Some People Made Money on Negative Oil Prices

At 2:30 p.m. New York time on Monday, April 20, the May West Texas Intermediate crude oil futures contract closed at negative $37.63 per barrel. That was weird! We talked about it a lot, trying to piece together explanations for why a commodity that has essentially always traded at a positive price spent one day at an extremely negative price.

One fairly technical explanation that we discussed was the “trade-at-settlement” mechanism. In oil futures, you can do a TAS trade in which you agree, at some point during the day, to buy or sell oil futures at that day’s closing price, plus or minus a few pennies. So at 11 a.m. you can agree “I’ll sell futures at 2:30 today, at whatever the settlement price is then.” You might do that if you are benchmarked to the settlement price, if you are some sort of passive-ish trader whose job is to reflect the official daily price of oil rather than to time your trades exactly right.