Oil Prices go Negative

Why were oil prices in the negative and what does it mean?

Key Actors
  • United States of America – World’s largest oil consumer and largest oil producer
  • Canada – World’s sixth largest oil producer
  • OPEC (Organisation of the Petroleum Exporting Countries) – organisation of 13 countries to coordinate oil production and export policies
    • Major player: Saudi Arabia – second-largest world oil producer
  • OPEC+ – OPEC and 10 additional nations which also coordinates oil policy
    • Major player: Russian Federation – third-largest world oil producer
What happened to the oil industry?

On Monday, April 20th, the world oil market saw its biggest crash in history—at negative $37.63 per barrel. The crash was the result of months of dropping oil prices due to the COVID-19 outbreak. Demand for oil reached its all time low as there was a huge reduction in the usage of planes, cars and other transportation.

Internationally, governments have been trying to save the oil prices by reducing oil production, however, these cuts may have been both too late and too little, as seen in the crash of the market on Monday. Global storage for oil is also running short, and companies are scrambling to come up with their next steps in this financial crisis.

OPEC+ and oil cuts

The Organisation for Petroleum Exporting Countries (OPEC) is an intergovernmental organisation that consists of some of the worlds greatest oil exporters. Global discussion ensued in the past few months as governments attempted to bring oil prices back up. As a response  to Russia’s initial refusal to cut oil production, Saudia Arabia had launched a price-war in March, dropping oil prices significantly and amplifying the dire condition of the market. However, in early April, both countries agreed to end the price-war and work with OPEC in reducing global oil production. Global supplies have been cut by 10%—a major reduction in the market—yet it may not be nearly enough as the industry continues to plummet.

Global effect of Sinking oil prices

Oil is one of the world’s biggest economies and essential to many nations’ economic well being. The oil industry may impact countries like Saudi Arabia and Kuwait through their government spending and social programs. Countries such as Iraq and Venezuela may face additional social unrest due the strain on the economy. In North America, governments may be able to pull through, but those employed by the industry or indirectly earn their income off of it will face unprecedented challenges.


The Russian oil market has already been majorly impacted by the huge decrease in orders from their biggest customers, China and the European Union. Russia’s annual exports consist of nearly 50% in oil shipments, and the recent downturn has been particularly painful for the country.

Saudi Arabia

The Saudi Arabia oil industry accounts for 70% of its exports and half of its GDP. Saudi Arabia happens to have a significant sovereign fund that will help to carry them through the financial losses, however, as over 1 million people in the country are employed in the oil industry, social programs will require significant additional funding if many jobs disappear.

Canada and the U.S.

The U.S. is the world’s greatest oil producer. There, 10 million jobs will be at risk due to the fall of the oil industry. Additionally, those who work in the oil industry are often upper middle class, earning considerable amounts of money that in turn becomes consumer spending. The decrease in consumer spending due to the loss of these jobs will also have a major impact in the economy. Although oil prices are still in the $20 range for the June contract, experts are warning the country about the potential outcomes. According to Rystad Energy, 533 U.S. oil companies will file for bankruptcy by the end of 2021 at $20 contracts. At $10, there will be more than 1,100.

In Canada, the already struggling Albertan oil industry is at high risk. “This is a multi-billion dollar impact to the Government of Alberta’s budget,” said Andrew Leach, a professor from the Alberta School of Business. And as many Albertans have emphasised before, this will not only be a provincial issue but a federal one. Canada’s energy sector contributed an estimated $360 billion in revenue between 2000 and 2018. The recent fall of prices is expected to have a significant and long term effect on the livelihood of Alberta’s citizens and the country as a whole. While the government is encouraging people to remain positive, the end of this economic downturn and the restoration of oil prices remains in uncertainty.


Edwards, Neil. “What Negative Oil Prices Mean To The Top Exporting Countries”. Forbes, 2020, https://www.forbes.com/sites/neiledwards/2020/04/21/what-negative-oil-prices-mean-to-the-top-exporting-countries/#343912dfd164. Accessed 27 Apr 2020.

Calgaryherald.Com, 2020, https://calgaryherald.com/opinion/columnists/corbella-if-albertas-energy-sector-dies-every-canadian-will-suffer-the-numbers-dont-lie/. Accessed 27 Apr 2020.

Makortoff, Kalyeena. “Oil Prices Fall Again Despite Opec+ Deal To Cut Production”. The Guardian, 2020, https://www.theguardian.com/business/2020/apr/10/opec-russia-reduce-oil-production-prop-up-prices. Accessed 27 Apr 2020.

Matt Egan, CNN Business. “Hundreds Of US Oil Companies Could Go Bankrupt”. CNN, 2020, https://www.cnn.com/2020/04/20/business/oil-price-crash-bankruptcy/index.html. Accessed 27 Apr 2020.

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