Declining oil prices: The biggest and unforeseen global crash - by Tejas Sakhalkar

Stay-at-home orders aren’t only hitting mom-and-pop businesses. They’re also a driver behind the cratering price of oil.

Demand for oil has plummeted since the coronavirus pandemic, as people stay home under lockdown orders. The glut of oil is so great that room for storage is running out.

For the first time in history on Monday, the price of West Texas Intermediate oil futures for delivery in May fell to -$37 per barrel. All of the world's oil trade happens through contracts. Since oil is one of the most popular commodities around the globe, oil futures contracts are also traded on futures exchanges just like shares.

Such contracts are legal agreements between buyers and sellers, binding them to buy and receive a certain quantity (in barrels) of oil when the contract expires.

A benchmark crude serves as a reference price for buyers and sellers of crude oil. There are three primary benchmarks, West Texas Intermediate (WTI), Brent Blend, and Dubai Crude.

Benchmarks are used because there are many different varieties and grades of crude oil. There is always a spread between WTI, Brent, and other blends due to the relative volatility (high API gravity is more valuable), sweetness/sourness (low sulfur is more valuable), and transportation cost. This is the price that controls world oil market prices.

US benchmark- WTI has suffered very harshly, but the situation is not so bad with respect to other benchmark oil indexes. Brent Crude Oil Futures are just below 25 dollars after a 3.6 percent fall.

Global analysts said it would take a long time to burn off so much crude and this will create a looping demand-supply issue for a longer period.

Some have argued that shale oil wells will be damaged during forced shut-ins, making it trickier to turn them back on. There will be many bankrupt oil-producing companies after the pandemic.

Video Credits: Wallstreet journal