James Ball

The price of oil just hit $0 a barrel. What’s going on?

If you’ve ever wanted to own a barrel of oil, today might be your lucky day – for the first time in modern history, there are traders across the world who’ll let you have it for free. On Monday evening the price of oil futures plummeted, with one key oil price in the USA hitting $0 per barrel shortly after 7pm UK time. It sounds unbelievable – and illogical. Why go to such great efforts to extract oil, which was selling for $60 a barrel just three months ago – only to give it away for free? How did we get here?

The collapse in the world economy has led to a collapse in demand for oil, and pretty big problems for those who are trying to sell it. Oil doesn’t work like a share in a company – it’s not something you can just hold on to, waiting for the right sale price. If you buy an oil contract, you are buying an agreement to accept delivery, on a given date, of one barrel full of oil.

Oil is heavy, it’s toxic, and you have to supply your own barrel. It’s costly to ship and to store – and sorting all of that is the responsibility of whoever is holding the contract on its due date. The contract that hit $0 (though all oil prices have collapsed spectacularly) is for US oil to be delivered in May 2020.

Factories are currently producing (way( ) less, and so need less energy. We travel less during lockdown. We buy fewer cars. Demand for oil drops during any economic slowdown. But if you happen to have a huge warehouse, or a series of huge tankers, and oil is unusually cheap… why not stock up and wait for the market to recover? Those with the capacity have been doing exactly that already.

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Written by
James Ball
James Ball is the Global Editor of the Bureau of Investigative Journalism, which last month launched a two-year project looking into Russian infiltration of the UK elite and in London’s role in enabling overseas corruption

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