Crude oil became zero and went in negative. You must have seen in the news that the price of crude oil has gone zero or gone into the negative (-37) … in a one-day price fall 300% and went in negative, Let’s see what happened behind oil prices…
Nobody would have thought that crude oil would be sold in zero Dollars or even price in negative, you do not have to pay money, you have to take money from the seller because of the price in the negative. So it is true? So let’s see…
The price that we see is of crude oil and we cannot use it directly and these prices will not reduce the prices of petrol and diesel in India. The oil prices that we see every day are per barrel, and in one barrel there are 169 liters of oil.
Why is it falling continuously?
The most reason is the Lockdown and Corona Virus. Due to this, there is a huge fall in the market, and the countries are suffering. See how the price of any products and other things decreases and increases, If demand is high in the market and supply is low then prices rise (up), and If demand is low and supply is high then price will decrease (down). Something similar has happened, There is no demand in the market due to lockdown. All behavior is closed, so there is no upfront sale and causing high falling in the market.
Getting the same about Crude oil, there is no movement in countries due to lock-down. Oil is used in transportation, oil industries, aviation industries, and many companies that use Crude oil as raw material (eg.paint industries). Due to the lock-down, there is no demand at all due to the closure of the entire sector. Therefore contentiously oil prices are falling.
Oil has two benchmarks, one Brent and one WTI (West Texas intermediate). Brent is used in Asia and Europe and WTI is used in the USA. WTI oil contract fell 300% on 21st APR and it happened the first time in history. Because the end of contract expiry no one was buying and there was no demand in the market, therefore, the price touched negatively number.
BUT WHY PRICE TOUCHES TO NEGATIVE NUMBER?
WTI’s physical delivery of oil takes place in Cushing and Oklahoma (US). Traders who buy in WTI futures are offered delivery in Cushing and Oklahoma. As per WTI conditions, If you have not sold oil before the expiry of contract then you have to take a compulsory delivery of oil from the delivery place. US Energy Information Administration had told that on the 10th April, their oil storage was filled up to 72% and now it is full. Those who were buy in the future of May contract and they have to take delivery at the time of expiry, but buyers where they store their oil because all storage is full already. And these people didn’t want to take delivery due to incur storage costs and permissions, they were ready to pay to the buyer to keep their delivery. Sellers are ready to pay to the buyer while they are selling and therefore the price went to negative. But for the June contract, it is trading for 20 dollars per barrel.
Those people who sold crude oil for -$37, due to did not having the facility to store oil…
If the storage is full So why oil producers didn’t stop production?
It is not so easy to stop the production of oil. If they turn it off then it will take a lot of money to start it again and it will cost even more. Once lock-down situation over then Crude oil prices will remain like before prices.