The oil industry was thrown into chaos on Monday\u00a0as prices for US crude oil went negative, meaning that sellers were actually paying buyers to take oil from them, rather than the other way around.\r\nMonday was the first time oil prices had ever dropped into negative, leaving many confused as to how oil could become valued at such a level despite being central to the global economy. Others have asked what the consequences could be, both for governments reliant on oil for their revenue, and ordinary consumers who fill up their cars with petrol.\r\n\r\n\r\n\r\n\r\nHere are the answers to five of the most important questions.\r\n\r\nHow did this happen?\r\nOil\u2019s nosedive to negative pricing was a result of two key factors. First, the coronavirus has caused an unprecedented drop in demand for petroleum products as people stay at home rather than driving their cars or working in factories, and airplanes sit dormant due to restrictions on international travel.\r\nSecondly, as demand has fallen off a cliff, oil producers have continued to produce increasing amounts of oil. Talks between key oil producers aimed at rebalancing the supply and demand of oil broke down in March, leaving the production of crude oil massively exceeding demand from refineries to produce petrol and diesel \u2013 resulting in large amounts of spare oil that needs to be stored.\r\nThe world is\u00a0running out of space to store this spare oil. As traders on the US market began to realize that there would be no space to put oil in once they bought it, a panicked selling frenzy gripped the market, and prices began to drop sharply.\r\nAs the situation got worse, traders, who often do not even have a place to put oil and are just trading the commodity electronically, ended up having to pay to get rid of their futures contracts because they had nowhere to store it \u2013 otherwise known as negative pricing.\r\n\r\nWhy would anyone sell products for negative prices?\r\nOil is traded in futures contracts that specify how much crude the buyer has obtained, and when it will be delivered. Between the open and expiry of a contract, typically a period of around a year, it can be bought and sold. Many investors buy and sell these oil contracts to make a profit, without ever seeing a physical barrel \u2013 a profession known as futures trading.\r\nThe situation on Monday was the result of these so-called \u201cpaper traders\u201d being stuck with futures contracts that were expiring on Tuesday and required oil to be delivered in May \u2013 without anywhere to put the oil. Negative prices indicate that traders became so desperate to get rid of the contract that they would rather pay someone to take it off their hands than try and find a place to put the oil.\r\n\r\nDoes this mean I\u2019m going to get paid when I fill the car up?\r\nUnfortunately, not. The global oil market is wholesale market so prices for crude do not translate directly to consumers. The negative pricing applied only to one specific futures contract on one day and other benchmarks for crude oil, such as North Sea Brent, continued to trade at a positive value of about $20 a barrel. While prices for petrol and jet fuel may go down, consumers should not expect to receive a check for filling the car up.\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\nHerman Wang@HermsTheWord\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\nA real shame, I really needed some crude oil delivered next month to Cushing, but I blew my budget on a big bag of Doritos #OOTT\r\n\r\n\r\n\r\n\r\n\r\n\r\n100\r\n8:50 PM - Apr 20, 2020\u00a0\u00b7\u00a0Ilford, London\r\nTwitter Ads info and privacy\r\n\r\n\r\n\r\n\r\n\r\n\r\n20 people are talking about this\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\nHas it happened before?\r\nOil prices have never been negative before. The fact that prices went negative this week reflects the magnitude of the problem that the coronavirus pandemic has caused for the global economy.\r\nWhile top producers have already decided to take measures that will see around 20 percent of crude supply removed from markets, the slump in prices suggests that even this may not be enough.\r\n\r\nOkay, is there any history of negative pricing elsewhere?\r\nYes, it is actually fairly common in two other industries.\r\nThe first is electricity. The industry has had to regularly deal with negative pricing as the proliferation of renewable energy has grown. With wind and solar farms producing more and more energy, the market for electricity occasionally becomes oversupplied, dipping prices into negative territory.\r\nAs supply of electricity outweighs demand, and prices go negative, owners of traditional energy production plants \u2013 think coal or gas plants \u2013 have to turn off production. In this case, the price is a signal to owners that their energy isn\u2019t needed, prompting plant shutdowns.\r\nThe second is natural gas. This fossil fuel is a byproduct of oil drilling. As oil is drilled out of the ground, associated gas comes up with it. Normally, this gas is then shipped to be used as fuel, but if heavy drilling is ongoing, then sometimes the transport network cannot keep pace with supply.\r\nDrillers then have two options: Either they can burn the gas themselves, known as flaring, essentially wasting the commodity, or they can pay someone else to take it away. If this sounds familiar, it is because this storage and transportation squeeze is similar to what happened in the oil market earlier this week.