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Four years ago, why did the price of crude oil drop to zero?


Rather than four years ago, the historic decline in crude oil prices to zero happened in April 2020. The dynamics of the oil market and the COVID-19 epidemic were two of the main causes of this extraordinary catastrophe.

Global lockdowns and travel restrictions brought on by the COVID-19 epidemic resulted in a sharp decline in the demand for oil. The need for oil fell as a result of businesses closing, aircraft being grounded, and automobiles being parked.

The market was already oversupplied with oil before the epidemic because of a pricing war between the main producers of oil, most notably Saudi Arabia and Russia. This rapid decline in demand brought on by the epidemic made the overstock issue worse.

The supply of oil kept growing while demand faded, creating a huge imbalance in the market. Panic selling resulted from merchants fearing they would have to pay to hold oil they couldn’t sell, since storage facilities were quickly filling up and the cost of storing excess oil was increasing.

The fact that the price of oil futures contracts for May delivery went negative indicated that traders were prepared to pay people to remove oil from their possession rather than keeping it in storage. The paucity of storage space and the expiration of futures contracts, which called for the actual delivery of oil, led to this predicament.