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Explained: What explains crude oil prices falling below the $0 mark -Udit Misra

-The Indian Express

The first thing to understand is that, even before the Covid-19 induced global lockdown, crude oil prices had been falling over the past few months.

US oil markets created history on Monday when prices of West Texas Intermediate (WTI), the best quality of crude oil in the world, fell to “minus” $40.32 a barrel in New York. Not only is this the lowest crude oil price ever known — according to Bloomberg, the previous lowest was immediately after World War II — but also well below the zero-mark.

At this price, the seller would be paying the buyer of crude oil $40 for each barrel that is bought.

But how can that be? How did prices fall below zero in the first place? Why would they fall from $0 to -$5 to -$10 and so on all the way to -$40 a barrel? To be sure, regardless of how it looks, this is not an illogical result.

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