April 20, 2020EconomicHigh

Negative Oil Prices

Year

2020

Region

United States (NYMEX WTI, Cushing, Oklahoma delivery hub); global oil market

Markets

Commodities، Macro، Prop Risk

Crisis

Crash، Liquidity Crisis، Volatility Spike، Leverage Unwind

Severity

High

Reading

4 min

Sources

Core lesson

Know what your contract actually obligates. A WTI future is a claim on physical barrels with a delivery date — if you hold an expiring contract you cannot settle, you are exposed to the cost of taking delivery, not just the price chart.

◵ Practice the pattern · Practice framework

⏱ 30-second summary

A WTI crude futures contract closed at minus $37 — the day "the price can't go below zero" was proven wrong.

Timeline

Early March 2020
Demand collapses while a price war floods supply
COVID-19 lockdowns wiped out global oil demand just as a Saudi Arabia–Russia price war pushed both to pump more. An already oversupplied market began to fill every available barrel of storage.
March 13 – May 1, 2020
The Cushing storage hub fills toward capacity
Commercial crude inventories at Cushing, Oklahoma — the physical delivery point for WTI futures — rose by 27 million barrels, reaching about 83% of working capacity. Spare, uncommitted storage was nearly gone.
April 20, 2020
The expiring May contract settles at minus $37.63
One day before expiry, holders of the May WTI contract who could not take physical delivery rushed to exit. With no buyers and storage full, the front-month price fell from $17.73 to settle at -$37.63 per barrel (intraday low near -$40.32) — negative for the first time since WTI trading began in 1983.
April 21, 2020
Negativity stays in the front month — not all of oil
The May contract expired and prices snapped back above zero. The June WTI contract and Brent stayed positive throughout — proof the shock was a delivery-and-liquidity event in one expiring contract, not a claim that oil itself was worthless.
November 23, 2020
CFTC interim report dissects the day
The U.S. derivatives regulator (CFTC) published an interim report confirming the -$37.63 settlement and attributing it to oversupply, the COVID demand collapse, exhausted storage, and unusually high open interest meeting collapsing liquidity into expiry.

What happened?

In April 2020 demand for oil collapsed and storage filled up. Holders of the expiring WTI futures contract had to take physical delivery they had nowhere to store — so they paid buyers to take it, driving the price to about minus $37 a barrel.

Traders and apps that assumed prices could never be negative saw their risk models break. Some retail platforms had software that literally could not display or handle a negative price.

Why markets reacted

A WTI futures contract is a promise to take physical delivery of real barrels at Cushing, Oklahoma. With storage nearly full and demand gone, holders of the expiring May contract had nowhere to put the oil. Selling at a negative price — literally paying someone to take the contract — became cheaper than being forced to receive a cargo they could not store.

The move was so extreme because it was a liquidity vacuum at expiry, not a slow repricing. Open interest was unusually high going into the final session, and the traders who needed to exit could not find buyers. With almost no bids, price did not glide lower — it fell through zero, because nothing in the contract or most trading software said it had to stop there.

Crucially, only the front-month contract went negative. June WTI and Brent stayed positive the whole time. The market was pricing the cost of immediate physical delivery into a full tank — not declaring oil worthless.

What traders usually get wrong

Thinking 'oil hit minus $37' means physical oil was free or negative. Only the expiring front-month financial contract did; barrels for later delivery and Brent stayed firmly positive.

Holding a deliverable futures contract into expiry without a plan to roll or close, assuming you could always cash out near the screen price.

Trusting that price 'can't' break a level. The whole event happened in the gap below an assumed hard floor of zero — exactly where no stop, hedge, or model existed.

Confusing this with a clean directional 'buy the dip' opportunity. The negative print was a delivery-and-liquidity squeeze in one contract, not a signal that crude was cheap to own.

The risk lesson for traders

Know what your contract actually obligates. A WTI future is a claim on physical barrels with a delivery date — if you hold an expiring contract you cannot settle, you are exposed to the cost of taking delivery, not just the price chart.
Liquidity is thinnest near expiry. Front-month contracts in the final session can have far fewer real buyers than they appear to; the exit you assumed would be there can simply vanish.
Never assume a price floor. 'It can't go below zero' was a hard-coded assumption in risk models and trading software — and the one scenario nobody had a stop or a plan for.
A single contract's price is not the asset's value. The May contract at -$37 did not mean oil was worthless; June and Brent stayed positive. Understand which instrument you are actually trading.

Practise this lesson in Map.Trade

Practice framework

Practice the pattern, not the exact event. Rehearse how thin liquidity near a futures expiry can leave no buyers and force exits at prices your model never assumed — including past a level you believed was a floor.

Replay Lab →Practice scenarios →Testing Workflow →Risk review →