On April 20, 2020, the price of May (West Texas intermediate) Crude Oil WTI became negative. The negative future price, which has never happened in the past, shows the importance of carry cost (store cost for oil) in futures pricing. But, how exactly can you explain it?
This meant that producers or sellers of futures were offering money to buyers to purchase crude oil. It was an indication of spare storage capacity. The producers were ready to pay a certain amount of money, $37.63 per barrel at Monday’s close, to have oil taken away from them, indicating that excess supplies have exceeded storage capacity. Due to lack of storage capacity, buyers of WTI futures did not want to take delivery of contracted volume from Cushing, Oklahoma and hence were willing to sell at any possible price therefore negative prices.
Get Answers For Free
Most questions answered within 1 hours.