How a Barrel of Oil Worth Zero ?
Know how a barrel of crude oil price came to worth Zero – Currently the crude Oil Prices are trading at -$37.63 and this price was hardly a surprise after coronavirus lockdowns hit demand. The historical Oil price of lifetime was seen at WTI market when futures contract for US benchmark West Texas Intermediate WTI closed Monday in New York at -$37.63.
It means crude oil producers were willing to pay someone to take the product off their hands. Prices fell so much that some traders paid buyers to take oil off their hands.
How could it be Zero or Negative ?
Technically in the future markets, it happens when the contract expires and the owner of the contract is technically supposed to take delivery of the crude. The oil storage terminal and refineries slowing their output as gasoline demand drops and pipeline capacity to get it out is limited.
It is well known that the oil price reflects the economic value of oil less than the cost of storing oil. As WTI requires physical delivery and storage is very expensive to access, the cost of storage in May exceeded the economic value of oil in May. Thus traders were ready to pay others to take it off their hands.
Those who speculate on oil futures and never want to hold it had to get out of the WTI May contract before it expires, adding to the downward pressure.One barrel is approximately 159 litre.