The pandemic had destroyed demand while opec infighting kept supply high. Storage at cushing filled toward its operational limit, and the May contract had one day of trading left. Longs who could not take delivery — including retail traders and an exchange-traded product with an enormous front-month position — had to sell at any price, and there was nobody able to buy because there was nowhere to put the oil.
The mechanical precondition was that CME had already changed its systems days earlier to permit negative prices, which most participants had not absorbed. Some retail platforms could not display or process a negative price at all, and several brokers took large losses on client debits.
The lessons are permanent. A physically delivered contract is a claim on a physical thing, and the price of that claim has no floor when storage is full. It is the strongest argument for respecting first-notice-day and for never assuming a price cannot go below zero.
Example: a trader long one May contract into the settlement owed 1,000 x $37.63 = $37,630 beyond the entire value of the position, on margin that had been a few thousand dollars. The June contract, a day further from delivery, never traded below $6.50.
Related: cushing, super-contango, first-notice-day, physical-delivery, opec