What does the negative price of oil mean for the industry, you and the world
What is a negative price?
For the first time in US history, US crude oil prices were trading in negative. In practice, this means that those in the market are paying each other to take oil out of their hands.
This historic decline has pushed oil companies around the world.
What caused this fall?
Every month, West Texas Intermediate (WTI) contracts are resolved. WTI is a US major oil contract that is traded on the New York Mercantile Exchange.
Futures contracts are contracts with prices and quantities agreed upon before the actual physical trading of the oil.
Each month, when the deal is resolved, several contracts are brought back to reality in exporting real crude oil.
This month, the contract settlements have gone without any hindrance.
Coronavirus infection has caused a third of crude oil demand worldwide. This is because of locking orders and travel restrictions. People don’t even travel inland.
On Monday, the deals approached the expiration date for the May delivery. Most countries are forecast to reach the peak of regulation in May, resulting in a dramatic drop in demand on that day, such as a reduced price.
A major factor contributing to the negative price is the lack of storage space for this crude oil. Crushing, Oklahoma is the WTI contract delivery point.
Nicknamed the “Pipeline Crossroads of the World“. At that point, there is nowhere to store excess crude oil, so traders are trying to load the barrels as quickly as possible.
On Sunday night, a barrel of crude oil was trading at $ 40, and by the end of Monday, it had fallen to $ 18 a barrel.
The combination of excess crude supply and lack of savings has led to a sharp fall in prices. If you can’t save it, you need to get rid of it, so you’re lowering the price.
What does it mean to you in the pump
Unfortunately for the public, crude oil prices do not directly determine retail gasoline prices. This does not mean that the negative price for crude oil will pay you to fill the gas station.
Wholesale gasoline prices are closely tied to pump prices, and those prices did not hit a major decline on Monday. The wholesale price fell 67 cents on Monday, but it was more than double the previous week.
Saudi Arabia, Russia and Trump
For the past month, there has been a web of drama around the world of crude oil. This devastating Monday is sure to provoke a flame of panic between OPEC and Russia.
Prices have been recognized as embarrassing for Saudi Arabia, Russia and President Donald Trump.
Saudi Arabia and Russia were embroiled in a brutal price war, as Saudi Arabia sought to force Russia to cut their crude oil supplies. This is the Saudi attempt to force higher oil prices.
President Trump is working out a deal with both countries as a price war between them promises to bankrupt US crude oil companies. Trump has called it “a big deal for all.”
Unfortunately, this price drop has changed the entire deal. The plan to cut crude oil supplies in May will not correct the current storage problem.
Now the U.S. There are some options, the federal government may seek additional supply cuts from OPEC, enforce tariffs on foreign oil imports, subsidize companies to avoid getting more oil off the ground or find more places to store wine.
Oil transport and storage companies have become the bell of the moment, so if you invest in these companies early this year, the fall represents a better future pay.
