January 28, 2021

What Negative Oil Prices Mean and How the Impact Could Last

This had never happened before, and experts do not expect prices to stay negative for days or weeks. Demand for oil is likely to remain tepid for months because few experts believe the economy will quickly rebound to where it was before the pandemic.

But the low prices will also put pressure on oil companies and countries like Saudi Arabia and Russia, huge producers, to pump less oil because they themselves will run out of room to store it. That should, over time, help lift prices — or at least slow down declines.

No, you can’t. The contract for oil traded in the United States is for delivery of oil at Cushing, Okla., a critical storage hub where lots of oil pipelines converge.

In addition, each contract is for 1,000 barrels of oil, or about five tanker trucks’ worth. Even if you had a place to park five tanker trucks filled with oil, you would be hard pressed to find a trader willing to sell you a single contract. Most trades are for many times that amount.

Monday’s abnormal fall in prices was a reminder that the industry — and for that matter, the world economy — has changed a lot since the last oil crisis. For one, the United States is now one of the biggest producers in the world, and the country has in recent years been pumping out crude oil as fast it can.

The steep rise in output has outpaced the world’s need for energy, a problem that is magnified by the coronavirus.

What’s not known is how long this slowdown will last, as well as the long-term consequences of an economic recession, and if that will fundamentally change how much oil the world needs.

Article source: https://www.nytimes.com/article/negative-oil-prices-facts-history.html

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