Date of this Version
Cornhusker Economics, June 17, 2020
Preventive measures adopted during the COVID-19 pandemic have changed our lives and businesses in many ways. Commodity markets have also witnessed unique events that were partially influenced by those changes. In April, for the first time in history, prices in a large exchange-traded futures market turned negative. Crude oil futures prices for May 2020 delivery were traded below zero on April 20 and 21, reaching a minimum of –$40.32/barrel. If I am selling crude oil to you for –$40.32/barrel, it means that I am giving you the contracted amount of crude oil and paying you $40.32/barrel to take my oil.
As unusual as it is, the negative crude oil prices in April actually reflected the current state of the cash market in April, as well as the structure of the futures market and how it is supposed to work. This unique event also highlighted the importance of understanding what futures prices really represent and how they are traded.