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The big crude plunge: Why did oil trade negatively?

Alessandro Sanos, CAIA
Alessandro Sanos, CAIA
Director, Commodities Market Development

For the first time, the price of oil plunged and traded below zero. It is certainly not the first time that the supply of a commodity is overtaking demand. Think of producers of agricultural commodities who dump their produce to sustain prices, or oil companies flaring or venting natural gas into the atmosphere when gas prices are low. But it had never happened that the oil price moved to zero and then entered negative territory. Alessandro Sanos, Director of Commodities Market Development at Refinitiv, reviews why this happened.


  1. The combination of collapsed demand due to the COVID-19 pandemic-driven lockdowns, and crude over-production and falling prices due to the OPEC+ disagreement, resulted in storage facilities moving towards capacity.
  2. The roll of the WTI contract is usually a smooth process, but what happened in this specific occasion is that people who had bought the contract found themselves unable to resell it the day before the contract expiry.
  3. All eyes will be on storage capacity and on the WTI June contract. If demand does not recover, lack of storage capacity at Cushing and surrounding pipelines will force investors to liquidate their positions at contract expiry again, and push WTI back into negative prices.

Why did this happen?

The price of crude oil depends on many factors, including oil grade, supply, and demand. When there is an imbalance of supply and demand, storage acts as a buffer: if demand drops, the excess supply is stored away into tanks, oil tankers, or even oil pipelines.

The combination of collapsed demand due to the COVID-19 pandemic-driven lockdowns, and crude over-production and falling prices due to the OPEC+ disagreement, resulted in storage facilities moving towards capacity.

In the past few months, the forward curve had already moved from backwardation to contango, the term describing commodity spot price trading lower than forward prices.

Historic & realtime WTI forward curve

But there is also another reason for the unprecedented plunge that resulted in negative oil prices, and this reason is intrinsic to the nature of the NYMEX WTI contract.

Tuesday, the 21st of April, marked the final trading day of WTI futures contracts for delivery in May. Approaching contract expiry, traders can either roll their exposure to next month, or they can take physical delivery of 1,000 barrels of crude oil in Cushing in Oklahoma, the “Pipeline Crossroad of the World.”

Cushing storage levels and pipeline flows

The roll of the WTI contract is usually a smooth process, but what happened in this specific occasion is that people who had bought the contract found themselves unable to resell it the day before the contract expiry.

This could mean three things: that there was no much space left at the Cushing delivery point and in the oil pipelines, that some investors lured by low prices went long crude oil without having an understanding of the physical aspect of the WTI contract, or – and this will certainly emerge in the coming days – that something else happened behind the scenes.

The Brent basket contract, named after the North Sea oilfield, was not massively impacted as contrary to WTI, is settled in cash and not physically.

What does that mean?

This unprecedented contract rollover does not necessarily imply that crude oil prices will keep falling. And as a matter of fact, immediately after the historic plunge prices moved back into positive territory.

All eyes will be on storage capacity and on the WTI June contract. If demand does not recover, lack of storage capacity at Cushing and surrounding pipelines will force investors to liquidate their positions at contract expiry again, and push WTI back into negative prices. And if global storage fills up, then the Brent contract could follow WTI into negative territory.

How can Refinitiv help?

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