Oil: Less Than Zero

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N. P. R. Is this good evening. How are You David? Dacko bound is a managing director of energy research at Cowan in Investment Bank. And when I called him he'd been awake for sixteen hours. The reason is our indicator for today. Negative thirty seven dollars a barrel yesterday. The price of a barrel of West Texas intermediate crude oil was negative. Thirty seven dollars a barrel but this is the crazy thing about that or one of the crazy things about that. Oil has value real value. We use it every day. It makes cars and airplanes. Go it he's homes. It could turn into plastic water bottles and fleece jackets and car seats and shower curtains. The idea that oil would be worth. Nothing is crazy and the idea that it's worth less than nothing. I don't even know what does that even mean. I was so confused and shocked by this that I was. I couldn't formulate a question. So what what why is I mean? What do what I my mind is kind of blown. I mean how is how is a commodity like a thing that you can touch worth negative money to pay someone to take it? Will you remember a few years ago after the housing crisis in Detroit? You know we. You started seeing homes being sold for penny. Yeah and that's the same sort of dynamic of just you have a product that nobody wants right now. This is the indicator from planet money. I'm Stacey Manic Smith and I'm today on the show negative thirty seven dollars a barrel. How is that possible? What on Earth is going on. What under the Earth is going on? I Guess Oh nice. Is this like the worst day that you've ever seen? I mean we've never seen negative prices support for NPR. And the following message come from capital one with the capital one quicksilver card with quicksilver you earn unlimited one point five percent cashback on every purchase everywhere. What's in your Wallet Support For this? Podcast comes from the John S. and James L. Knight Foundation helping NPR advanced journalistic excellence in the digital age. David Dacko Bom has been analyzing oil industry for more than a decade. He says in recent years. The price of oil has fluctuated between about forty and sixty dollars a barrel and he says those prices are already considered pretty low. He and his colleagues Kinda used to joke about it every day. There's lot of sarcasm about how low can crew go and we sort of have some internal jokes about you know good morning crew two zero but yesterday the joke got real WTI crude that's west Texas intermediate crude oil did go to zero and went way below zero WTI crude by the way it's a kind of oil there are a whole bunch of different kinds of oil all over the world there's Brent crude and other kinds WTI though is one of the kinds that people really watch especially in the US and just a few months ago WTI crude was trading at around sixty dollars a barrel but yesterday things started out bad went down to twelve dollars a barrel and even at that point David says everybody was already starting to freak out and then the price started dropping from there it dropped to single digits five dollars a barrel three dollars a barrel two dollars a barrel just talking the clients over you know. Shat people that were really scratching their head of weight. Ken Crude even go to zero. The answer was yes and it could go even lower than that by yesterday afternoon. The price at hit negative thirty seven dollars a barrel soon to be clear not all oil prices went negative just that West Texas Intermediate Oil. And that's also not the price for all time that's just the price for WTI for the month of May and both the where the when are key to the why this happened so I the win. Negative thirty seven dollars was the price for next month for May so right now. A lot of places are an economic lockdown. Businesses are closed. Most travel is not happening and a lot of places will be locked down in demand through. May that means we're basically not buying oil right now and demand for oil and may is expected to be really low about the same as it is. Now you're not getting in your car if you're not driving the work if you're not going out to restaurants L. You're not getting on airplanes. You know people are not not consuming. Kurd there's almost no demand for oil right. Now it seems oil producers just cannot sell what they have punt they need to store it until demand comes back and somebody actually wants to buy it so they might call up. Somebody like this guy Stephen Bar same in I'm the vice president of operations at the tank. We like to call ourselves. Matchmaker for Terminal Storage matchmakers for terminal storage. Like that is there. Is there a tinder for oil storage? I don't know I think there. I think this is the guy. A tank tiger actually matches oil producers with people who can store their oil. Typically you know places like tank farms okay so the insurance the Sopranos where he's driving down the Jersey turnpike you see the little citgo sign on the tank. That's that's what it that's kind of what they look like they. So there's just rows of tanks. There are clusters of tank farms in different parts of the country. But because nobody's using oil right now the oil producers just cannot sell it so they're all trying to store. The oil tank farms are full. Heard storage right now anywhere It's it's very tough to find A. We're not showing anything on our website right now until a believe January of twenty twenty one. So that's the earliest defined storage for us. I mean we'd be happy to turn over rocks in Stephen says a lot of people have been calling him asking him to do just that turnover rocks. It's crazy I mean everybody in their barber saying oh I can source oil. They already are stirring oil on the water and buying the water. I mean like people actually coming up with the IDEAS. I have this barged. Maybe somebody will take in just put oil in it and let it float People started railcars. Typically it costs roughly twenty five cents a month to store a barrel of oil now. Some storage facilities are getting more than four dollars. A barrel and when the price of oil is low as it has been you can get into a situation where costs more to store the oil. The oil is actually worth around the Texas Oklahoma area. Oil Storage is especially tight and especially expensive. That's part of why West Texas intermediate oil price dropped so fast. There's nowhere to put all that oil and moving oil to another area is really expensive too. So you are an oil producer. You have this oil that you pay to pump out of the ground and nobody wants it. But you can't just dump it you have to sell it or store it and if you don't WanNa pay to store it well maybe pay someone else to take it off your hands. Make storing the oil their problem. David Dacko bomb says that is what's happening here. It's like if you went up to a buffet and it was all you can eat and you a you know. A bunch of general sells chicken. And then you went back up and you know someone said like we need you to take another plate and you're like I just can't take anymore. They're like I'll give you one hundred dollars to eat another plate whereas like you're the one that's supposed to be paying for the buffet. You know I I think maybe there's one person that says okay. I'll do the hundred dollar challenge. I'll take another plate. David says this will change. When the economy starts to open back up people will start driving again and businesses will start ordering things again in airplanes will start filling up again it just like with the chicken you might be stuffed right now at the moment but you will get hungry again. Eventually you'll be willing to pay for that chicken again. But even when the economy does start to normalize David doesn't think the appetite for oil is going to get back to where it was. The global economy says probably not going to grow for a while and that means demand for oil will likely be low also alternative energy use is on the rise and David the oil industry will probably never be the tighten. It was we have approximately sixty public companies. They're out they're producing oil and gas and this will be you know perhaps one of the events that leads to there only being ten of them over time. this is this is part of that. Death Spiral So this is this is just. The Industry. Got Old really really fast. In the meantime oil companies are trying to figure out if they can afford to keep pumping oil or if they need to shut off their wells and David things that's part of why we will continue to see negative oil prices and he will have more sixteen hour days with you know a few breaks to play with his kids because like a lot of us us. Working from home of the indicator was produced by Dr Raphael and fact check by Britney Cronin indicators editor is Paddy Hirsch an indicator is a production of NPR.

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