When Benchmarks Fail: The Causes and Consequences of Negative Oil Prices

Erik P. Gilje, Robert C. Ready, Nikolai Roussanov and Jérôme P. Taillard

No 34905, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: On April 20, 2020, the crude oil benchmark in North America, the West Texas Intermediate (WTI) futures contract for delivery in Cushing, Oklahoma, settled below zero for the first time in history. We combine new empirical evidence with a stylized theoretical model to show that a key catalyst was the accumulation of unusually large long positions in the expiring contract held by uninformed financial traders unable to take physical delivery. These positions distorted the demand signal in the futures market, intensifying pressure on the limited storage capacity and precipitating a sharp price dislocation. We then document that this dislocation significantly influenced oil production decisions through contractual exposure to WTI-based pricing. Even oil producers far from Cushing that were not directly impacted by the storage constraints responded with sharp output curtailments in the face of heightened benchmark risk. Our findings highlight how transitory futures price dislocations due to noise trader demand can have real economic consequences.

JEL-codes: G13 G14 G31 G40 (search for similar items in EconPapers)
Date: 2026-02
Note: AP CF EEE
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