Why oil producers once paid traders to take their crude off their hands
When U.S. crude oil futures turned negative for the first time in history, it signaled a breakdown in the market caused by a collapse in demand. This video explains why prices plummeted below zero and what that extreme movement actually meant for the global energy market.
On a Monday, the May West Texas Intermediate (WTI) futures contract settled at negative $37.63 per barrel. This meant that producers were effectively paying traders to accept delivery of the oil. This unprecedented event occurred because storage facilities were filling up rapidly as the coronavirus pandemic crushed global demand, leaving nowhere to put the surplus.
This negative pricing was a localized anomaly for the expiring May contract rather than a reflection of the entire oil market. Later contracts, such as the June WTI at $20.43 and the July contract at $26.18, remained positive. The situation created a 'Super-Contango' market, where traders store oil now to sell at higher prices in the future, anticipating a eventual rally.
