There’s a Sale on Oil (kind of)
By Ethan Warbelton
Oil has always been a rather fragile market. Prices tend to change on a dime (no pun intended), and if you’ve ever been to a gas station, you’ve seen it already. One day, you’re paying two dollars a gallon, and then a week later the price is up to $2.50, but a month later it’s down to $1.93, so on and so on. These fluctuations can be seen on the chart below, which measures based on a cost-per-barrel basis:
There are some pretty big spikes and drops here, but this is nothing compared to what is happening present day. This week, oil prices were down to -$30 dollars per barrel. That’s right, negative. Industries are simply running out of places to store their 100 million barrels that are produced each day, and even worse, they’re running out of buyers. The problem has gotten so bad that they have to pay people to take the barrels from them. This issue has never happened before in the history of selling oil, and it leaves everyone wondering how? Well, it all has to do with the virus we all know and hate, COVID-19.
Currently, we are all cooped up in our homes, stuck in a month-long quarantine as the government deals with the COVID-19 pandemic. As a result, people are not traveling very often. Only essential workers are using their cars, plane travel has been slowed significantly, and international trade has also been slowed. Practically everything that uses fuel made using oil is being used much less. As a result, there is less of a demand for oil from refineries, while oil barges only continue to grow their overwhelmingly large supply. But not for long.
Oil producers have been implementing substantial output cuts, with over 6,000 wells closing in North Dakota. Other states, such as Oklahoma and New Mexico, are allowing producers to shut down without losing their leases. Even other countries like Vietnam, Brazil, and Chad are cutting down on production. Even then, is still a buildup of oil. What isn’t sold or stored on land is stored in oil tankers, which are large boats designed to primarily store oil.
The above still was taken from a video posted by the US Coast Guard of Los Angeles, which stated that they are monitoring the 27 oil tankers anchored in the shores of Southern California. In all, there really is no way to fix this issue but shutting production down at an even greater rate until the pandemic is over. But with that comes less business, and therefore oil production companies, especially smaller ones, are finding it more challenging to not go bankrupt, which goes to show how the pandemic is affecting everyone.
But hey, on the bright side, this also means that when the pandemic eventually is over, gas prices should stay pretty low for a good while. We’ll just have to wait and see.
Works Cited
Bloomberg.com, Bloomberg, www.bloomberg.com/news/articles/2020-04-26/the-next-chapter-of-the-oil-crisis-the-industry-shuts-down.
“Crude Oil Prices - 70 Year Historical Chart.” MacroTrends, www.macrotrends.net/1369/crude-oil-price-history-chart.
Reed, Stanley, and Clifford Krauss. “Too Much Oil: How a Barrel Came to Be Worth Less Than Nothing.” The New York Times, The New York Times, 20 Apr. 2020, www.nytimes.com/2020/04/20/business/oil-prices.html.
The fact that companies have to pay customers to purchase oil from them during these times is unbelievable and pretty nuts to think about. I don't think anyone could have predicted that this would be reality a couple months ago and that prices of oil and even gas would be this low. Like you said, companies are going to need to come up with some substantially different business plans if they want to survive past this virus and it is a big issue for the economy as a whole.
ReplyDeleteThis is most likely the best example of supply and demand as the demand is so low that the prices have started falling on the supply significantly. These prices aren't just down because of the less travel but also companies who have machines that use oil and gas aren't using them or not using them as much.
ReplyDeleteThis is such an interesting article during this time because now that the majority of us drive, you will hear others talking about how low and nice the gas prices are. I feel like this is interesting that even gas companies are now economically struggling because of the pandemic and they will start to go into debt if this quarantine continues. It is no secret that many people are beginning to struggle as quarantine continues, many people aren't making as much or any money at this time and it can be difficult to pay for the necessities. Along with this, having no reason to go out of the house, especially because many people work at home now, makes it worse for gas companies because there is low demand for gas. It is difficult living through this time of uncertainty, and we can only hope that companies like the gas companies don't sink during this time.
ReplyDeleteSo hard to see that now even gas companies are struggling because of the pandemic. But people shouldn't be using that much gas anyways because everyone is stuck home. It's going to be weird to see how all of thee businesses bounce back after all of this ends, especially gas stations.
ReplyDeleteThe effects of a pandemic like this are detrimental. Companies are starting to open up, and others never will. These long lasting effects will have a historical and everlasting effect on our economy. Some stores are thriving where others are closing for good. It sad that so many stores have been permanently closed due to things they cant control. Oil being pumped too much is another issue on top of the pandemic.
ReplyDeleteI do understand in a basic way why gas companies are struggling. Just like any other business, no one can leave. This may be a time where you go out to get groceries, check how much gas you have even if you're halfway. Your car is going to sit in the garage or driveway until your next trip you might as well get some gas.
ReplyDeleteThis was a very interesting article and I made a lot of sense of current events. It really brought into perspective how there's almost nothing that isn't impacted by this pandemic. Moreover, this also shows an example of supply and demand in the real world of the pandemic.
ReplyDeleteThis pandemic has really effected many businesses and companies. Obviously the rate of transportation has gone down during this time, which means people buying gas has significantly decreased. It will be interesting to see the long term effects of this pandemic after this virus is over.
ReplyDeleteWith me working at a grocery store and traveling everyday causing my tank to go down a lot faster im really enjoying the low gas prices.
ReplyDeleteYes, it is tragic for the oil industries and how they are losing money everyday. However, our environment is actual doing better because not as many people need gas! I feel like this should open the eyes of many people on how our environment is benefiting from us not using gas. But if gas prices are low after the quarantine is over, then the environment will most likely revert back to the way it was due to so many people filling up and traveling.
ReplyDeleteI find it interesting how throughout the year we learned that oil was an inelastic good, as in we will buy the same amount of the good no matter how low or high its price gets. Oil is a necessity. However, I think that the current situation our world is in shows how economics isn't just simple graphs and there's a lot more to it than we think.
ReplyDeleteIt's kind of hard to hear that oil has gotten into the negatives. It's kind of hard to imagine buying something that would be in the negatives but as this is a reality, it might be a good time to purchase large sums of the stuff and sell it when the price rises again.
ReplyDelete-John Maki
This was a very interesting read and connected a lot with the supply and demand of gas. A lot of companies and businesses are being effected. It is quite astonishing to see how everyone is effected by this pandemic, especially gas station owners and companies.
ReplyDelete