Negative Oil Futures Explained

[Pgutierrez]

Why WTI Crude Oil traded at minus -$37

Imagine the following...you pay $500 today and commit to receiving an escort at your house in 15 days. Cos your wife is traveling. This is called a futures contract.

Unfortunately, lockdown came and your wife will be home for the next 60 days.

You do not want this woman to show up at your house at all and try to pass this futures contract to someone else.

Only you cannot sell this commitment because nobody can receive the escort at home anymore. Everyone is in full storage (their balls) with wife.

To make matters worse, not even the pimp (Chicago Mercantile exchange) has more room to receive girls because his house is crowded with girls.

So you will pay anyone just to take the girl off your hands.

Do you now understand why oil has a negative price when the contract is delivered?

[Afrakes]

Thanks for the laugh.

[Sailmonkey]

That the most captivating explanation yet!

[Magic1st]

Best explanation ever.. lol

[denverd0n]

And it is a good explanation. A lot of people seem to think that the "negative price" thing with oil meant that someone was saying, "take oil from me, right now, today, and I will pay you to take it." No, not like that at all. It is unusual for commodities futures to go negative, but it is most certainly not unheard of.

[RaymondR]

It could happen that an oil company paid someone to take oil off their hands.

Some wells will not start re-flowing if shut in and might require the assistance of nitrogen or another gas to get restarted. If the cost of this exceeded the cost of having someone accept the oil for storage one might pay for the service. Oil company accountants are very strict, un-sentimental, bottom line, sort of people.

But I still like the comfort lady explanation better.