Negative Oil, April 2020Some background helps

For one afternoon a barrel of oil was worth minus thirty-seven dollars — not because demand vanished, but because there was nowhere to put it.

What happened

• March–April 2020 — pandemic lockdowns collapse fuel demand while production keeps flowing. Crude accumulates faster than it can be consumed.
• Storage fills — WTI futures deliver physically at Cushing, Oklahoma, a landlocked hub with finite tank capacity. By mid-April, spare capacity is effectively spoken for.
• 20 April 2020 — the May contract expires the next day. Holders who cannot take delivery must sell, and the buyers who could store it are already full.
• The settlement — the contract settles at −$37.63: sellers paying buyers to take the obligation away. The June contract, still weeks from delivery, trades above $20 the same day.

The mechanism

• Futures converge to physical reality at expiry. Away from delivery, a futures price is a financial opinion; at delivery it is a logistics problem with a deadline.
• No storage means no arbitrage floor. The usual "buy cheap, store it, sell forward" trade that stops prices from falling too far requires somewhere to put the barrels.
• Financial holders had no delivery capability — index products and retail-facing funds had to be out before expiry, and everyone knew the deadline.
• The negative price was brief and local: one contract, one delivery point, one afternoon. It was not the price of oil in the world.

What it teaches

• Know the delivery mechanics of anything you hold — including the date by which you must be out (see commodities).
• Storability determines whether a curve has an anchor. Unstorable markets like electricity live with this permanently.
• A futures index is not spot exposure. The roll is where the difference accumulates, and at expiry it can become abrupt.
• "The price cannot go below zero" is a statement about assets, not about obligations. A contract to receive something you cannot store is a liability.