The Negative Pricing of the May 2020 WTI Contract

Adrian Fernandez-Perez, Ana-Maria Fuertes and Joelle Miffre ()
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Adrian Fernandez-Perez: AUT - Auckland University of Technology
Joelle Miffre: Audencia Business School

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Abstract: This paper sheds light on the negative pricing of the May 2020 WTI futures contract (CLK20) on April 20, 2020. The super contango of early 2020, triggered by COVID-19 lockdowns and geopolitical tensions, incentivized cash and carry (C&C) traders to be long CLK20 and short distant contracts, while simultaneously booking storage at Cushing. Our investigation reveals that C&C arbitrage largely contributed to the lack of storage capacity at Cushing in April 2020 and the price crash relates to the reversing trades of many long CLK20 traders without pre-booked storage. Additional aggravating factors included a liquidity crush, staggering margin calls and potential price distortions due to the trade-at-settlement mechanism. The analysis suggests that claims from experts that hold index trackers responsible for the crash are unwarranted: Index trackers did not trigger the negative pricing, nor widen the futures-spot spread by rolling their positions to more distant contracts ahead of maturity.

Keywords: WTI crude oil futures contract; Negative price; Contango; Cash and carry; Index trackers; Disinformation (search for similar items in EconPapers)
Date: 2023-01-07
New Economics Papers: this item is included in nep-ene
Note: View the original document on HAL open archive server: https://audencia.hal.science/hal-03933797
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Citations: View citations in EconPapers (4)

Published in Energy Journal, 2023, 44 (1), pp.119-142. ⟨10.5547/01956574.44.1.afer⟩

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Related works:
Journal Article: The Negative Pricing of the May 2020 WTI Contract (2023)
Working Paper: The Negative Pricing of the May 2020 WTI Contract (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03933797

DOI: 10.5547/01956574.44.1.afer

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