April 22, 2020 • 8 mins
For the first time ever in trading, U.S. oil prices dipped into negative territory on Monday. Companies had to pay to get rid of the over supply of oil, but this doesn't mean that you'll get paid to take gasoline off someones hands. We might see some modest savings in the next few days and weeks, but the big questions remains, what to do with all the extra oil. The administration is planning to add millions of barrels to the nations reserve. Amy Harder, energy reporter at Axios, joins us for more.
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Episode Transcript
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Speaker 1 (00:00):
It's Wednesday, April. I'm oscar A Mirrors from the Daily
Dive podcast in Los Angeles, and this is your daily
coronavirus update. For the first time ever in trading, US
oil prices dipped into negative territory on Monday. Companies had
to pay to get rid of the oversupply of oil.
But this doesn't mean that you'll get paid to take
gasoline off someone's hands. Well, we might see modest savings
(00:23):
in the next few days and weeks. The big question
remains what to do with all that extra oil. Amy Harder,
energy reporter at Axios, joins us for more. Thanks for
joining us, Amy, thank you for having me. I wanted
to talk about oil prices, concerning what's going on with
all of the coronavirus and all the social distancing economies
on lockdown. For the first time ever in trading, US
(00:45):
oil prices went into negative territory on Monday. The oil
markets have been upended. People are pointing to some deep
financial jeopardy if this keeps going. Amy, tell us what's
going on with this. This is really an unprecedented time
for all of us, of course, but especially the oil industry,
because if you think about it, the solution to solving
(01:08):
the virus is to get us to stop moving around,
and yet the whole purpose of oil is to move
us around. And so what happened with these prices going
negative on Monday, and we expect to see it in
the coming weeks continuing, is that there's too much supply
of oil and not enough demand. So literally, companies are
(01:29):
having to pay people to take their oil, and it's
really unprecedented, and we don't really know where the bottom
is yet. Now. I wanted to focus on that for
a moment because people here that that companies are having
to pay others to get rid of their oil, and
right away people think, oh, man, well, gas prices are
gonna drop tremendously. Are they going to pay us to
take away the gas. It's not really the way it works,
(01:52):
but we could see some gas prices easing, but maybe
not for a couple of weeks. That was one of
the first stories that I written about negative prices, because
obviously the oil industry and people who work in that
sector are very concerned about the negative prices. But for
most people, what we care about is gasoline prices, and frankly,
lower the better. But I quickly confirmed with experts that
(02:16):
even though yes, prices have gone negative in the global
oil market, no, we will never get paid to fill
up our gas tank. And that's for a lot of reasons,
but one main one is that there's a lot of
other costs that go into a cost of gasoline that
will offset the negative cost. Global oil prices make up
a little bit more than fifty of a gallon of gasoline,
(02:37):
but then there's a refinement costs for transportation, and then
finally state taxes. But that said, states across the country
are still seeing prices at the gas tank plummet. Some
are seeing I think Wisconsin and Kentucky O two examples
where drivers, a few of those on the road anyway,
are seeing prices below a dollar. Wow, that's amazing. I
(02:57):
live in California, so I don't think we'll ever receive
those prices again. But still things have gone a little
bit better. The immediate effect of these negative territory prices,
you might be able to see something in a few
days or so, but really not much to look forward
to there. The other thing we're seeing, too, is kind
of this ebb and flow of these gas prices. As
soon as we get out of this, we could be
(03:19):
in for some very high oil prices. That's typically how
these cycles work. I mean, the oil industry is no
stranger to booms and bus so the industry has been
in a relative boom over the last year. The United
States is now the biggest producer of oil and natural gas,
and so they've been booming for a while and now
they're busting and this is a record bust. So at
(03:41):
least the way typical economics work is that we are
going to be seeing extremely higher prices, and not next month,
not even this summer. The summer will see lower gasoline prices.
Still hopefully we're able to be driving around, but this
price spike could come and then in the middle of
this a decade and so when hopefully the global economy
(04:04):
is doing well, we'll see higher prices and we can
thank the pandemic for that. Let's talk a little bit
more about what's going on right now. So my understanding
is that these prices have gone so low because for
the most part, people that have bought all of their
oil for the month of May. Because we're always trying
to project there's always a future thing happening here, most
people have already bought all the oil they're buying for
(04:25):
the month of May, so that's why it's so low.
So we're looking ahead to the following month to see
where prices are going to be at then. So if
you want to get technical about it, that's what technically
drove prices into the negative territory yesterday on Monday, it
was really the end of a trading window for the
month of May. I liken it to sort of the
(04:46):
game of musical chairs, and the music stopped and some
of the oil barrels can't have a place to sit down,
and that's what prompted the prices to go negative. We're
into a new month though, and the music is back up.
The prices are still really low, so as the month
wears on, you can anticipate that will go into negative
territory again. I should emphasize that we're talking about US
(05:07):
based futures or futures contracts, so w t I VERSUS
branch which is based in Europe. And what do we
do with all of this extra oil that we have
right now? I know the Trump administration said they want
to add about seventy five million barrels to the nation's reserves,
but beyond that, what do we do with this extra
supply that we have. I mean, that is the million
(05:28):
dollar question. There's just no place to put it. There's
been dozens and dozens of ships added to the seas
full of oil just sitting out there in the ocean.
You know, it's a little ironic that this is happening.
Yesterday was the ten year anniversary of the BP oil spill,
so it's a little ironic there that oil is on
the water in another way, not even on my radar.
(05:49):
And I remember all the coverage of that. I mean
it was just huge, how much we're losing at that point,
right So this is a very different way, and at
least an environmentally better way to have oil on the water.
But you know, this is a good question. And Trump
has said, oh, we have a lot of places to
put the oil, but you know, we really don't. And
I think that's one of the biggest questions that this
(06:10):
administration is really grappling with right now. I mean, just
the numbers are staggering. So yeah, maybe another seventy five
million barrels into the nation's strategic reserves, but you know
the world usually consumes about a hundred million barrels a day,
and right now oil is off at least twenty million
barrels a day. So that's twenty million barrels a day
(06:30):
of excess oil that has nowhere to go. And that's
a day. So I mean, the numbers are just staggering,
and so it's just you know, a recent column of
mine said, the world is locked down and drowning an oil.
There's no place to put it. So ultimately the end
effect will be companies will just have to stop drilling.
And beyond that, will we see any bailouts or any
(06:52):
type of financial help coming to the oil industry. I
know there's just been kind of rumblings of conversation so
far about that from the administration and so forth, But
is that also something we might see on the horizon.
I certainly think the more dire the situation gets, the
lower the prices go, the more likely something will come
out of Washington on this. President Trump tweeted about that
(07:12):
today on Tuesday, saying that he's directing the Energy Department
and the Treasury Department to come up with a plan
to help the industry. I think Congress, with the House
controlled by Democrats, the only way Democrats will take what
they'll call a bailout for the oil industry, is it
if they get something for renewable energy companies for example,
So I anticipate some sort of pairing of an oil
(07:36):
support package along with support for the renewable energy industry, which,
by the way, is also struggling, because everybody, all of
us are struggling, except for maybe Zoom and pizza joints. Well,
we'll have to definitely monitor and see what happens. Amy Harder,
Energy reporter at Axios, thank you very much for joining us.
Thank you for having me on. I'm oscar mirrors and
(07:59):
this been your daily coronavirus update. Don't forget that. For
today's big news stories, you can check me out on
the Daily Dive podcast every Monday through Friday. So follow
us on I Heart Radio or wherever you get your podcasts.
It's Wednesday, April. I'm oscar A Mirrors from the Daily
Dive podcast in Los Angeles, and this is your daily
coronavirus update. For the first time ever in trading, US
oil prices dipped into negative territory on Monday. Companies had
to pay to get rid of the oversupply of oil.
But this doesn't mean that you'll get paid to take
gasoline off someone's hands. Well, we might see modest savings
(00:23):
in the next few days and weeks. The big question
remains what to do with all that extra oil. Amy Harder,
energy reporter at Axios, joins us for more. Thanks for
joining us, Amy, thank you for having me. I wanted
to talk about oil prices, concerning what's going on with
all of the coronavirus and all the social distancing economies
on lockdown. For the first time ever in trading, US
(00:45):
oil prices went into negative territory on Monday. The oil
markets have been upended. People are pointing to some deep
financial jeopardy if this keeps going. Amy, tell us what's
going on with this. This is really an unprecedented time
for all of us, of course, but especially the oil industry,
because if you think about it, the solution to solving
(01:08):
the virus is to get us to stop moving around,
and yet the whole purpose of oil is to move
us around. And so what happened with these prices going
negative on Monday, and we expect to see it in
the coming weeks continuing, is that there's too much supply
of oil and not enough demand. So literally, companies are
(01:29):
having to pay people to take their oil, and it's
really unprecedented, and we don't really know where the bottom
is yet. Now. I wanted to focus on that for
a moment because people here that that companies are having
to pay others to get rid of their oil, and
right away people think, oh, man, well, gas prices are
gonna drop tremendously. Are they going to pay us to
take away the gas. It's not really the way it works,
(01:52):
but we could see some gas prices easing, but maybe
not for a couple of weeks. That was one of
the first stories that I written about negative prices, because
obviously the oil industry and people who work in that
sector are very concerned about the negative prices. But for
most people, what we care about is gasoline prices, and frankly,
lower the better. But I quickly confirmed with experts that
(02:16):
even though yes, prices have gone negative in the global
oil market, no, we will never get paid to fill
up our gas tank. And that's for a lot of reasons,
but one main one is that there's a lot of
other costs that go into a cost of gasoline that
will offset the negative cost. Global oil prices make up
a little bit more than fifty of a gallon of gasoline,
(02:37):
but then there's a refinement costs for transportation, and then
finally state taxes. But that said, states across the country
are still seeing prices at the gas tank plummet. Some
are seeing I think Wisconsin and Kentucky O two examples
where drivers, a few of those on the road anyway,
are seeing prices below a dollar. Wow, that's amazing. I
(02:57):
live in California, so I don't think we'll ever receive
those prices again. But still things have gone a little
bit better. The immediate effect of these negative territory prices,
you might be able to see something in a few
days or so, but really not much to look forward
to there. The other thing we're seeing, too, is kind
of this ebb and flow of these gas prices. As
soon as we get out of this, we could be
(03:19):
in for some very high oil prices. That's typically how
these cycles work. I mean, the oil industry is no
stranger to booms and bus so the industry has been
in a relative boom over the last year. The United
States is now the biggest producer of oil and natural gas,
and so they've been booming for a while and now
they're busting and this is a record bust. So at
(03:41):
least the way typical economics work is that we are
going to be seeing extremely higher prices, and not next month,
not even this summer. The summer will see lower gasoline prices.
Still hopefully we're able to be driving around, but this
price spike could come and then in the middle of
this a decade and so when hopefully the global economy
(04:04):
is doing well, we'll see higher prices and we can
thank the pandemic for that. Let's talk a little bit
more about what's going on right now. So my understanding
is that these prices have gone so low because for
the most part, people that have bought all of their
oil for the month of May. Because we're always trying
to project there's always a future thing happening here, most
people have already bought all the oil they're buying for
(04:25):
the month of May, so that's why it's so low.
So we're looking ahead to the following month to see
where prices are going to be at then. So if
you want to get technical about it, that's what technically
drove prices into the negative territory yesterday on Monday, it
was really the end of a trading window for the
month of May. I liken it to sort of the
(04:46):
game of musical chairs, and the music stopped and some
of the oil barrels can't have a place to sit down,
and that's what prompted the prices to go negative. We're
into a new month though, and the music is back up.
The prices are still really low, so as the month
wears on, you can anticipate that will go into negative
territory again. I should emphasize that we're talking about US
(05:07):
based futures or futures contracts, so w t I VERSUS
branch which is based in Europe. And what do we
do with all of this extra oil that we have
right now? I know the Trump administration said they want
to add about seventy five million barrels to the nation's reserves,
but beyond that, what do we do with this extra
supply that we have. I mean, that is the million
(05:28):
dollar question. There's just no place to put it. There's
been dozens and dozens of ships added to the seas
full of oil just sitting out there in the ocean.
You know, it's a little ironic that this is happening.
Yesterday was the ten year anniversary of the BP oil spill,
so it's a little ironic there that oil is on
the water in another way, not even on my radar.
(05:49):
And I remember all the coverage of that. I mean
it was just huge, how much we're losing at that point,
right So this is a very different way, and at
least an environmentally better way to have oil on the water.
But you know, this is a good question. And Trump
has said, oh, we have a lot of places to
put the oil, but you know, we really don't. And
I think that's one of the biggest questions that this
(06:10):
administration is really grappling with right now. I mean, just
the numbers are staggering. So yeah, maybe another seventy five
million barrels into the nation's strategic reserves, but you know
the world usually consumes about a hundred million barrels a day,
and right now oil is off at least twenty million
barrels a day. So that's twenty million barrels a day
(06:30):
of excess oil that has nowhere to go. And that's
a day. So I mean, the numbers are just staggering,
and so it's just you know, a recent column of
mine said, the world is locked down and drowning an oil.
There's no place to put it. So ultimately the end
effect will be companies will just have to stop drilling.
And beyond that, will we see any bailouts or any
(06:52):
type of financial help coming to the oil industry. I
know there's just been kind of rumblings of conversation so
far about that from the administration and so forth, But
is that also something we might see on the horizon.
I certainly think the more dire the situation gets, the
lower the prices go, the more likely something will come
out of Washington on this. President Trump tweeted about that
(07:12):
today on Tuesday, saying that he's directing the Energy Department
and the Treasury Department to come up with a plan
to help the industry. I think Congress, with the House
controlled by Democrats, the only way Democrats will take what
they'll call a bailout for the oil industry, is it
if they get something for renewable energy companies for example,
So I anticipate some sort of pairing of an oil
(07:36):
support package along with support for the renewable energy industry, which,
by the way, is also struggling, because everybody, all of
us are struggling, except for maybe Zoom and pizza joints. Well,
we'll have to definitely monitor and see what happens. Amy Harder,
Energy reporter at Axios, thank you very much for joining us.
Thank you for having me on. I'm oscar mirrors and
(07:59):
this been your daily coronavirus update. Don't forget that. For
today's big news stories, you can check me out on
the Daily Dive podcast every Monday through Friday. So follow
us on I Heart Radio or wherever you get your podcasts.
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