Question

During the third week of April, the oil price went as low as -$40 per barrel....

During the third week of April, the oil price went as low as -$40 per barrel. As a microeconomics
student, you were asked by your aunt, Auntie Kiah regarding this ‘strange and unprecedented’
phenomenon. Kindly explain to her (in the simplest way possible) the following:
a) How is this even possible?
b) Can the users (both you and your Auntie Kiah) benefit from this ‘negative pricing’? In
what way?

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Answer #1

Oil prices went negative as oil is continously pumped at record high levels as oil tankers cannot be stopped in production as certain amount of oil needs to be pumped on daily basis. However due to Covid19 pandemic the aggregate demand is unprecedentedly low and due to oversupply pf tankers there is demand supply mismatch causing it to go negative.

Users can benefit from negative pricing as oil is available for free and an additional cashback of 40 dollars per barrel for removal of oil and transportation due to negative prices.

PLEASE UPVOTE INCASE YOU LIKED THE ANSWER WILL BE ENCOURAGING FOR US THANKYOU VERY MUCH ALL THE BEST IN FUTURE

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