Question

Why oil prices dropped below zero, in the U.S.A future market contracts.

Answer 1

Answer: Currently on going COVID 19 crisis when most of countries in the world have applied full or partial lockdown,economic activities have come to a halt.

U.S. has bern hit hard too.Economic activities today no where close to what it used be in past few months.Under such conditions US oil future prices fall below zero.

As future prices lock both seller and buyer with future price for a defined asset like oil in this case.Hence benefit of futures contracts is that they eliminate the price uncertainty.

As May futures price fell below zero to -$37.63 one of the main reasons of this fall in price below zero for future contract was due to future uncertainty only few who were willing to buy these contracts because oil storage space is extremely limited.

If they don't have space to store it rather when they do so they 'll face loss hence when everyone if selling and practically no 9ne willing to buy then prices go down.

Hope it helps!

Please do upvote.