For the first time in world history, oil producers are quite literally paying to have oil taken off their hands. Demand for gasoline is all but nonexistent globally as lockdown orders keep millions of people at home. As such, production has dramatically outpaced demand, and oil manufacturers are scrambling to get rid of the product.
Manufacturers are now concerned that they will have more oil than capacity to store it. As a result, oil prices have plunged into the negatives. This means that they are paying for companies to take barrels of oil off their hands. Meanwhile, the result of these price dives has gas in the US at a historic low. This is some small help for essential workers who still need to drive from home to work. While they might be worried about picking the best car insurance, they’ll be able to fill up for less.
The idea of a price turning negative might sound absurd to those unfamiliar with the oil industry. However, this occurred as a result of the odd nature of the way oil is sold: on its future price. Oil futures, much like stock futures, are sold on their potential. Since demand is at an all-time low, and most economies are staying shut for the foreseeable future, the price is getting unusual.
Traders of oil were scrambling to offload their barrels because of the massive cost of storing crude oil. While their reserves were filling up faster than they could sell them, the incremental costs of storing all that oil were skyrocketing. This resulted in an odd scenario where it saved oil traders money to pay companies to take the oil off their hands.
June futures currently show oil trading around $20 per barrel. However, some insiders in the industry are not optimistic about that number. If lockdown orders remain in place through May, demand for oil will stay low into June. This means that, even if lockdowns are rescinded by June, people might not be eager to jump back into normal life.
Many medical experts warn that too quick of a return to normal activity could prove detrimental to public health. As such, a gradual return to normal could mean a very slow return to profitability for oil companies. Many activists, meanwhile, are jumping at this opportunity to kick the oil industry while it’s down.
The Sunrise Movement, an online-organized group of climate change activists, shared the news on their Twitter. Responses from their followers were optimistic: many see these blows to the oil industry as the rare silver lining during these tough times.