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The Negative Pricing of the May 2020 WTI Contract

Fernandez-Perez, A., Fuertes, A-M. ORCID: 0000-0001-6468-9845 & Miffre, J. (2023). The Negative Pricing of the May 2020 WTI Contract. The Energy Journal, 44(1), doi: 10.5547/01956574.44.1.afer

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.

Publication Type: Article
Additional Information: This article has been accepted for publication in The Energy Journal by International Association for Energy Economics.
Publisher Keywords: WTI crude oil futures contract; Negative price; Contango; Cash and carry; Index trackers; Disinformation
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
Departments: Bayes Business School > Finance
[img] Text - Accepted Version
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