We’ve been busy producing an animated video to explain the recent negative oil price meaning. It sounds like the end of the world but is the recent oil price turning negative really as bad as it sounds?

Negative Oil Price Explained

This isn’t anything to do with the price of oil at the pumps or even heating oil. It’s the price of oil in something called a futures contract. Normally these contracts trade between buyers and sellers with the price fluctuating a little.

Why is the Oil price negative?

Futures contracts work by setting a price for a commodity in the future, hence the name. The price set within the contracts that have turned negative is for delivery in May. But crucially the contract also sets delivery for Cushing, Oklahoma.

The type of oil West Texas Intermediate (WTI) used to trade at around $50 per barrel before the Coronavirus outbreak. Now with most of the worlds, airline fleet grounded the need for oil has slumped.

Normally this wouldn’t be a problem but due to a number of factors the Cushing oil storage facility is now full of oil. So the traders who have the May contracts and have delivery set for Cushing now find themselves with a contract which can’t be easily traded which is driving the negative oil price.

Negative Oil meaning

With the lack of need and the fact that Russia and Saudi Arabia have been producing more oil puts us in the position of a negative oil price meaning things are looking troubling.

negative-oil-prices

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Negative Oil price explained


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