What's happening with the oil markets?

Clark Howard Show
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Automatic TRANSCRIPT

I WanNa talk about something that has confused people no end and that is what's going on with the oil markets which is causing the stock markets around. The world. Have a really really rough time. So here's the scoop and we alluded to this on the show. Last week is that it was possible. That oil would go negative that people would actually have to pay to have somebody take their oil. And that's an oversimplification. But the way commodities markets work is people buy and sell contracts on futures exchanges where they're guessing what the value is. Something is going to be the next month months down the road. And what's happening with oil right now? Is there such an enormous oversupply that nobody wants it? People who own the contracts or essentially having to pay people to take them over and so we have had a double whammy first. We had the thing that Putin so successfully engineered that massively over produced oil from Russia and then intern from Saudi Arabia as demand for the products that come out oil gasoline and the others fell off a cliff because of all the sheltering in place around the world what. Putin has been trying to engineer is to destroy the US energy market the US energy market had become the world's largest and the situation for us different than Putin and Russia and the Saudis. And some others is that costs us more to produce each barrel of oil using principally hydraulic fracking than it cost to get it easily. Accessible reserves that the Russians and the Saudis and some others can get too so hydraulic fracking costs. More to do then. Most any other method of producing oil out of the ground or pumping it out of the ground and so it normal prices for oil. Our producers are marginally profitable to not really highly profitable but enough they can make a living what Putin saw was an opportunity to destroy the some of the economic strength of the United States and to create more market share for Russia's oil. And so he's been able to do both by pumping way in excess. The amount of oil needed in the world make no mistake dictator. Putin is dedicated to harming the United States. That's what he's always been about. That's who he was when he was with the KGB when it was still the Soviet Union. And that's what he's still about so where we sit today is the effects of what. Putin unleashed has essentially worked and now the world is so awash in oil that the problem is nobody knows if we're going to have any place to store the excess as a result you're going to see one oil exploration company after another and one oil producer after another in the United States. Go Bust and that's what he wanted to do and that's happening now. Historically when that's happened the oil industry in the United States has always been a boom and bust industry. Putin's victory will be short-lived because even as companies get cleared out as competitors when oil's price recovers as people around the world more or less eventually. Go back to work. The oil price will get to a point where players will get out there and start exploring and producing oil out of the ground again in the United States. So right now. This is really hideous with taxes as I read one story in forget if it was the Houston Chronicle or the Dallas Morning News both follow the oil industry so much particularly the chronicle. Does that Texans think of themselves as energy producers not necessarily one particular type of energy and already in the Permian basin the core of where hydraulic fracking has been so successful. Companies are pivoting to producing energy from solar because the Permian Basin is one of the best places in the United States to efficiently produce sewer and it's extremely profitable to do so there so no that one of the things about American capitalism is when one door closes. American entrepreneurs are willing to take a risk on another. And I think you're going to see that the big pivot in Texas in West Texas is going to be the sole were for now. But let's talk about what this means to you and me and our wallets so the last trade for an a gallon of regular gasoline at wholesale spiff four cents the effective. That is that around the country. What we pay for gasoline once people start going back to work and get on the roads and more normal numbers. The savings to your wallet operates like a big tax cut so this is a complicated thing in that a sector of the. Us economy energy production is taking a body blow. You and I as consumers have been just eaten alive by Corona virus but there is a dividend for us as consumers is. We'll go to fill our vehicles. Is We go through months of trying to recover from Corona virus? We will pay much less for the fuel we put in our tanks. There's lots and lots of things that the United States can do to strike back at the Russians not militarily but economically and one. That may be confusing. But you'll likely hear more over the next. Few weeks is having a very high tax on oil imports since we have such a massive supply in the problem is a price side problem with no demand out there that if we create a price disadvantage for the Russians with the oil that would maybe flow into the United States. It provides a bit of protection our producers. The problem is that creates a conflict between what works best for you and me as consumers which is having a lower price per gallon of gas and then the other side what works best for the producers which is to have some protection from the hideous actions of dictator Putin.

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