Monday’s negative slide is because the world has more crude oil than it can use or store. Storage facilities and even ocean tankers are filling up, with one reportedly stranded off the coast of Los Angeles as there is nowhere to store the oil when it docks. Fears of not finding a place to put oil in the next month means nobody wants crude oil, and this has led to a severe drop for West Texas Intermediate – a benchmark for US oil prices.
How much is a barrel of oil?
The worth of a barrel of US oil fell to less than nothing on Monday, the first time in history.
The value of West Texas Intermediate for delivery in June slumped to $6.50 at its worst, before recovering to settle at $11.57, down 43 percent.
Today it has risen to around $14 per barrel.
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The fall is a striking illustration of just how much economic activity has slowed around the world due to COVID-19.
Lockdowns and travel bans have resulted in end-users – the consumer themselves – not buying oil which would usually be bought every day.
Prices have weakened sharply because of a combination of events triggered by a collapse in global demand.
The knock-on effect has been a supply glut and a worldwide shortage of storage space for oil.
When asked on Tuesday what more his administration could do to address the situation, President Donald Trump said the most important thing was to re-open the US economy.
The White House last week released guidelines aimed at helping governors determine when they could safely lift lockdown orders.
Speaking at the White House, the President said: “The toolbox is to get our country open, that’s by far the biggest thing.”
“That’s where the engine is [and is] more important than any other things that we can work on.”
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However, Mr Trump today ordered US Navy ships to “shoot and destroy” Iranian gunboats if they harass American ships.
A hint at an escalation of conflict with Iran lifted oil prices later in the day.
The world hasn’t forgotten about the attacks on the Abqaiq oil facilities in Saudi Arabia in September which triggered a 20 percent price jump in Brent crude, or the assassination of Iran’s top General Qassem Soleimani, which put the region on the brink of war with the US.
Will the price of petrol fall?
While the price of petrol is linked to the wholesale price of oil, it is driven by competition, not by the amount of oil there is in the world.
That means that what motorists pay is not directly linked to the price of crude oil.
Instead, suppliers control the prices they sell petrol at.
Crucially, a key factor affecting the price of fuel is that the biggest proportion of the money you hand over for a litre of petrol in the UK goes to the government in tax.
Fuel duty is charged at 57.95p per litre.
On top of that, you have to pay VAT at 20 percent on the cost of petrol.
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