Final answer:
The negative oil prices in 2020 were due to an oversupply of oil and a plunge in demand, leading to storage issues that forced traders to pay buyers to take futures contracts off their hands.
Step-by-step explanation:
The phenomenon of negative oil prices that occurred in 2020 was a historic event in the global oil industry. The primary drivers were a vast oversupply of oil and a simultaneous plummet in demand due to the COVID-19 pandemic.
As storage capacities reached their limits, the cost of storing oil began to exceed the price that buyers were willing to pay for future deliveries, resulting in futures contracts for West Texas Intermediate (WTI) crude falling into negative territory for the first time ever. This was largely because oil traders holding futures contracts were obligated to take delivery of the oil once the contract expired, but they had nowhere to store it.
Thus, they paid to get rid of these contracts. This situation reflected a stark contrast to past oil crises, such as those involving OPEC's supply control or geopolitical events like the Iranian Revolution, which led to spikes in oil prices rather than a decrease.