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U.S. OIL PRICES FALL BELOW ZERO, GOES TO MINUS $37.63 PER BARREL

Why in news?

Traders fled from the expiring May U.S. oil futures contract in a frenzy, this led to sending the contract into negative territory for the first time in history.

May U.S. crude futures plunged to a depth never before seen, settling on the day at minus $37.63 a barrel.

Why did this happen?

  • With demand down 30% worldwide due to the coronavirus pandemic, and storage hubs expected to fill up – there are barely any buyers are willing to take delivery of oil barrels because there is no place to put the crude.
  • Major oil-producing nations have agreed to cut output and global oil companies are trimming production, but those cuts will not come quickly enough to avoid a massive clog.
  • The world’s major oil producers agreed to cut production by 9.7 million bpd in an attempt to get world supply under control as demand slumps, but those cuts do not begin until May.
  • Saudi Arabia is ramping up deliveries of oil, including big shipments to the United States.
  • Worldwide oil consumption is roughly 100 million barrels a day, and supply generally stays in line with that. But consumption is down about 30% globally, and the cuts so far are far less.
  • U.S. exchange-traded funds are also playing a role in the action

Will India benefit from this? Yes

  1. Import bill falls, thus Current Account Deficit (CAD) falls
  2. Fiscal Deficit of the govt falls if the govt decides not to pass on the price decline to consumers. It may consolidate its revenues by increasing the taxes by letting the prices be, as they stand today.

Read More About this in a COMPLETE COVERAGE EXCUSIVE POST here: https://www.legacyias.com/explained-why-oil-prices-dropped-to-negative-for-upsc-exam/

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August 2022
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