OIL PRICE CRASH 2020 https://abs.twimg.com/emoji/v2/... draggable="false" alt="🛢" title="Oil drum" aria-label="Emoji: Oil drum">

A quick summary on why oil prices have crashed

THREAD https://abs.twimg.com/emoji/v2/... draggable="false" alt="👇🏽" title="Down pointing backhand index (medium skin tone)" aria-label="Emoji: Down pointing backhand index (medium skin tone)">

WHAT HAS HAPPENED? https://abs.twimg.com/emoji/v2/... draggable="false" alt="🧠" title="Brain" aria-label="Emoji: Brain">

West Texas Intermediate (WTI) is the benchmark for U.S. oil

The price of a barrel of WTI has fallen to -$37

That& #39;s no typo

Prices for a barrel of WTI is NEGATIVE

I will explain further on in this thread

WHY HAVE OIL PRICES CRASHED? https://abs.twimg.com/emoji/v2/... draggable="false" alt="🤔" title="Thinking face" aria-label="Emoji: Thinking face">

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) https://abs.twimg.com/emoji/v2/... draggable="false" alt="📜" title="Scroll" aria-label="Emoji: Scroll">

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) https://abs.twimg.com/emoji/v2/... draggable="false" alt="📜" title="Scroll" aria-label="Emoji: Scroll">

Note: this price drop is due to the May contracts deadline on Tues 21 Apr

Traders sold their barrels so that they& #39;re not forced to collect their oil which they logistically can& #39;t do

This has led to them paying to get the oil taken off their hands

NEGATIVE OIL PRICES https://abs.twimg.com/emoji/v2/... draggable="false" alt="🤯" title="Exploding head" aria-label="Emoji: Exploding head">

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? https://abs.twimg.com/emoji/v2/... draggable="false" alt="📈" title="Chart with upwards trend" aria-label="Emoji: Chart with upwards trend">

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!