Yesterday and today, some kinds of oil have been traded for negative prices.
Does it mean that I can take oil from seller and at the same time I get money? Or is the negative price connected only with derivatives and not physical delivery?
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asked Apr 21, 2020 at 13:59
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3$\begingroup$ The responsibility to take physical delivery is the reason for the negative price. $\endgroup$– chrylis -cautiouslyoptimistic-Apr 21, 2020 at 22:41
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4$\begingroup$ Related on Money.SE: What does it mean for the price of oil to be negative? $\endgroup$– Andrew T.Apr 22, 2020 at 9:28
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6$\begingroup$ 2k views in barely 1 day, must be a record for this Stack Exchange community. $\endgroup$– Daneel OlivawApr 22, 2020 at 17:02
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1 Answer
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The negative price that was all over the news was the front contract for WTI (West Texas Intermediate) futures that went to -40 and had a last trade date of 21.04.2020, so today.
This movement was connected to derivatives and among other explanations was the fact that traders were exiting positions in order to avoid the risk of taking delivery of physical oil barrels.
This kind of movement is common on roll dates but was highly exaggerated in the current context of sharply diminishing demand for oil and shortage of world storage.
So yes, you get paid to take oil off the hands of the seller, but bear in mind you will have to incur in transport and storage costs, and derivative prices normally reflect the cost of carry of the underlying asset.
answered Apr 21, 2020 at 14:26