Reporting on this is atrocious so let me explain. What happened today was a result of speculators being caught naked as the tide rushed out. No producers is going to pump oil at a negative sales price and no producer did. The oil futures market has producers, customers (refiners mostly), and traders derogatorily known as speculators. There may actually be more traders in in the market than producers and customers.
Here is an example. So a trader signed a futures contract back in January to take delivery of April oil at $45. He was hoping oil would be $55 and so he would pocket the spread between 55 and 45. He isn't a refiner so he basically plans to pass on his futures contract to a refiner at some point before he takes delivery of oil. Worst comes to worst, he takes delivery and rents storage for a month at about 10c a barrel until he decides to sell it. He has a long track record of doing this.
Along comes COVID19 and demand craters in March. The trader really doesn't want to offload his futures contract to book the loss when it is selling for $15. He would lose $30/bbl, that might actually make his company insolvent. So he keeps the futures contract open praying for a rebound. It becomes April, he has to take delivery 4/21 so he is getting nervous. WTI contracts aren't looking any better, and he still doesn't want to book the loss. Well, time to start booking storage....but everyone else is booking storage so storage is full in Cushing. Well, he can pay to transport it to the gulf coast and put it on a tanker...except everyone else is doing that too and he can't find pipeline capacity. So his only option is to sell the oil to a refiner. Well the refiners have all the cheap oil they can want so they have no incentive to buy April dated oil at $20, so he offers 15. No takers, he keeps dropping the price until it becomes 4/20. He has no storage, he has no buyer, and he is about to be in breach of his contract. (I don't know exactly what the penalty for this is but I imagine it would involve losing your ability to trade futures.) So he offers a negative price.
So lets look at what happened in this scenario. The producer made $45/bbl, the refiner got paid $35/bbl to bail out the middleman, and the dumb middleman who didn't think about the worst case got screwed.
So the oil price for futures dated in April went negative because of storage constraints, not because the market balance price is negative.
Don't get me wrong, lack of storage is a huge problem and when it becomes completely full oil prices will continue to fall. But production will be shut in and the oil price will remain positive except for a few trades like I describe above. I expect contract expiration dates to be very interesting until storage opens up again.
This is a scary time for speculators. Their security blanket of storage is almost gone. Yet they have to take delivery of oil. Mexico for example has 1.8 million bbls/day hedged in the $40s for the rest of the year. Whoever is on the other side of that hedge has to be freaking the fuck out.
