If you follow the news, you might have seen that the price of oil futures closed in the negatives. Do those prices mean that the gas station will pay you to fill up your tank? Not exactly. According to energy experts, the negative price is likely due to the way that future contracts are written.
The impacts of the coronavirus on the oil industry are very real and serious. Due to the massive amount of supply compared to the relatively non-existent demand, many American companies will likely have to declare bankruptcy, according to Rystad Energy.
This polarity in supply and demand is punctuated by the recent conflict between Saudi Arabia and Russia. To simplify this conflict, when the pandemic started, Russia refused to follow Saudi Arabia’s suggestion of scaling down production. The reason Saudi Arabia wanted to do this was to increase prices as the demand dropped. In response to Russia’s aggression, Saudi Arabia’s state-owned behemoth of an oil producer decided to scale up production. Russia did the same. This, combined with the virus slashing demand, tanked prices.
Eventually, President Trump stepped in, striking a deal that involved a coordinated cut in production by about a tenth. While this certainly stops the immediate price war, many doubt its impact regarding the pandemic.
Another problem is storage. Experts warn that global storage could run out in early to mid-May, which could mean that storage becomes more valuable than the oil itself. This has led to massive oil tankers anchoring offshore from coastlines as storage. This is not ideal, as it is very expensive.
Like most industries, oil has been heavily impacted by the coronavirus pandemic, making the future of American oil unknown.
This all sounds terrible, you might be saying. Is there a winner here? There certainly is: China. Being the world’s largest oil importer, China will benefit greatly from the oil situation and will likely use it to rebuild their economic stature.
Like most industries, oil has been heavily impacted by the coronavirus pandemic, making the future of American oil unknown.
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