Meme Thread:Simple explanation of Why US Oil Prices Dropped Below Zero?

Its important to know Oil is traded on its future price.The move in crude oil futures has to do wit factors like storage limits,expiring contracts.The future contracts are settled by physical delivery of oil

It means whoever is long on the contract when it stops trading will have to take delivery of physical crude. But because of oversupply due to Lockdown, storage tanks for WTI are becoming so full it is difficult to find space.

Note that each of these contract trades for a month. The May contract is due to expire on 21 April. Investors holding May contracts didn't want to take delivery of the oil and incur storage costs, and in the end had to pay people to take it off their hands.

There is extreme forced selling in this front-month contract(May) because any speculators that can’t take physical delivery have to sell these contracts today, no matter what.

This isn’t happening in Brent crude because Brent contracts are settle in cash.

Earlier this month, OPEC members & its allies finally agreed a record deal to slash global output by about 10%- the largest cut in oil production ever. Even in US oil-producing businesses have made decision to cut output. But still world has more crude oil than it can use.

Will the prices rebound soon? Nearly 30 million barrels per day has been pumped into storage worldwide in the past three months.

Even if demand were to return to pre-Corona levels, it would take a long time to burn off all that stored crude. So the answer is NO

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