The Negative Pricing of the May 2020 WTI Contract
This paper sheds light on the negative pricing of the May 2020 WTI futures contract (CLK20) on April 20, 2020. The super contango of early 2020, triggered by COVID-19 lockdowns and geopolitical tensions, incentivized cash and carry (C&C) traders to be long CLK20 and short distant contracts, whil...
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| Veröffentlicht in: | The Energy journal (Cambridge, Mass.) Mass.), 2023-01, Vol.44 (1), p.119-142 |
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| creator | Fernandez-Perez, Adrian Fuertes, Ana-Maria Miffre, Joëlle |
| description | This paper sheds light on the negative pricing of the May 2020 WTI futures contract (CLK20) on April 20, 2020. The super contango of early 2020, triggered by COVID-19 lockdowns and geopolitical tensions, incentivized cash and carry (C&C) traders to be long CLK20 and short distant contracts, while simultaneously booking storage at Cushing. Our investigation reveals that C&C arbitrage largely contributed to the lack of storage capacity at Cushing in April 2020 and the price crash relates to the reversing trades of many long CLK20 traders without pre-booked storage. Additional aggravating factors included a liquidity crush, staggering margin calls and potential price distortions due to the trade-at-settlement mechanism. The analysis suggests that claims from experts that hold index trackers responsible for the crash are unwarranted: Index trackers did not trigger the negative pricing, nor widen the futures-spot spread by rolling their positions to more distant contracts ahead of maturity. |
| doi_str_mv | 10.5547/01956574.44.1.afer |
| format | Article |
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The super contango of early 2020, triggered by COVID-19 lockdowns and geopolitical tensions, incentivized cash and carry (C&C) traders to be long CLK20 and short distant contracts, while simultaneously booking storage at Cushing. Our investigation reveals that C&C arbitrage largely contributed to the lack of storage capacity at Cushing in April 2020 and the price crash relates to the reversing trades of many long CLK20 traders without pre-booked storage. Additional aggravating factors included a liquidity crush, staggering margin calls and potential price distortions due to the trade-at-settlement mechanism. The analysis suggests that claims from experts that hold index trackers responsible for the crash are unwarranted: Index trackers did not trigger the negative pricing, nor widen the futures-spot spread by rolling their positions to more distant contracts ahead of maturity.</description><identifier>ISSN: 0195-6574</identifier><identifier>EISSN: 1944-9089</identifier><identifier>DOI: 10.5547/01956574.44.1.afer</identifier><language>eng</language><publisher>Los Angeles, CA: SAGE Publications</publisher><subject>Adrenocorticotropic hormone ; Arbitrage ; Contracts ; Coronaviruses ; COVID-19 ; Crude oil ; Crush tests ; Energy economics ; Futures market ; Geopolitics ; Inventory ; Liquidity ; Nervous system diseases ; Petroleum ; Pituitary ; Prices ; Prices and rates ; Pricing ; Quantitative Finance ; Shelter in place ; Storage capacity</subject><ispartof>The Energy journal (Cambridge, Mass.), 2023-01, Vol.44 (1), p.119-142</ispartof><rights>The Author(s)</rights><rights>COPYRIGHT 2023 International Association for Energy Economics</rights><rights>COPYRIGHT 2023 Sage Publications Ltd. (UK)</rights><rights>Copyright 2023, The International Association for Energy Economics</rights><rights>The Author(s). 2023</rights><rights>Distributed under a Creative Commons Attribution 4.0 International License</rights><lds50>peer_reviewed</lds50><oa>free_for_read</oa><woscitedreferencessubscribed>false</woscitedreferencessubscribed><citedby>FETCH-LOGICAL-c596t-878926b490f3c2089759b43a09a3991328ced7a04952ffa1335e1c675664504f3</citedby><cites>FETCH-LOGICAL-c596t-878926b490f3c2089759b43a09a3991328ced7a04952ffa1335e1c675664504f3</cites></display><links><openurl>$$Topenurl_article</openurl><openurlfulltext>$$Topenurlfull_article</openurlfulltext><thumbnail>$$Tsyndetics_thumb_exl</thumbnail><linktopdf>$$Uhttps://journals.sagepub.com/doi/pdf/10.5547/01956574.44.1.afer$$EPDF$$P50$$Gsage$$H</linktopdf><linktohtml>$$Uhttps://journals.sagepub.com/doi/10.5547/01956574.44.1.afer$$EHTML$$P50$$Gsage$$H</linktohtml><link.rule.ids>230,314,776,780,881,21798,27901,27902,43597,43598</link.rule.ids><backlink>$$Uhttps://audencia.hal.science/hal-03933797$$DView record in HAL$$Hfree_for_read</backlink></links><search><creatorcontrib>Fernandez-Perez, Adrian</creatorcontrib><creatorcontrib>Fuertes, Ana-Maria</creatorcontrib><creatorcontrib>Miffre, Joëlle</creatorcontrib><title>The Negative Pricing of the May 2020 WTI Contract</title><title>The Energy journal (Cambridge, Mass.)</title><description>This paper sheds light on the negative pricing of the May 2020 WTI futures contract (CLK20) on April 20, 2020. The super contango of early 2020, triggered by COVID-19 lockdowns and geopolitical tensions, incentivized cash and carry (C&C) traders to be long CLK20 and short distant contracts, while simultaneously booking storage at Cushing. Our investigation reveals that C&C arbitrage largely contributed to the lack of storage capacity at Cushing in April 2020 and the price crash relates to the reversing trades of many long CLK20 traders without pre-booked storage. Additional aggravating factors included a liquidity crush, staggering margin calls and potential price distortions due to the trade-at-settlement mechanism. The analysis suggests that claims from experts that hold index trackers responsible for the crash are unwarranted: Index trackers did not trigger the negative pricing, nor widen the futures-spot spread by rolling their positions to more distant contracts ahead of maturity.</description><subject>Adrenocorticotropic hormone</subject><subject>Arbitrage</subject><subject>Contracts</subject><subject>Coronaviruses</subject><subject>COVID-19</subject><subject>Crude oil</subject><subject>Crush tests</subject><subject>Energy economics</subject><subject>Futures market</subject><subject>Geopolitics</subject><subject>Inventory</subject><subject>Liquidity</subject><subject>Nervous system diseases</subject><subject>Petroleum</subject><subject>Pituitary</subject><subject>Prices</subject><subject>Prices and rates</subject><subject>Pricing</subject><subject>Quantitative Finance</subject><subject>Shelter in place</subject><subject>Storage capacity</subject><issn>0195-6574</issn><issn>1944-9089</issn><fulltext>true</fulltext><rsrctype>article</rsrctype><creationdate>2023</creationdate><recordtype>article</recordtype><sourceid>N95</sourceid><sourceid>8G5</sourceid><sourceid>BENPR</sourceid><sourceid>GUQSH</sourceid><sourceid>M2O</sourceid><recordid>eNp9kktLAzEUhYMoWKt_wNWAK8EZ85xMlqWoLdTHouIypGkyTWlnNJkW-u_NMD6hNIEEDt-53HO5AFwimDFG-S1EguWM04zSDGXKGn8EekhQmgpYiGPQa4G0JU7BWQhLGA_lRQ-g6cIkT6ZUjdua5MU77aoyqW3SRP1R7RIMMUzepuNkWFeNV7o5BydWrYK5-Pr74PX-bjocpZPnh_FwMEk1E3mTFrwQOJ9RAS3RODbBmZhRoqBQRAhEcKHNnCtIBcPWKkQIM0jnnOU5ZZBa0gfXXd2FWsl379bK72StnBwNJrLVIBGEcMG3KLJXHfvu64-NCY1c1htfxfYkgaLgiBEGD1GY5wiJmBX_UqVaGekqW7ex1y5oOeCEQhaDsUile6jSVMarVV0Z66L8j8_28PHOzdrpvYabP4bZJrjKhPgEVy6aUKpNCP9x3OHa1yF4Y39GhqBsV0R-r4ikVCLZrkg03XamoErzO4wDjk8la7Wc</recordid><startdate>20230101</startdate><enddate>20230101</enddate><creator>Fernandez-Perez, Adrian</creator><creator>Fuertes, Ana-Maria</creator><creator>Miffre, Joëlle</creator><general>SAGE Publications</general><general>International Association for Energy Economics</general><general>Sage Publications Ltd. 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capacity</topic><toplevel>peer_reviewed</toplevel><toplevel>online_resources</toplevel><creatorcontrib>Fernandez-Perez, Adrian</creatorcontrib><creatorcontrib>Fuertes, Ana-Maria</creatorcontrib><creatorcontrib>Miffre, Joëlle</creatorcontrib><collection>CrossRef</collection><collection>Gale Business: Insights</collection><collection>Business Insights: Essentials</collection><collection>ProQuest Central (Corporate)</collection><collection>Electronics & Communications Abstracts</collection><collection>Mechanical & Transportation Engineering Abstracts</collection><collection>ABI/INFORM Collection</collection><collection>ABI/INFORM Global (PDF only)</collection><collection>ProQuest Central (purchase pre-March 2016)</collection><collection>ABI/INFORM Global (Alumni Edition)</collection><collection>Military Database (Alumni Edition)</collection><collection>Science Database (Alumni Edition)</collection><collection>STEM Database</collection><collection>Technology Research 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Ana-Maria</au><au>Miffre, Joëlle</au><format>journal</format><genre>article</genre><ristype>JOUR</ristype><atitle>The Negative Pricing of the May 2020 WTI Contract</atitle><jtitle>The Energy journal (Cambridge, Mass.)</jtitle><date>2023-01-01</date><risdate>2023</risdate><volume>44</volume><issue>1</issue><spage>119</spage><epage>142</epage><pages>119-142</pages><issn>0195-6574</issn><eissn>1944-9089</eissn><abstract>This paper sheds light on the negative pricing of the May 2020 WTI futures contract (CLK20) on April 20, 2020. The super contango of early 2020, triggered by COVID-19 lockdowns and geopolitical tensions, incentivized cash and carry (C&C) traders to be long CLK20 and short distant contracts, while simultaneously booking storage at Cushing. Our investigation reveals that C&C arbitrage largely contributed to the lack of storage capacity at Cushing in April 2020 and the price crash relates to the reversing trades of many long CLK20 traders without pre-booked storage. Additional aggravating factors included a liquidity crush, staggering margin calls and potential price distortions due to the trade-at-settlement mechanism. The analysis suggests that claims from experts that hold index trackers responsible for the crash are unwarranted: Index trackers did not trigger the negative pricing, nor widen the futures-spot spread by rolling their positions to more distant contracts ahead of maturity.</abstract><cop>Los Angeles, CA</cop><pub>SAGE Publications</pub><doi>10.5547/01956574.44.1.afer</doi><tpages>24</tpages><oa>free_for_read</oa></addata></record> |
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| ispartof | The Energy journal (Cambridge, Mass.), 2023-01, Vol.44 (1), p.119-142 |
| issn | 0195-6574 1944-9089 |
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| source | SAGE Complete A-Z List; Business Source Complete |
| subjects | Adrenocorticotropic hormone Arbitrage Contracts Coronaviruses COVID-19 Crude oil Crush tests Energy economics Futures market Geopolitics Inventory Liquidity Nervous system diseases Petroleum Pituitary Prices Prices and rates Pricing Quantitative Finance Shelter in place Storage capacity |
| title | The Negative Pricing of the May 2020 WTI Contract |
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