Negative Crude Oil Prices: Not A Matter For Celebration

The NYMEX price for West Texas Intermediate (WTI) fell into negative territory on Monday, the lowest level ever recorded, and the only real question is why was anyone surprised by this turn of events?

Think about it: As much as we like to talk about renewables and the Green New Deal and all the other pop-culture things, the global economy still runs by and large on oil and natural gas. Demand for oil is entirely dependent on economic growth. As the U.S., China and well over 150 other countries have gone about closing down vast swaths of their economies to try to deal with the COVID-19 pandemic, some are estimating that economic growth in the U.S. for April could be negative 25-30%, and May isn’t looking to be much better.

The result of this negative economic growth has very predictably been a collapse of demand for crude, with some experts again estimating it to be in the negative 25-30% range for April. The consequence of that particular train wreck is that tens of millions of barrels of produced crude with nowhere else to go are flowing into storage facilities in the U.S. and across the globe. Given that the NYMEX price for WTI is set on a forward month futures contract, that negative price we saw on Monday is basically a projection of the market’s belief that U.S. storage will be completely full by May 20.

When that happens, many producers without market leverage will be faced with a choice between shutting in their wells or actually paying someone to take their oil away. We have to remember that wells drilled into some reservoirs can lose pressure and be difficult or impossible to restart once they have been shut-in.

Even worse, that negative price in effect becomes a bleak leading indicator of what traders think the state of the U.S. economy will look like in late May barring drastic changes. Looking at the gradual, staged plans most state governors are now rolling out to govern the reopening of their respective economies, no such drastic changes appear to be in the offing. Thus, we should expect these negative or single-digit prices for WTI to linger for days or even weeks before beginning to recover.

Read the Rest at Forbes.com

40 thoughts on “Negative Crude Oil Prices: Not A Matter For Celebration

  1. Jimmy MacAfee - April 21, 2020

    President Trump has done (or will shortly) something massively important: no more immigration. From anywhere. At least temporarily.

    I’m not an isolationist, but with people predicting a “second wave of coronavirus in November” (timing is everything!) it looks like they were going to use an influx of immigrants to cause disease AND as a result screw with the elections.

    We need to use this time to build oil reserves massively. Dave, can you put oil back into the ground for later recovery? In defunct wells? Is that a stupid idea?

    1. phineas gage - April 21, 2020

      The feds could buy it for the strategic oil reserve, but that would mean just printing more money.

      Even if we begin to rebound economically, inflation is likely to explode.

  2. phineas gage - April 21, 2020

    Completely agree. This was a key preemptive political move by Trump, yet it can be justified by the fact that with millions of Americans out of work, this is no time for immigration. I expect this policy to be extended through the remainder of 2020.

  3. brian - April 21, 2020

    The oil crunch is world wide. My training was in marine operations so I have an idea of how product moves around the world.

    Back in Late Dec and early Jan. there were more than a few tanker. s sitting in ports, spinning on their anchors. Nowhere to off load their cargoes. China’s ports actually indicated what was to come as everything has a snowball effect. Domestic travel was nearly eliminated from the streets when China dropped the hammer on its citizens. No fuel being burned meant storage tanks filled and remained filled very quickly. Tankers sat in ports with no place to offload crude. This quickly spread to other ports as people were shuttered in.

    The US can’t buy any more oil… theres no place to put it. reserves are full. There simply won’t be anywhere to put it so capping wells is likely the only option for now. Much to the glee of the communists. Yet another reason to push the marxists out and send them to Venezuela.

    1. george227 - April 21, 2020

      Renewables can get us off the Petroleum Treadmill, and self-sufficient.
      I am serious.

  4. Gregg - April 21, 2020

    For some inexplicable reason the rush to hoard toilet paper became the number one commodity that suffered a supply shortage – along with sanitizer. At least the run on hand sanitizer made some sense.

    I would think the oil and gas suppliers have built their supply model on the basis of (guessing) everyone’s fuel tanks at any given time are probably only 1/2 full.

    With the incredibly cheap prices, now is the time to fill up and keep your car’s gas tanks, heating oil tanks, LP Gas tanks full so as to “flatten the demand curve” – in this case build it up.

    True, while there is not a lot of ongoing demand right now and once everyone’s storage tanks are full, the overall demand will stay low until the normal demand resumes, it may, to some degree, level out the demand curve so as to not cause a catastrophic industry-wide shutdown. Just a thought.

    PS: Just ordered LP gas price: $2.649 versus $2.899 last December. Not a huge savings, but a reduction none the less.

    1. Jimmy MacAfee - April 21, 2020

      Instead of the petrodollar, or the gold standard, we should have the TP dollar (not Transpacific!)

  5. Gregg - April 21, 2020

    Dave, Is LP Gas similarly affected?

    1. David Blackmon - April 21, 2020

      Not really, because it’s a by-product of natural gas, not crude oil.

  6. brian - April 21, 2020

    What I see as interesting and unusual is when the dollar and/or oil sags the metal markets generally get a boost as people invest in ‘safer’ commodities. Whats unusual is the metal markets are also pretty flat with small retractions and others like gold and palladium taking bigger significant hits downward. Whats going on???

    1. george227 - April 21, 2020

      We are headed into a deflation.

      Bad news.

  7. george227 - April 21, 2020

    I am the canary in your coal mine. Being an eco-freak, I put in solar PV panels four years ago expecting about 15 years for payback. Before they could be installed, we bought a VW e-Golf electric car just as the new models came out. The cost of the car and the panels was exactly $30,000.

    The Panels paid back in three years in gasoline savings alone. Now we get free house and horsepower, as we generate more than we use. Our two electric cars need no tune-ups, no oil changes, no trips to gas up, have no transmission worries, emissions checks, or muffler troubles. And there is no engine maintenance at all.

    You will LOVE your electric car.

    1. David Blackmon - April 21, 2020

      George: Thanks for that comment. Yes, home solar is making leaps and bounds progress, but still just a pinprick in overall energy sourcing. As for EVs, without the massive subsidies they receive at the state and federal levels, they remain non-competitive. Happy you got yours, though.

      1. phineas gage - April 21, 2020

        Even with the subsidies they are priced too high for the average person.

        Maybe Elon Musk can really come through and develop the Model-T equivalent of the electric car. It would be a gamechanger in terms of transportation, although with significant horse-buggy impacts on certain major industries.

        In reality, in less we want to return to living in caves, it is petroleum for cheap, available energy in the near-term, nuclear in the longer-term (notice how the eco-nuts that obsess about carbon emissions never promote that–gives the game away), and hopefully fission in the long-term.

        1. george227 - April 21, 2020

          His Model Y is that car in his estimation.

          They are much more practical than you folk are aware.

          1. David Blackmon - April 21, 2020

            “you folk” What do you mean by that? Are you a racist in addition to being a liar?

          2. george227 - April 21, 2020

            By “you folk”,I mean most of you here who are unaware of the benefits of EVs and do not understand how they will take over for pure practicality.

            Outgrow nastiness.

          3. phineas gage - April 21, 2020

            How do you ‘know’ what ‘we’ believe? This site has a variety of posters.

            And why are taking such an aggressive tone with so little evidence weighing on your side of the debate?

    2. brian - April 21, 2020

      Creating those solar panels and much of the electrics uses petroleum not only for components but to supply the energy to manufacture them. Also some of the processes in the manufacturing of these ‘green’ tech is VERY toxic.

      The money handed to ‘green’ industry thats gone virtually nowhere could have been spent on making petroleum that more efficient and ‘green’. Additionally if you are fortunate to live in an area that gets mostly sunshine then it would make sense.

      But there are many areas where the available sunshine doesn’t permit a reliable supply of energy. There are also the problems with batteries, their construction and safe handling as well… Yeah its ‘greener’ is some ways but overall… it isn’t. Mostly a ‘feel good’ solution at best.

      1. george227 - April 21, 2020

        I made semiconductors and understand the processes, and also served as Senior Engineer in Technical Services for a very large power company. PV or wind plus battery storage is already cheaper than many other sources, such as gas, coal, nuclear, geothermal or trash.

        Los Angeles just bought hundreds of Megawatthours of power from PV plus battery storage at under 2 cents/kWh daytime and 3.3 cents.kWh at night from the batteries.

        No coal plant can match that.

        We used fossil fuels to make our panels to bootstrap ourselves into sustainability .

        1. phineas gage - April 21, 2020

          Disposing of solar panels and construction of wind farms is far more toxic and destructive to the environment than modern fossil fuel technology.

          And the idea that solar-wind can come anywhere near replacing fossil fuels, except in highly selective locations, is simply not true.

      2. george227 - April 21, 2020

        It is a feel good for your wallet and your children as renewables need no fuel and produce no waste. Did you know we can replace 74% of existing coal plants before they age out and save money? Want references for all my claims?

        1. phineas gage - April 21, 2020

          With very few exceptions, recycling is a net energy loss.

          It is a virtual-signaling activity for the privileged Left.

        1. phineas gage - April 21, 2020

          How much fossil fuel energy does it take to make the batteries and the electricity needed to recharge them?

  8. george227 - April 21, 2020

    My comment has not been posted.

    1. David Blackmon - April 21, 2020

      Then how did I reply to it?

      1. george227 - April 21, 2020

        I had to wait for the approving email.
        Did you know the subsidies for petroleum was over $5,200,000,000,000 in one year alone?
        oilprice.com/Energy/Energy-General/Global-Fossil-Fuel-Subsidies-Hit-52-Trillion.html

        1. David Blackmon - April 21, 2020

          I know that that’s a damnable like promoted by lying clowns like you, yes.

          1. george227 - April 21, 2020

            That came from oilprice.com. An industry source.
            Please do not be nasty.

          2. David Blackmon - April 21, 2020

            Oilprice.come is not an industry source. It is broadly detested by the industry, in fact.

          3. phineas gage - April 21, 2020

            ‘Please do not be nasty.’

            Pure projection–typical leftist tactic.

        2. Gregg - April 21, 2020

          Hey George, I believe you wrote 5.2 Trillion $5,200,000,000,000 in one year alone when you meant 52 Trillion which looks like this: $52,000,000,000,000.

          Pasting your quote:

          “…$5,200,000,000,000 in one year alone?
          oilprice.com/Energy/Energy-General/Global-Fossil-Fuel-Subsidies-Hit-52-Trillion.html”

          You do realize our national GDP is about 22-23 Trillion; our whole federal budget is between 4-5 Trillion. So how in the hell can we be subsidizing big oil or anyone else more than ten times (your 52 Trillion number) our whole federal budget every year?

          Even at your written $5,200,000,000,000 number, there is no way our yearly oil subsidies are greater than our whole federal budget and one quarter of our whole economy.

          Exaggerate Much?

          Who does your math? The news reporter who said Bloomberg could have given everyone in the country a million dollars with what he spent on his failed presidential campaign? Actually it was about $1.53 per person.

          In order to be effective, all propaganda has to have some truth to it. You should try to put at least some truth in yours.

  9. Gregg - April 21, 2020

    Hey George,

    If EV’s are so great, why are they so heavily subsidized? If something has to be subsidized forever, then it is not worth it. Why should my taxes be used so you can own and drive a politically correct enviro-vehicle?

    Furthermore:

    Wait until you have to replace the battery; and pay for its disposal/recycling.

    Wait until your state imposes a road use surtax – which will counter you purchase subsidies – on your enclosed golf cart because they are not getting enough road repair revenue from gas taxes. I know some states (Oregon I think) are looking into charging by mileage by putting trackers on all cares, but the gasoline car driving public is sooner or later going revolt from being double taxed.

    Most EV cars also don’t have the range of most Gas powered cars.

    Currently your EV is largely a coal burner since so many of your ilk have been so successful in preventing another ‘green’ energy source: Nuclear for the last forty years.

    Your EV might be green if the electricity were produced by more nuclear plants or hydro power via dams. Hydro power is another green energy source many enviowackos have blocked to supposedly save some obscure fish or plankton or amoebas.

    I’m not saying oil and gas fossil fuels are the only way to go, but please don’t try to sell us on the virtues of EVs until they are as truly cost effective sans subsidies and until they don’t get their electricity form coal fired plants of which there will need to many more built to accommodate the EV demand if there were to be millions of EV cars actually bought and driven.

  10. Gregg - April 21, 2020

    For some reason my comment to George posted before I was finished, so it has some typos and grammar errors. To conclude:

    The EV community should be clamoring for more green Nuclear plants and Hydro power (dams) to be built quickly, because if we don’t get the ability to produce more electricity (last I heard our grid was at about 97% of maximum capacity) several negative things will happen:

    Simple supply and demand. No new electricity producing plants will result in rationing via higher electricity cost, or brown outs, or blackouts where you won’t even be able to charge your car – ask the folks with EVs in CA with their recent long term rolling blackouts due to another government mismanagement regarding forest clearing.

    The end result will be a crippling of our country’s economy through forced reduced energy use which will destroy our country’s ability to compete globally. This will result in a lower standard of living for the masses and cause more (perceived) need for government control and the management of America’s decline… And after all, isn’t that the real agenda of all you AOC types?

  11. Jimmy MacAfee - April 21, 2020

    I have a wood stove on the farm; I only burn dead trees, hardwoods and red cedar. I also have a large set of west/southwest windows; that’s my solar. Hardly use the heat pump in the winter. The inside temp always exceeds the setting for the heat pump – on sunny days.

    Dead wood ends up putting carbon somewhere; the trees around my property really like my carbon dioxide – good for them! By the way, George Washington was a Conservationist (not an Environmentalist, which are a different species.) He only used dead wood for his stoves, too. Sometimes, the old ways are best.

    Not for everybody; do what you like: you can keep your electric vehicles and solar panels; I’ll never buy an electric car nor an electric motorcycle. It would have cost us over 30 grand to get solar, and that is without the dam batteries. And with my low heating bills, I’d never recoup the cost. I could also rig up a long power line – losing a lot of juice because of the distance – to a renewable source: a river. I’d rather do that than use the unreliable sun. Although flooding is a concern, as the turbine might be washed away.

    There ain’t no free lunch.

  12. Jimmy MacAfee - April 22, 2020

    A great article, refuting some of George’s nonsense, elaborating on some of the great posts by our regulars and Dave:

    https://www.forbes.com/sites/michaelshellenberger/2020/04/21/new-michael-moore-backed-documentary-on-youtube-reveals-massive-ecological-impacts-of-renewables/

    1. Gregg - April 22, 2020

      When an avowed anti-American leftist like M Moore can see the forest for the trees so to speak, then maybe there is hope that this “Green New Deal” fraud can be debunked once and for all.

      Maybe Moore is a true environmentalist and really does care about the planet’s “birds and the bees and the flowers and the trees…”

      He must be if he is putting his desire to save the earth above his effort to destroy America’s capitalistic system, of which he benefits from greatly.

  13. phineas gage - April 22, 2020

    These are the people that want to restructure the entire national economy:

    https://pjmedia.com/trending/michael-moore-admits-he-had-no-idea-where-the-juice-to-power-electric-cars-came-from/

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