On April 20, 2020, WTI crude oil futures prices collapsed into unprecedented negative territory (closing at -$37.63/barrel). What primary physical and contractual factors caused this market event?

[ A ]The US Federal Reserve legally banned all motor vehicle driving across North America permanently.

[ B ]All oil wells across the world instantly dried up and ceased petroleum production forever.

[ C ]The May contract was expiring with mandatory physical delivery at Cushing, Oklahoma, where storage capacity was completely exhausted due to COVID-19 demand destruction, forcing contract holders to pay buyers to take delivery.[ CORRECT ]

[ D ]The New York Mercantile Exchange suffered an accidental computer glitch that multiplied all prices by -100.

Takeaway

Option C is correct: The May contract was expiring with mandatory physical delivery at Cushing, Oklahoma, where storage capacity was completely exhausted due to COVID-19 demand destruction, forcing contract holders to pay buyers to take delivery.

Derivation

On April 20, 2020, the May WTI futures contract approached its final expiration date. Due to global COVID-19 lockdowns, petroleum demand plummeted while global production remained high, filling commercial storage facilities at Cushing, Oklahoma to absolute capacity. Because WTI is a physically deliverable contract, non-commercial financial traders holding long positions had no storage access to take delivery of physical oil. Desperate to avoid taking delivery, traders liquidated long contracts at any price, driving prices negative (-$37.63/bbl). This tests real-world commodity market mechanics. The common error is viewing it as a software bug.

Why the others fail

A — The US Federal Reserve legally banned all motor vehicle driving across North America permanently.

Driving was temporarily restricted during lockdowns, but motor vehicle travel was never permanently banned by central banks.

B — All oil wells across the world instantly dried up and ceased petroleum production forever.

Global oil reserves remained abundant; the crisis was caused by catastrophic demand destruction and acute storage shortages.

D — The New York Mercantile Exchange suffered an accidental computer glitch that multiplied all prices by -100.

Negative pricing reflected real physical delivery and storage economic reality, not an exchange software calculation glitch.