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How can the price of oil be negative? Euronews answers

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In this Wednesday, April 8, 2020, file photo, the sun sets behind an idle pump jack near Karnes City, Texas.
In this Wednesday, April 8, 2020, file photo, the sun sets behind an idle pump jack near Karnes City, Texas.   -   Copyright  AP Photo/Eric Gay
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The price of U.S. crude oil fell below $0 for the first time ever on Monday as economies worldwide grind to a halt due to the COVID-19 pandemic.

Euronews breaks it all down.

How is the price of oil calculated?

Like pretty much everything else, the price of oil is based on global supply vs global demand.

As the COVID-19 pandemic spread, factories around the world have shut down or massively reduced their activity. The transport industry has all but stopped and confined people no longer need to take their cars.

Oil stocks have thus not depleted as fast as anticipated but pumping activity has continued so the price for futures contracts — when buyers and sellers agree on a price for delivery on a given date in the future — for the month of May have plummeted to as much as -$37.

Will it continue?

Difficult to say but economies worldwide are slowly reopening as lockdown measures are progressively lifted. This should prompt the demand for oil to increase again and thus push the price higher.

And most traders had already moved past the month of May.

"In my view, today's move was more technical in nature and related to the futures contract expiration," Ryan Fitzmaurice, energy strategist at Rabobank, said.

The price of a barrel of oil for delivery in June is still positive for instance and closed on Monday at above $20.

What are producing countries doing?

Oil producers have already taken steps to regulate the price of oil with members of OPEC — the Organisation of the Petroleum Exporting Countries — agreeing earlier this month to an unprecedented production cut of nearly 10 million barrels a day so as to not completely saturate the market.

What does it mean for you?

A sustained drop in the price of oil usually leads to cheaper petrol at the pump. But there's not much point to it if people are confined.

"Prices are falling today because hardly anyone driving, they're driving a lot, lot less. So it's difficult for anyone to take advantage of these lower gasoline prices if they're not driving. So there's no winner in this situation today," Jim Burkhard, vice president at IHS Markit, said.