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1 1 (April 22, 2020)

handle is hein.crs/govdadn0001 and id is 1 raw text is: i% 'N\ r Crude Oil Futures Prices Turn Negative April 22, 2020 What Happened? On April 20, 2020, the futures contract price for the immediate month (May) of West Texas Intermediate (WTI), the U.S. benchmark crude, went n gatfiv (see Figure 1). The May futures contract price fell $55.90 during the day, to close at negative $37.62 per barrel. The futures price is a contract, usually monthly, for delivery of a certain amount of crude oil, on a specified date in the future, and at a particular location (Cushing, OK for WTI). WTI crude oil futures contracts are traded on the New York Mercantile Exchange (NYMEX). According to data from the U.S. Energy Information Administration (EIA), this is the first time in history that WTI prices became negative. However, other commodity prices, including natural gas and propane, have previously traded negatively. The May futures contract for WTI expired on April 21. Trading volumes shifted away from the expiring immediate month to the next month (June) contract. Any contracts remaining at the end of the day for the May futures contract will be those that can make or take delivery at Cushing, OK. As shown on Figure 1, the biggest price decline corresponded with a jump in the contract volume. Traders looking to buy were hicenti vized by cheaper contracts. However, as prices continued to fall, contracting dropped. One reason this may have occurred is that financial traders-traders that cannot take physical delivery of crude oil- needed to sell before the contract expiration. Prices for other crude oil contract months also declined. The June contract for WTI dropped $4.60 to $20.43 per barrel at the close on April 20 from the previous close on April 17. Additionally, the Brent price, the main international crude oil benchmark price, for May closed at $23.35 per barrel, down $2.29; for June Brent fell to $25.57 per barrel, down $2.51. WTI futures contracts require the contract owner to take physical delivery of the crude oil soon after the futures contract expiry or face large fines, penalties, and fees. In contrast, Brent futures contracts settle financially not physically. Congressional Research Service https://crsreports.congress.gov IN11354 CRS NStGHT Prepared for Members and Committees ootCongress ...........................................................................................................................................................................................................

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