COVID-19: Negative oil prices

May 06, 2020

Understanding negative oil prices

Earlier this month the futures price for a barrel of West Texas Intermediate (WTI) crude oil for delivery in May at the New York Mercantile Exchange (NYMEX) dropped from over $10 to below zero. In fact, at times the futures were trading below -$40, meaning the buyer of one barrel of oil would receive not only the oil but also a cash payment from the seller on top.

There are three key steps to understand this negative price: understand that we are looking at a futures contract, the steep decline in demand for crude oil, and the landlocked delivery location for specified storage.

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