Oil settled at −$37.63. How can a price go below zero?

A minus sign appeared where most people expected a floor.

On April 20, 2020, the May West Texas Intermediate crude oil futures contract opened at $17.73 per barrel and settled at −$37.63. Its final trading day was the next day. CFTC commissioner statement, May 7, 2020.

The immediate question was irresistible: how could something people use every day have a negative price?

To understand the answer, follow the contract beyond the screen.

A deadline with real barrels behind it

WTI futures can involve physical delivery at Cushing, Oklahoma. A participant holding a contract through expiration needs to make or take delivery unless other arrangements have been made. Traders commonly avoid delivery by closing their positions beforehand. US Energy Information Administration, April 27, 2020.

For a buyer approaching that deadline, the question becomes concrete: where will the oil go?

Owning a claim on incoming oil is very different from having a place to receive it. A screen can display the position instantly. A storage arrangement takes something more.

Why an empty-looking tank might be unavailable

COVID-19 restrictions had sharply reduced oil demand. Excess supply was moving into storage, while buyers without existing arrangements faced limited available capacity. The EIA estimated that Cushing's tank storage was about 76% full on April 17. Some physically empty capacity was already leased or committed. EIA analysis.

That detail matters. Space can exist physically while being unavailable commercially.

Think of a hotel with rooms that look empty in the afternoon but are already reserved for arriving guests. Seeing an empty room does not mean you can book it.

Paying to leave the position

With expiration approaching, some contract holders sold at negative prices to exit rather than face delivery. In economic terms, they paid someone else to take over the position. EIA analysis.

The CFTC's later interim report also identified shrinking liquidity alongside oversupply, collapsed demand, and storage concerns. It did not claim to establish a definitive cause for every individual price movement. CFTC report announcement, November 23, 2020.

What the headline was measuring

The negative settlement belonged to a particular contract for a particular delivery month. Other oil prices, including longer-dated WTI contracts, remained positive. EIA analysis.

A useful way to read this episode is to include the deadline, location, and delivery obligation alongside the commodity itself. Those details explain why two prices described as “oil” can tell different stories.

What would you want to understand first if a price on your screen suddenly crossed below zero?

References

• CFTC — Statement of Commissioner Dan M. Berkovitz on Recent Trading in the WTI Futures Contract, May 7, 2020. Supports the $17.73 opening price, −$37.63 settlement, and timing relative to expiration. This is an individual commissioner's statement.
• EIA — Low liquidity and limited available storage pushed WTI crude oil futures prices below zero, April 27, 2020. Supports delivery at Cushing, storage availability, the 76% tank-storage estimate, negative-price exits, and differences between oil benchmarks and contract months.
• CFTC — Staff Publishes Interim Report on NYMEX WTI Crude Contract Trading on and around April 20, 2020, November 23, 2020. Supports the combination of fundamental and liquidity factors and the report's limits. The hotel analogy and closing interpretation are our explanation.