Although commodity futures can go negative in unusual situations. During the pandemic, oil prices went negative because demand was low and production was still high, so the cost of storing it was driving the price down. The fact that it went negative was mostly due to speculators though.
An oil future in WTI makes you legally obligated to pickup the oil in West Texas or along its pipe network (most common pickup point is Arkansas IIRC).
So let’s say you bought an oil future for $0 at $0 a barrel. And now 10,000 barrels of oil are waiting for pickup. And let’s say you are a New York speculator and not actually someone with storage.
How do you get rid of the contract before you are penalized? Well, you sell it at -$10. But the guy who bought it for -$10 was also a New York speculator who thought the price couldn’t go any lower.
By the end of the day, the speculators were selling the contract for -$40 a barrel, because the penalty for missing the pickup date is very heavy.
Eventually, some trucker ‘Bought’ the contract at -$40 and made free money as the trucker just had to go there and pick up the oil.
It’s a bad headline, means negative for the day.
Although commodity futures can go negative in unusual situations. During the pandemic, oil prices went negative because demand was low and production was still high, so the cost of storing it was driving the price down. The fact that it went negative was mostly due to speculators though.
Oil futures were down. Not actual oil.
An oil future in WTI makes you legally obligated to pickup the oil in West Texas or along its pipe network (most common pickup point is Arkansas IIRC).
So let’s say you bought an oil future for $0 at $0 a barrel. And now 10,000 barrels of oil are waiting for pickup. And let’s say you are a New York speculator and not actually someone with storage.
How do you get rid of the contract before you are penalized? Well, you sell it at -$10. But the guy who bought it for -$10 was also a New York speculator who thought the price couldn’t go any lower.
By the end of the day, the speculators were selling the contract for -$40 a barrel, because the penalty for missing the pickup date is very heavy.
Eventually, some trucker ‘Bought’ the contract at -$40 and made free money as the trucker just had to go there and pick up the oil.