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See What Negative Crude-oil Price Means And How It Affects Us

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As got from theCable

In the history of trading US crude, this is the first time West Texas Intermediate, its benchmark, is trading in negative territory.

Yesterday, at 8:22pm , US WTI was trading at $-37.45 per barrel.

The prices were displayed on Bloomberg energy terminal.

While this is not good news for oil-producing countries, here are a few questions to help you better understand the situation.

Q: What does trading in negative territory mean?

A: A lay man’s way of understanding or explaining this is that traders will pay their customers for patronising them

Q: Is this a good thing?

A: No, it isn’t, because this means that Traders and oil exploring companies would be running at a loss.

It further means that there is no storage space to store excess production.

Q: Will this price be the same across the entire industry?

A: No, the negative price is only for US crude. Also, it only applies to May futures as the contract for June delivery is still at $22/barrel and July is at $27/barrel.

Q: Futures? What does that mean?

A: In the crude oil industry, refiners and other buyers can pay ahead for crude that would be delivered at a later date. Thus, some of the May futures would have been sold earlier in the year for as high as $50 or $60 if the customers negotiated or paid in January.

Q: So oil is not valueless yet?

A: No, it isn’t

Q: So how does this affect other producers?

A: This would serve as a warning for the Organisation of Petroleum Exporting Countries (OPEC) of how bad the demand problem has gotten.

Q: So what about the price of Nigeria’s crude oil?

A: Nigeria’s crude oil is benchmarked against the Brent crude. At present, the price of a barrel of Brent crude is $25. Although traders in the market said Nigeria’s Bonny Light was sold for between $13 and $15 recently, the price is not yet in negative territory.

Q: Will this blow over?

A: It is expected that the global economy will rebound gradually once coronavirus-induced lockdowns are lifted and activities resume.

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