Understanding the Negative Pricing of the NYMEX WTI Crude Oil May 2020 Futures Contract

31 Pages Posted: 16 Dec 2020

See all articles by Adrian Fernandez-Perez

Adrian Fernandez-Perez

Auckland University of Technology

Ana-Maria Fuertes

Cass Business School, City University of London

Joëlle Miffre

Audencia Business School

Date Written: December 14, 2020

Abstract

Energy market pundits blamed United States Oil fund (USO), the largest WTI crude oil exchange traded fund, for the negative pricing of the May 2020 contract (known as CLK20) observed on April 20, 2020. Using Granger-causality tests, this article shows that USO influenced neither the price of CLK20, nor the price of any other WTI contracts it ever traded. We argue that a disastrous blend of macroeconomic and geopolitical conditions, such as a rising supply triggered by geopolitical tensions concurrent with a demand shattered by Covid-19 lockdowns, provoked a super-contangoed WTI futures market. The steep upward-sloping term structure of WTI futures prices, in turn, led to a spree of cash-and-carry arbitrages that depleted the spare storage capacity at Cushing. The realization of this capacity blowout induced a panic selling amongst long CLK20 investors that eventually lead to the negative pricing.

Keywords: WTI crude oil, Negative price, Theory of storage, Contango, Cash and carry

JEL Classification: G13, G14, Q4

Suggested Citation

Fernandez-Perez, Adrian and Fuertes, Ana-Maria and Miffre, Joelle, Understanding the Negative Pricing of the NYMEX WTI Crude Oil May 2020 Futures Contract (December 14, 2020). Available at SSRN: https://ssrn.com/abstract=3748321 or http://dx.doi.org/10.2139/ssrn.3748321

Adrian Fernandez-Perez

Auckland University of Technology ( email )

AUT City Campus
Private Bag 92006
Auckland, 1142
New Zealand
+64 9 921 9999 (Phone)
+64 9 921 9940 (Fax)

Ana-Maria Fuertes

Cass Business School, City University of London ( email )

Faculty of Finance
106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44 207 477 0186 (Phone)
+44 207 477 8881 (Fax)

HOME PAGE: http://www.city.ac.uk/people/academics/ana-maria-fuertes

Joelle Miffre (Contact Author)

Audencia Business School ( email )

8 Road Joneliere
BP 31222
Nantes Cedex 3, 44312
France

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
123
Abstract Views
424
rank
277,488
PlumX Metrics