Oil Traders Not Sure They Like Oil

It will be a little weird if the price of oil goes negative next month. I mean, it could happen; it happened this month. The last trade of the NYMEX June West Texas Intermediate crude oil future will be on May 19; anyone long June futures after that will have to take delivery of a bunch of oil in June in Cushing, Oklahoma, where there is not a lot of space to store oil. The last trade of the May WTI futures was on April 21, and on April 20, as financial traders with long positions scrambled to get out of the contract, the price fell to negative $37.63 per barrel. Then on April 21 it was fine again, and the contract finished at $10.01. Even on April 20, most trades in the May futures happened at positive prices. But toward the end of the day, panic—or something—set in, and for a short period people were paying to get rid of their oil futures.

The June futures contract, meanwhile, was in the $20s all day that day; the next day it fell a lot, hitting $11.57, still a significantly positive number. Yesterday’s closing price was $12.78; this morning it fell to just above $10, and then recovered some. If you own June oil you still have a few weeks to get out of it without taking delivery, but the whole point of financial markets is to do this sort of backward induction. If on May 19 everyone is going to be panicking and selling June oil contracts for negative $37, then on May 18 you should not buy those contracts for much more than negative $37, which means that on May 17 you should not, etc., so the price should be negative now. The price is not negative now. This implies not only that futures traders, who want to own only abstract paper oil, think that that oil is worth $12 or whatever, but also that they expect that, as May 19 rolls around and that abstract paper oil is converted into physical oil, it will still be worth a positive number of dollars.