Did anyone buy oil when it was negative?
Among the many previously unthinkable moments of 2020, one of the strangest occurred on April 20, when the price of crude oil fell below zero. West Texas Intermediate futures, the most popular instrument used to trade the commodity, had started the day at $18 a barrel.
Prices went negative — meaning that anyone trying to sell a barrel would have to pay a buyer $30 — in part because of the way oil is traded. Futures contracts that require buyers to take possession of oil in May are expiring on Tuesday, and nobody wanted the oil because there was no place to store it.
US crude finished April 20, 2020, at minus-$37 a barrel, blowing past the zero mark that few imagined would ever be crossed. Negative oil is the equivalent of getting paid by your local Starbucks to take coffee off its hands. Nobody was driving. Everyone was hunkered down at their homes.
BB Energy, an oil trading house based in London, bought 250,0000 barrels of oil when US prices turned negative on April 20, raking in a huge profit, Bloomberg reported on Thursday.
The crash in demand that followed the spread of Covid-19, along with a price war between oil giants Saudi Arabia and Russia in early March spurred the move into negative prices. As the delivery date for WTI grew near, investors began a massive sell-off to take the contract off their hands.
When Oil Prices Went Subzero. The defining moment of the slump—an event many market veterans would scarcely believed they were seeing—came on April 20, 2020.
Crude Oil Cost
Crude oil is produced worldwide from various locations, such as tradition oil wells, deep-sea (ocean) wells, oil shale fracturing, and Canadian tar sands. The cost to produce a barrel varies from about $20 per barrel in Saudi Arabia's desserts to $90 per barrel for some deep-water wells.
On 20 April 2020, WTI Crude futures contracts dropped below $0 for the first time in history, and the following day Brent Crude fell below $20 per barrel.
As petroleum demand fell and U.S. crude oil inventories increased, West Texas Intermediate (WTI) crude oil traded at negative prices on April 20, the first time the price for the WTI futures contract fell to less than zero since trading began in 1983.
The Bottom Line. Oil prices plunged in the spring of 2020 in response to fears about the rapid spread of COVID-19. This triggered a shock to global economic demand amid the backdrop of an escalating oil price war between Russia and Saudi Arabia, two major oil producers.
Will crude oil expire?
There Is No “Use By” Date, But…
Although you can't lift an oil drum lid and sniff out bad oil like you would a gallon of milk, under the right conditions and improper exposure crude oil can, in fact, go bad. Oil doesn't contain materials that routinely expire as other products do.
Who Regulates Oil and Gas Extraction and Production? Exploration and production on state or private land are regulated by state law. As far as offshore oil deposits are concerned, the states regulate oil and gas operations in state waters, which extend to between 3 and 9 nautical miles from the shore.
Oil storage around the world is filling up, fast. Onshore tanks in most parts of the U.S. are at capacity, and the rest of the world isn't far behind. If refineries ultimately don't want oil, it has little to no value. If you have oil and nowhere to put it, it can have negative value.
The fact that a futures contract has a negative price does not mean the market is not functioning correctly. To the contrary, when supply and demand are that far out of equilibrium, the futures market would not be functioning correctly if it did not show a negative price.
Falling oil prices don't mean that consumers will suddenly get cheaper gas and other fuel products. In fact, it's highly unlikely that gas will ever be free, analysts told Markets Insider.
