The Negative Pricing of the May 2020 WTI Contract

Adrian Fernandez-Perez, Ana-Maria Fuertes and Joëlle Miffre

The Energy Journal, 2023, vol. 44, issue 1, 119-142

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
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Working Paper: 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:sae:enejou:v:44:y:2023:i:1:p:119-142

DOI: 10.5547/01956574.44.1.afer

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