Oil companies will now pay you to take their damn oil. No, you are not that high. Well, maybe you are because it’s 4/20, but you’re still reading that correctly.
Monday is the absolute most staggering day in oil trading history. West Texas Intermediate, one of the most commonly traded oils on the market, plunged into negative territory for the first time ever. When I started writing this, WTI was at $US0.19 ($0) per barrel. It hit minus $US36.15 (-$57) per barrel by the time I finished. That means oil producers are essentially paying traders to take oil off their hands as demand craters due to the coronavirus pandemic, which is why I’m considering turning my office into oil storage to help cover my rent.
It’s hard to even put into words how fucking nuts this is. Last month, oil from Canada’s tar sands dropped to five bucks a barrel. It was a shockingly low price that portended the doom of the tar sands industry. Now, it looks like a kings’ ransom.
The coronavirus is driving the huge dip in oil prices largely by driving a huge dip in demand. Nobody is going anywhere and major industries are shuttered. The entire world is essentially on pause. The oil industry didn’t get the memo, though, and just kept digging up more oil. That’s led to extreme measures like the Canadian price dip and traders spending millions of dollars per day on supertankers to stash oil out to sea. There have also been major production cuts by the OPEC+ cartel. But none of that has been enough in the face of a pandemic. And so here we are, with negative prices for oil.
“A big part of the story is that the United States is simply running out of space to store the oil,” Mark Paul, an economist at the New College of Florida, told Earther in an email. “Refineries are beginning to refuse shipments. A lack of storage space, driven by massive oversupply, is destroying the oil market.”
This should absolutely be an inflection point for the global economy. With oil trading below zero dollars a barrel, companies are practically begging to be wound down. But Paul also noted there’s a danger that this is a “price signal to consumers, businesses, and the government that they should consume more and more oil.” That could undercut renewables, which have begun to compete with oil price-wise.
The other risk is to the fracking industry via massive job losses. The industry was never particularly profitable, relying on $US300 ($473) billion in debt leveraged against future production. The razor-thin margins evaporated when oil started its plunge at the beginning of the pandemic. Now, those margins have been incinerated, and their ashes floating somewhere above the Eagle Ford Shale in Texas.
But we shouldn’t cheer that. It’s likely to mean thousands of U.S. workers directly tied to the industry losing their jobs and ripple effects in communities and businesses that have sprung up to serve them the longer prices remain in negative territory (or even if they stay in low positive territory for that matter). What all this points to is the need for government intervention and stat. One form could be buying out fossil fuel companies since they’ve never been cheaper, and funding a workers’ bailout.
Paul also said now is, paradoxically, a great time for going bigly on a carbon tax, noting “we need to be talking about carbon prices in the hundreds of dollars per ton of carbon dioxide range, coupled with major green investments and smart regulations to transition the economy in a manageable way. As I’ve argued elsewhere, now is the time for a major injection of public funds to invest in the green economy we desperately need. In short, now is the time to destroy oil demand by engaging in a program of crash decarbonization.”