How can oil barrel prices be negative?

It’s like being paid for buying oil. In this infographic, it’s saying I could buy all these things by buying a barrel of oil. 


Anjali8
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7 comments

Because there is not enough storage for the crude...if OMCs are not taking from E&P companies...where to store extra oil so -ve   

Tetsuko, Anjali8

We can buy all that only if we get paid for buying oil. But, we wouldn't get paid.

The negative price for oil would be for oil storing and using companies and not retail consumers. The retail people get oil through channels of storage companies only, but, since they already purchased it for a price and are full, they would like to offset that price from us before buying anymore. If they are able to use reservoirs/inventories before oil prices increase, they and hence govt. might see a slight drop-down in prices and its upto govt. to pass it on to us or not. (Slight as using oil would derive oil demand up and hence prices automatically)

Naadan_Parinda, Tetsuko and 1 others like this

Negative pricing can occur when demand for a commodity drops to an extent that suppliers are prepared to pay others to take it away, in effect setting the price to a negative number. 

Essentially, Negative prices are a signal to either increase demand or reduce supply. 

Naadan_Parinda,
@upsc2020 Exactly 

There is limited storage for E&P companies as oil is transferred to the OMCs on a regular basis

hound said

We can buy all that only if we get paid for buying oil. But, we wouldn't get paid.

The negative price for oil would be for oil storing and using companies and not retail consumers. The retail people get oil through channels of storage companies only, but, since they already purchased it for a price and are full, they would like to offset that price from us before buying anymore. If they are able to use reservoirs/inventories before oil prices increase, they and hence govt. might see a slight drop-down in prices and its upto govt. to pass it on to us or not. (Slight as using oil would derive oil demand up and hence prices automatically)

That was detailed. Thanks

Oil is traded at a future price. This means that the negative price we are hearing about is for the month of May. The impact of the same will be seen in the upcoming days. As far as the negative pricing is considered, it is correctly mentioned about how the due to lockdown of most of the countries the demand for various commodities has fallen. This has further led to the fall in demand of oil that was consumed thereby leaving more oil at the storage facilities. Since storage facilities are full they are not buying any more oil. And as we all know a fall in demand will lead to a fall in prices.

The other side to this is that the production of oils can also not be suspended with immediate effect. Thus, oil-producing companies are literally ready to pay oil storage companies to take oil from them.

With relaxation in lockdown or by oil companies scaling up storage facilities, the prices are likely to show an upward trend again.

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