Although there was a historic drop in oil prices on Monday (below $ 0), donâ??t expect to be paid to be supplied with gas or gasoline at any time.
There were some unique conditions that lowered the price of oil below $ 0 for the first time ever. And most importantly, the price of crude oil has an indirect impact on the retail price per liter of gasoline.
The sharp decline in gasoline consumption in the US in recent weeks due to home stay orders during the explosion of COVID-19 has reduced oil and gasoline prices, as there is excess supply for both and the space needed to maintain supply the excess is being overcome.
"Yesterday's price action was best understood as a concern or particular of future trading," said Fidelity International analyst James Trafford.
He estimates that the unprecedented price movement confirms that demand is very weak. Oil prices have weakened sharply due to a combination of oversupply with a collapse in global demand due to declining economic activity, triggered by coronavirus blocking measures.
The price of a barrel of West Texas Intermediate (WTI), the standard for US oil, fell into negative territory for the first time in history on Monday. But that was only related to the May contract, which would expire.
The traders holding the contract were unable to find buyers because no one wanted it.
"No one wants to take delivery of oil next month because there's nowhere to store it, so the price has dropped below zero," explained Rachel Winter, associate director of investment at Killik & Co.
"Oil prices and the accompanying capital in the sector will remain broadly weak for the foreseeable future," James Trafford predicted.
Opec, the oil-producing economy group, is believed to be seeking to cut oil production immediately, rather than wait until next month to ease pressure on the price.
Artur Baluszynski, research director at Henderson Rowe, agreed that the effect was temporary, but warned of its implications.
While the price of gasoline is linked to the wholesale price of oil, it is driven by competition. This means that what drivers pay is not directly related to crude oil. Instead, suppliers control the prices at which they sell gasoline.
Most of the money you deliver for a liter of gasoline in the UK goes to the government in the form of taxes.
Taxes also include taxes, which vary from state to state. But on average, state taxes add 36 cents per liter, increasing average taxes per liter of gas to about 54 cents nationwide. Furthermore, you have to pay VAT at 20% of the cost of gasoline.
So, unfortunately, even though you can buy a whole barrel of crude oil, a single liter of gas will cost you something.
