- Falling oil prices don't mean that consumers will suddenly get cheaper gas and other fuel products.
- In fact, it's highly unlikely that gas will ever be free, analysts told
Markets Insider. - That's because
gas prices don't just reflect the cost of the raw materials, but also numerous other factors. - "Unfortunately the simple answer is that no, negative US oil prices will not lead to free petrol [gas]," one analyst said.
- Oil fell into negative territory for the first time in history Monday, thanks to rapidly diminishing demand during the coronavirus lockdown.
- Follow the price of oil live at Markets Insider.
As oil prices plunged below zero for the first time in history Monday, some may have thought that this unprecedented plunge would also torpedo the price of everyday oil based products, and possibly even lead to free gas, but in reality, fuel prices probably won't all that much.
"In 5 hours my dad will wake up and call me to ask why gas stations aren't paying him to fill up his tank ..." Bloomberg reporter Tracy Alloway tweeted soon after oil passed below zero.
WTI fell more than 321% on Monday to trade as low as -$40.32 a barrel reflecting an increase in unused oil as demand tanks during the coronavirus pandemic, leaving millions of barrels of oil in need of storage that wouldn't normally be needed.
Lack of storage options, particularly at a key storage facility in Oklahoma, and lower demand for the commodity during the ongoing coronavirus pandemic has tanked prices in recent days, culminating in Monday's stunning fall.
The shocking developments in oil in the past few days may have stunned markets, but sadly for consumers, there's virtually no chance we'll get free fuel. Not now. Not ever.
That's because gas prices don't just reflect the cost of the raw materials, but also numerous other factors.
Adam Vettese, analyst at investment platform
"The price of raw crude is a factor in petrol prices, but then we need to also consider the refining process that turns this raw material into the petrol we put in our cars and then the logistics and intermediaries in between."
Christopher Haines, oil analyst at Energy Aspects, thinks "we are never going to get a zero petrol price because of tax."
Haines added: "You will always have some overhead costs for refining of the fuels, for distributing it to fuel stations."
Naeem Aslam, chief markets analyst at Avadetrade said he would be surprised if petrol prices even dropped 30%, let alone all the way to zero.
Vettese said: "The glut of oil has helped push petrol prices down, but it's not the only factor. The dip in demand for fuel and energy is another big contributor.
"When demand isn't there, the price falls as it does with excess supply, so the raw price of crude is actually a relatively small part of the equation."
The closely watched Baker Hughes report showed that as of last Friday rig counts were 35% lower than the previous month.
Oil prices and rig counts are strongly correlated. Higher oil prices make production more profitable, encouraging more producers to operate.
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