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OIL PRICE CRASH 2020 
A quick summary on why oil prices have crashed
THREAD
A quick summary on why oil prices have crashed
THREAD
WHAT HAS HAPPENED? 
West Texas Intermediate (WTI) is the benchmark for U.S. oil
The price of a barrel of WTI has fallen to -$37
That's no typo
Prices for a barrel of WTI is NEGATIVE
I will explain further on in this thread
West Texas Intermediate (WTI) is the benchmark for U.S. oil
The price of a barrel of WTI has fallen to -$37
That's no typo
Prices for a barrel of WTI is NEGATIVE
I will explain further on in this thread
WHY HAVE OIL PRICES CRASHED? 
1. Coronavirus has reduced economic activity
This has led to lower demand for oil
2. Saudi Arabia & Russia (2nd & 3rd largest oil producers) increased production
This has led to excess supply of oil
1. Coronavirus has reduced economic activity
This has led to lower demand for oil
2. Saudi Arabia & Russia (2nd & 3rd largest oil producers) increased production
This has led to excess supply of oil
"FUTURE" CONTRACTS (1/2) 
Oil is traded on a "future" contract in the U.S.
Essentially, you pay now and it gets delivered later
- Whoever owns the contract when it expired is obliged to take full delivery of the barrel of oil
Oil is traded on a "future" contract in the U.S.
Essentially, you pay now and it gets delivered later
- Whoever owns the contract when it expired is obliged to take full delivery of the barrel of oil
"FUTURE" CONTRACTS (2/2)
Note: this price drop is due to the May contracts deadline on Tues 21 Apr
Traders sold their barrels so that they're not forced to collect their oil which they logistically can't do
This has led to them paying to get the oil taken off their hands
Note: this price drop is due to the May contracts deadline on Tues 21 Apr
Traders sold their barrels so that they're not forced to collect their oil which they logistically can't do
This has led to them paying to get the oil taken off their hands
NEGATIVE OIL PRICES 
Traders are being paid $40 to take a barrel of oil
Why?
Buyers do not want to own oil with nowhere to store it
Storage capacity is nearly full due to a drop in demand due to coronavirus lockdown
This storage could run out in a matter of weeks
Traders are being paid $40 to take a barrel of oil
Why?
Buyers do not want to own oil with nowhere to store it
Storage capacity is nearly full due to a drop in demand due to coronavirus lockdown
This storage could run out in a matter of weeks
WILL LOW OIL PRICES HELP THE ECONOMY? 
Yes...in normal circumstances
However:
Demand for oil is low due to current global lockdown
Low oil prices will not stimulate demand as people have no use for oil!
Yes...in normal circumstances
However:
Demand for oil is low due to current global lockdown
Low oil prices will not stimulate demand as people have no use for oil!
