Coronavirus UK: FTSE 100 down after global oil prices plunge below zero


Oil prices plunged below zero for the first time ever last night as demand for energy collapsed during the pandemic.

The benchmark measure for crude in the US plummeted to minus $35.20 (£28.30) a barrel. It means the country’s oil producers are paying buyers to take the barrels off their hands.

Much of the plunge was chalked up to technical reasons to do with the highly complex oil market – but was also highly symbolic of the devastating effect Covid-19 has had on the world economy.

Here is a guide to why the oil price has fallen so low:

HAS THE PRICE OF OIL EVER GONE NEGATIVE BEFORE?

Sometimes, the price on the future delivery of oil will get skewed by a surprise event, such an oil pipeline bursting. 

That can cause the price of a futures contract for a given month to be sharply higher or lower than that of the futures contract for the next month.

Usually, this is smoothed out by the market, but the sharp pullback in demand combined with a glut of oil has led to a dearth of oil storage capacity. 

That made it hard for traders with contracts for crude delivery in May to find buyers, which sent the contract price into negative territory.

ARE OIL COMPANIES PAYING PEOPLE TO TAKE AWAY THEIR CRUDE?

While some companies may be paying others to take away their crude oil, that does not appear to be widespread.

Many analysts described the dip in crude oil prices as technical, related to the way futures contracts are written. Most buyers are currently purchasing oil that would be delivered in June, not May.

Even so, there were more than 150,000 of those futures contracts that traded hands, enough volume to make it meaningful.

WHAT’S GOING ON WITH OIL STORAGE?

With far less petrol and jet fuel being consumed, oil tanks are filling up. Experts have warned that global storage could fill up in late April or early May.

That has led some producers to decide to move oil now, because the space may become more valuable than the oil.

WHERE WILL THE OIL GO?

With many oil tanks filling up, the federal government is negotiating with companies to store crude oil in the Strategic Petroleum Reserve. 

But if all the storage tanks are full, oil companies will begin shutting in wells, which can damage oil fields. Many tankers are full of oil and floating at sea.

WHY DIDN’T THE OPEC DEAL FIX THIS?

Earlier this month, the Organization of the Petroleum Exporting Countries (OPEC) and its allies, with political pressure from the US government, agreed to cut production by nearly 10 million barrels per day – about 10 per cent of current global output. 

But some analysts feel the deal didn’t go far enough to curb massive oversupply. It kept prices from falling farther for the time being, but there’s still too much oil in the world.

HOW WILL THIS AFFECT THE PRICE OF PETROL?

Cheap oil leads to cheaper prices at the pump, which are often viewed as a boon for consumers.

It was unclear last night whether the oil slump in the US would have a major impact on prices at pumps in the UK.

The average price in the US for a gallon of regular petrol fell to about $1.49 or less, more than $1 less than a year ago.

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