Recently, due to the New Coronavirus epidemic and the impact of price wars, international oil prices have begun to fall sharply. In the few hours last night, it was even more shocking to reach -37.63 dollars. Although it quickly recovered to a positive number afterwards, it also set the lowest value since BP began to count oil prices in 1861.

What does negative oil prices mean? What does it mean? Let's explain it in another three minutes.

1. The oil price becomes negative, does it mean that I go to the gas station to refuel, and the gas station has to pay me?

Note that the negative number here is the May futures settlement price of West Texas Light Crude Oil (WTI). What you buy at the gas station is called "spot". On the international oil market, "futures" are traded. No matter how cheap futures are, you still need to add refining costs, transportation costs, and labor costs to the gas station, and finally it becomes the price you see at the gas station.

Especially for Chinese consumers, according to the "Petroleum Price Management Measures" promulgated in 2016, my country's refined oil price mechanism has upper and lower limits: the upper limit is 130 US dollars per barrel, and the lower limit is 40 US dollars. That is, when the crude oil price in the international market is higher than US$130 per barrel, the highest retail price of gasoline and diesel will not be raised or slightly raised; when it is lower than US$40, the highest retail price will no longer be lowered.

In other words, even if the international oil price drops to a negative value, the domestic oil price will not be lowered once it reaches $40.

2. What exactly are futures? Why did May crude oil futures fall so much? Why didn't the June futures fall so much?

Futures are characterized by normal purchases and transactions (margin plus leverage can also be provided), but they need to be "delivered" on a certain day, which means that the oil must be handed over to you.

Because May futures ends on April 21, you are faced with three choices: Or find a warehouse or a cruise ship to store the oil. (Crude oil is a chemical raw material, but unlike milk, it can’t be dumped.) However, it’s important to know that one trading unit (one lot) of crude oil is 40,000 gallons, and now the world’s oil depots and cruise ships are full, and storage costs are extremely high.

The cruise ships currently parked at sea are densely packed and cannot be unloaded. This is only the situation in East Asia.

Otherwise, quickly "move the position", which means replace the contract in your hand with the next month's. For the first option, if you move your position from May to June, the price difference will be a lot, and you will lose at least 27%.

What to do? The third option is to sell desperately. Regardless of the price, free delivery or reverse posting, you have to empty these positions before the oil is actually handed over to you.

In fact, when the May futures are sold out, it is now June’s turn. Just today, the price of June futures has fallen by more than 20%.

3. Since the oil price is so cheap, what should I do if I want to buy the bottom?

The currently available crude oil-related asset investment pipelines include the domestic Shanghai crude oil futures market, some crude oil ETFs in Hong Kong, and the stocks of oil companies and related companies on the domestic stock market. But as revealed by the plunge last night, the risk of buying bottoms at this time is very, very large.

4. Why did oil prices fall so sharply?

To put it simply, the New Coronavirus epidemic has led to a continued decline in demand (heavy gas users such as airplanes and cars are not leaving). The price war initiated by Saudi Arabia in the early stage did not reduce production rapidly. These conditions have caused oversupply, and naturally prices have fallen all the way.

Of course, the futures market is actually a counterparty, with long and short betting. Such a vicious decline has the cost of hype in it, so I won’t start talking about it.

5. Since oil prices have fallen so much, why don't all these oil wells in North America shut down and still have to lose money?

Because the underground situation is always changing dynamically. After the oil well is closed and reopened, a period of pressure test is required. And the personnel have to be relocated. After this account is settled, some manufacturers would rather lose money, but also hope to maintain normal production. However, because of the recent downturn in oil prices, many North American producers have indeed closed their oil wells.

6. What impact does the falling oil price have on the economy and people's livelihood?6. What impact does the falling oil price have on the economy and people's livelihood?

Positive influence:

In 2019, my country imported 505.72 million tons of crude oil, and its dependence on foreign oil reached 70.8%. The drop in international oil prices means that import costs have been drastically reduced, which will help various industries to reduce costs, especially the transportation industry. Courier fees and air tickets will be cheaper! (Although there are very few people flying now)

Negative impact:

How can there be a complete egg in the overturned bird's nest? The decline in crude oil prices is just a manifestation of the current global economic contraction. In the face of this "big test" that affects everyone, no industry can stand alone.

7. What should I do if I have finished reading in three minutes and I still don’t feel it understood?

Please refer to: Why did oil prices fall sharply and what impact has it had on our daily lives?