Explainer: Why oil prices dropped negative, and will it impact consumers at petrol pump?

Oil prices, for the first time in history, touched sub-zero on Monday amid an utter collapse in demand as the coronavirus pandemic and a supply that far outstrips the need. The spread of the coronavirus has sharply reduced air travel and thus the demand for fuel. Oil markets have plunged in recent weeks as lockdowns and travel restrictions to fight the coronavirus around the world batter demand for the commodity. The crisis was compounded after Saudi Arabia, kingpin of exporting group OPEC, launched a price war with non-OPEC member Russia. Riyadh and Moscow drew a line under their dispute earlier this month when they and other countries agreed to cut output by almost 10 million barrels a day to boost virus-hit markets. But prices have continued to fall heavily, with recent trends indicating that the cuts will not be enough to make up for massive falls in demand caused by the pandemic. China cut their imports of foreign oil by about one-fifth in the past months.

With space to store oil scarce, US benchmark West Texas Intermediate (WTI) for May delivery ended trading at -$37.63 a barrel ahead of Tuesday's close for futures contracts, which is when traders who buy and sell the commodity for profit would have had to take physical posession of it.

What do you mean by a negative oil price?

Oil is a commodity traded on its future price, with the May contracts set to expire today (each contract trades last a month). In simplest terms, the negative oil prices means the commodity producers willing to pay purchasers to take oil off their hands as fear run amok that most storage facilties will run out of space by the end of May. They are seen as very keen to avoid taking possession of those oil holdings and having to deal with the storage costs. The real problem of the global supply-demand imbalance has started to really manifest itself in prices

Demand for oil has collapsed so much due to the coronavirus pandemic that facilities for storing crude are nearly full. Tanks could hit their limits within three weeks, according to reports. The steep fall in the price is because of the lack of sufficient demand and lack of storage place given the fact that the production cut has failed to address the supply glut.

Take the case of US benchmark WTI. Reuters had reported the US Energy Information Administration saying last week that storage facilties at Cushing, Oklahoma, the heart of the country's pipeline network, was about 72 per cent full as of April 10.

What does it say about the global economy?

The negative prices are not a true June prices for WTI were also down, but trading at above $20 per barrel. Meanwhile, Brent Crude - the benchmark used by Europe and the rest of the world, which is already trading based on June contracts - was also weaker, down 8.9% at less than $26 a barrel.

traders don''t want to get stuck owning crude with nowhere to store it.