What do negative oil prices mean?
Monday, 21st April 2020, is a day that will for long be remembered in the U.S. commodities market. This is when oil prices saw the worst crash in history and landed below zero USD per barrel. Negative pricing means that oil producers and traders in the U.S. market were essentially paying other market participants to take delivery of their oil.
Since the coronavirus outbreak began in January, the demand for oil in the international market has been plummeting. Thus, the supply, being far above the demand, demand dragged the prices down. This sudden and unexpected fall in demand for crude oil has left producers and traders with the scarcity of storage space. As per the U.S. Energy Information Administration, at Cushing, Oklahoma, which is the heart of the U.S. pipeline network, storage was 72% full on 10th April.
The non-availability of storage space has left the commodity effectively worthless. This crash is also a result of the way the oil is traded in the USA. A future contract entails delivering 1000 barrels of crude oil to Cushing. This is where energy companies own storage tanks with a capacity of about 76 million barrels. Each contract is traded for a month, and the May contract was to expire the next day, meaning oil was to be delivered to the holders of the contracts.
However, the investors did not want to accept the delivery as it could lead to additional storage cost without any demand for the commodity in the market. Therefore, they had to pay someone to take if off their hands.
Does it mean anything for the consumer?
Unfortunately, the price crash in the market could not transform into cheaper fuel for consumers. Although the prices could fall a little, but any major plunge is not expected.