That headline refers to May oil futures for West Texas Intermediate crude, which evidently bottomed out at a negative $37.67 a barrel yesterday. That means an oil company would pay you that much a barrel to take physical delivery.
Here’s a series of tweets that explains what that actually means so I don’t have to.
2. The price is so low because the demand for oil by refineries (which process the oil to petrol, diesel etc. ) is at historic low. So most people who own the May contracts delivery(mainly funds) have to either sell their contracts at whatever the price or take physical delivery
— Anil (@anilkt) April 20, 2020
4. Oil is not worthless. WTI oil for June delivery is at 20$ per barrel. It shows that while no one can buy May the sentiment for June and beyond,when the covid restrictions are expected to end, is still positive(ish)
— Anil (@anilkt) April 20, 2020
5. Most of the world doesn’t even use the WTI oil. The benchmark for Europe and Asia is Brent oil. Which is at 26$ and “only” fell 7.5% today.
— Anil (@anilkt) April 20, 2020
If you’re still unclear why an oil futures contract holder would pay you to take oil off their hands, here’s a visual explanation featuring Mr. Creosote from Monty Python’s The Meaning of Life.
And evidently you’d have to take delivery of at least 1,000 barrels of oil in Cushing, Oklahoma. (FYI, each oil barrel contains 42 gallons of crude, which in turn can be refined to 19-20 gallons of gasoline, 10 gallons of diesel, and various amounts of other petroleum products.)
This is the direct result of two whammies, the Russian-Saudi oil price war and the coronavirus lockdown cratering demand, which have combined to send crude oil prices through the floor. And it only applies to West Texas Intermediate May futures; Brent Crude, another oil benchmark price based on North Sea oil, was still trading at about $26 a barrel, and WTI June futures are $21.41 a barrel; horribly low by historical standards, but not negative.
But in overnight trading, May WTI turned positive again. Left to its own devices, the market has a tendency to correct itself. (Hat tip: Ed Driscoll at Instpundit.)
The oil and gas industry has been taking it on the chin this year, and this is just another indicator. The Exxon-Mobils of the world will come out fine, but a lot of small producers are going to be in a world of hurt (and many will probably go out of business) due to this black swan confluence.
(And remember a decade ago, when certain pundits were confidently predicting “peak oil?”)
Tags: Economics, oil industry, Oklahoma, Texas