If there is one fact that the coronavirus pandemic is proving over and over again then that is “nothing is impossible”. Majority of us are spending our days in the lounge or bedroom having nothing to do, we have finally moved onto eating healthy at home, everyone now has time to spend it with their loved ones and more importantly, there is no unnecessary stress – just the way we had always wished our lives to be (only if we look at the brighter side of the situation)
And just when all of it was not enough, the unimaginable drop in oil prices has just happened. It’s the first time in the history of the US that the oil prices have ended up trading in negative (lowest recorded -$37.63). With that, it’s also the first time that the Middle East is giving Eidi to the world a kind people will remember for a long time.
Moreover, not missing out on the opportunity, Twitteratis created a meme fest in which either some were still shocked, while others were making plans for becoming billionaires soon.
What does a negative oil price mean?
Oil is a commodity that is usually traded at its future price. Every contract trade goes on for a month and the May contracts were set to expire by today. To put it into simple words, with negative oil prices the commodity producers want purchasers to take oil off their hands because the storage facilities are expected to run out of capacity by the end of May. The commodities don’t want further possession of oil holdings as that increases the storage costs.
This is a result of global supply-demand imbalance as the industries are closed all around the world, therefore, most of the countries already have enough oil to fulfill their requirements or the under-developing states, in particular, want to take advantage of the pandemic for clearing their balance of payment crisis.
How do the prices reflect the economy?
The negative prices aren’t a true reflection of a commodity’s value. Much of the responsibility for this decline falls onto the underlying complications of the global oil trading market. So, while a better indicator can be the prices of oil for June, the chances of an increase are still very unlikely because the supply-demand imbalance will last for as long as the world gets rid of COVID-19.
Will the drop be of any benefit for the consumer?
This crash in crude oil’s future prices doesn’t necessarily mean that you will see prices at gas pumps going down. The world will get to see gasoline prices, diesel prices and jet fuel prices drift lower into May 2020 but the probability of benefiting the consumers with the unprecendent drop will remain inversely proportional to the demand.