The world is awash in oil, with the recent ‘demand destruction’ as the pundits call it. (The world still uses 75 million barrels a day, down from 100 million). Oil producers have not been able or willing to cut production, though. It takes a lot of money to close down an oil well, and even more to reopen it.
A breaking point was reached today, though. I turn on the financial channel CNBC in the mornings, and this morning the May contracts dropped 90%, then down to a penny, back up a bit, and then it went negative and stayed there. This has never happened. How can the price of oil be negative? Well, there are hardly any more places left to store the stuff. So producers will now literally pay ‘buyers’ to take the gooey black stuff off their hands. There was talk today of filling up empty supertankers that may still remain, even though they have nowhere to go.
What’s going to happen is that a lot of oil producers in Texas are going to go bust. I’ll have to look, but I believe many of the tar sands producers and the frackers are long gone (they needed a price of $60 a barrel to stay afloat).
People filling up their car tanks, and airlines filling up airplanes with jet fuel, will continue to pay lower prices. It’s just that there is nowhere to go, really. The world has closed down.