Q&A: Oil prices hit new lows as economic pain deepens

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Petroleum storage tanks at the BP Indiana Tank Field are seen behind a security gate Tuesday, April 21, 2020, in Whiting, Ind. The world is awash in oil, there's little demand for it and we're running out of places to put it. That in a nutshell explains this week's strange and unprecedented action in the market for crude oil futures contracts, where traders essentially offered to pay someone else to deal with the oil they were due to have delivered next month.(AP Photo/Charles Rex Arbogast)

NEW YORK – A barrel of oil now costs less than a cheap bottle of wine.

U.S. benchmark crude was trading as low as $6.50 a barrel Tuesday, more than 80% lower than the start of the year. The dizzying drop reflected stark suffering in the global economy that has left vastly diminished demand for oil.

There’s little mystery around the sharp drop-off: Efforts to limit the spread of the coronavirus have major cities around the world on lockdown, air travel has been seriously curtailed and millions of people are working from home, leading to far fewer commuters on the roads.

But pumps are still running, extracting oil from the ground, and all that oil has to go somewhere. Some brokers were betting that storage would be more valuable than oil next month, leading some on Monday to pay potential buyers to take oil off their hands.

Many analysts saw Monday's prices as limited to the peculiar nature of some contracts, but Tuesday's drop signaled the industry is in for a prolonged, widespread challenge.

Here are some questions and answers about the latest developments in the oil patch:

WILL OPEC'S SUPPLY CUTS MAKE A DIFFERENCE?

Earlier this month OPEC and its allies — with political pressure from the U.S. government — agreed to rein in oil production. Saudi Arabia said Tuesday that the cuts will total nearly 12.5 million barrels per day, and it is prepared to take further measures jointly with OPEC and other producers.