. Brent's monthly average rose from $18.38 in April to $40.27 in June 2020. Full-year details are on the oil prices in 2020 page.

What changed afterwards

The CFTC published an interim staff report on 23 November 2020. It found that the price move reflected fundamental factors, including concerns about storage availability, combined with the dynamics of expiry, and noted that open interest had been unusually high going into 20 April. Exchanges and brokers made sure their systems could handle negative prices, many retail platforms began closing positions earlier before expiry, and fund managers spread holdings across more months. The quote you see on a continuous chart such as TradingView's USOIL rolls to the next contract before expiry, so it never showed −$37.63 the way the May contract did.