Demand for oil has dried up as people from around the world have been locked in houses.
The US benchmark oil price for West Texas Intermediate (WTI) barrels have dropped minus $37.63 a barrel. That’s right, Oil producers were actually paying buyers to take stuff out of their hands.
The reason: With the outbreak leading the economy to a dead-stop, there has been so little used oil around that American energy companies have rushed out of the room to store it.
Understanding how intense the concern about the lack of stocks is, a month later the price on the futures contract was set at $20.43 per barrel. The gap between the two agreements became the largest ever.
The sharp plunge on Monday was partly offset by the technicality of the global oil market. The oil trades at its future prices and the May futures contracts are set to expire on Tuesday. Traders were eager to empty the holdings so that oil would not have to be delivered and storage would have to be spent.
Are prices likely to improve?
Yes, and very quickly. Negative US oil prices specifically refer to crude delivery prices in May, the month in which demand for oil is expected to be the lowest and supply is expected to remain high.
From Tuesday, oil traders will start trading barrels for delivery in June and higher prices are expected. A significant recovery of oil market prices depends on how quickly the requirement for transport fuels rises - a quick end to the lockdown will gear-up market price recovery, but a slower recovery from the COVID-19 crisis could cause more financial distress to oil producers by 2021.
Will petrol prices fall this year?
Petrol prices are expected to fall sharply this year as oil prices plunge.
But it is worth bearing in mind that the amount paid at the pump is not a complete reflection of the oil markets as petrol and diesel prices contain government taxes and profit margins for sellers. Negative oil prices will be short-lived, so no one should expect to pay to fill their cars.
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