The price of a barrel of crude varies based on factors such as
supply, demand and quality. Supply of fuel has been far above demand since the
coronavirus forced billions of people to stop traveling.
The price of a
barrel of benchmark US oil plunged below $0 a barrel on Monday for the first
time in history, a troubling sign of an unprecedented global energy glut as the
coronavirus pandemic halts travel and curbs economic activity.
The contract for West Texas intermediate crude, or WTI, is the benchmark for US crude oil prices.
Such a steep drop
in the oil benchmark prompted strong reactions beyond trading floors. Here is
an explanation of what negative crude prices mean in the real world:
What Does a
negative future price mean?
The price of a
barrel of crude varies based on factors such as supply, demand and quality.
Supply of fuel has been far above demand since the coronavirus forced billions
of people to stop traveling.
Because of
oversupply, storage tanks for WTI are becoming so full it is difficult to find
space. The US Energy Information Administration said last week that storage at
Cushing, Oklahoma, the heart of the US pipeline network, was about 72% full as
of April 10, the Reuters reported.
"There's no
available storage anymore so the price of the commodity is effectively
worthless," said Bob Yawger, director of futures at Mizuho in New York.
"So when it's minus a dollar, they'll pay you a dollar to get it out of
there."
The price plunge
was partly due to the way oil is traded. A futures contract is for 1,000
barrels of crude, delivered into Cushing, where energy companies own storage
tanks with roughly 76 million barrels of capacity.
Each contract
trades for a month, with the May contract due to expire on Tuesday. 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.
The June contract,
with delivery a month away, is still trading at above $20 a barrel, but the
price crash indicates that most storage space has been gobbled up
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