(Non-)Essential Oils

by | Apr 21, 2020

The coronavirus pandemic has ‘broken’ the oil market: On Monday, US oil to be delivered in May settled at -$37.60 per barrel, the first negative close in history.

The negative price means producers, which are running out of storage space as demand for energy collapses, are willing to pay buyers to take crude oil off their hands.

“I’m shell shocked,” Bjornar Tonhaugen, head of oil markets at Rystad Energy, said. There is normally some volatility at the end of a contract period. But this indicates that the oil market is “officially broken” as storage piles up, he said.

Why it matters: The incredible dislocation in oil markets is a sign of just how much the coronavirus pandemic is upending investors, even as stocks have stabilized. No one can say when demand for oil will recover, and the economic effects could be felt for months and years to come.

No, negative oil prices don’t mean the gas station will pay you to fill up. Crude oil prices only have an indirect impact on the retail price for a gallon of gasoline. Oil refineries make are needed to make gasoline from crude oil and gas stations have operating costs. So, gas prices are decreasing, but don’t expect them to go negative any time soon.

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