Oil is a fossil fuel that was created over 250 million years ago. Negative oil prices will have a negative impact on the economy. The world is awash in oil as demand drops from businesses and consumers alike amid the coronavirus pandemic. We're also running out of places to store it. The price of U.S. benchmark crude that would be delivered in May was selling for around $15 a barrel Monday morning but fell as low as -$40 per barrel during the day. It was the first time that the price on a futures contract for oil has gone negative, analysts say.
What does it mean for oil prices to be negative?
Demand for oil has collapsed in recent weeks as the coronavirus pandemic has devastated practically all corners of the economy, eliminating much of the need for fuel to ship goods, ride on airplanes or commute to work. Without a use for it, the world’s biggest producers — the United States is high on that list — are running out of places to store all the oil that companies have continued to pump out of the ground.
Has the price of oil ever gone negative before?
The price of oil has never gone negative before. This is the first time that they have gone negative. Usually, this is smoothed out by the market, but the sharp pullback in demand combined with a glut of oil has led to a dearth of oil storage capacity. That made it hard for traders with contracts for crude delivery in May to find buyers, which sent the contract price into negative territory.
How will this impact the price of gas at the pump?
Cheap oil leads to cheaper prices at the pump, which are often viewed as a boon for consumers. Typically when oil prices fall, gasoline prices fall and that benefits consumers, the prices are falling because hardly anyone is driving so it's difficult to take advantage of the low gasoline prices.
Can I buy barrels of oil and store them and make money?
No, you can’t. The contract for oil traded in the United States is for delivery of oil at Cushing, Okla., a critical storage hub where lots of oil pipelines converge. Monday’s abnormal fall in prices was a reminder that the industry — and for that matter, the world economy — has changed a lot since the last oil crisis. For one, the United States is now one of the biggest producers in the world, and the country has in recent years been pumping out crude oil as fast it can.
What does it mean for the stock market?
The crash in oil prices is weighing on the stock market, with Dow Jones Industrial Average futures pointing to a decline of more than 2% on Tuesday morning. The plunge in the oil market is heightening concerns about the lasting impact of the pandemic.
Are oil companies paying people to take away their crude?
While some companies may be paying others to take away their crude oil, that does not appear to be widespread. We could see isolated incidents where oil companies pay people to take their oil away as storage and pipeline capacity become scarce but that is unlikely on a sustained basis.
What's going on with oil storage?
With far less gasoline and jet fuel being consumed, oil tanks are starting to fill up. Experts have been warning that global storage could fill up in late April or early May. That's led some producers to decide to move oil now, because space may become more valuable than the oil. There's so much oversupply, and storage is filling up.
Where will the oil go?
With many oil tanks filling up, the federal government is negotiating with companies to store crude oil in the Strategic Petroleum Reserve. But if all the storage tanks are full, oil companies will begin shut.
Why didn't the OPEC deal fix this?
Earlier this month, OPEC and its allies, with political pressure from the U.S. government, agreed to cut production by nearly 10 million barrels per day — about 10% of current global output. But some analysts feel the deal didn't go far enough to curb massive oversupply. It kept prices from falling farther for the time being, but there's still too much oil in the world.
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