US West Texas Intermediate (WTI) crude oil front-month futures on the New York Mercantile Exchange (NYMEX) plunged to below zero on April 20 for the first time since 1983 when the contract was introduced. At one point WTI May contract collapsed to as low as negative $40.32/barrel, the prices remained negative in the following part of the trading day.
The US Energy Information Administration (EIA) attributed the historic slump to the low liquidity and limited available storage. Traders that hold WTI futures contracts were unable to find buyers through expiration. Hence, they store the unwanted crude oil in tank farms in Cushing, Oklahoma. However, the available storage in the hub was limited, and it might have already been leased or committed.
The scarcity and high cost of available storage provided incentives for market participants to resort to selling their futures contracts at negative prices. The freefall in demand for crude oil and petroleum products has affected the normal physical settlement process in Cushing. US refinery runs dropped by 24% year-on-year to 12.8 million bpd in the week ended April 17. As a result, Cushing storage was 76% full.
EIA expected the availability of storage in Cushing would continue to weigh on US WTI pricing in the coming weeks. It can also affect the prices of other US crude grades.
