What does the US oil prices falling below zero for the first time in history mean and why did it happen? Does that mean there is a fall in gas prices too when I pump petrol now? - Seedly
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Anonymous

Asked on 21 Apr 2020

What does the US oil prices falling below zero for the first time in history mean and why did it happen? Does that mean there is a fall in gas prices too when I pump petrol now?

Does anyone know?

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Wilson Nid A Break
Wilson Nid A Break
Level 9. God of Wisdom
Answered on 21 Apr 2020

From Bloomberg

  1. Why would a seller pay a buyer to take their oil?

For some producers, it may be cheaper in the long run than shutting down production or finding a place to store the supply bubbling out of the ground. Many worry that shutting their wells might damage them permanently, rendering them uneconomical in the future. There are also traders who buy oil futures contracts as a way of betting on price movements who have no intention of taking delivery of barrels. They can get caught by sharp price drops and face the choice of finding storage or selling at a loss. And the escalating glut of oil has made storage space scarce, and increasingly expensive.

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Clara Ng
Clara Ng, Community Manager at Seedly
Level 6. Master
Updated on 21 Apr 2020

Hi Anon, Since COVID-19 happened, travel has been severely cut as people all over the world stopped travelling. As a result, the demand for oil fell drastically and supply has been more than demand. Storage tanks for the West Texas Intermediate (WTI) are filling up quickly and storage space is running out fast.

But don’t get too happy if you think that it would mean a drastic fall in gas prices because it may not necessarily be the case. While gas prices might dip slightly, a plunge in gas prices like what we see for oil prices is not guaranteed.

For airlines, a fall in crude prices would make it cheaper to operate flights but we will not expect to see airlines actively increase their number of flights given the current situation with COVID-19.​​​

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