For what is apparently the first time ever, the price of oil has sunk below $0 a barrel, leading a lot of people to realize they really don’t understand how our financial markets work.
I totally admit it, I am one of those people. I know “buy low, sell high.” I know the stock market gets used as a stand-in for the economy as a whole way too often. But seeing everyone on Twitter discussing the “May WTI” and “crude futures” was going way over my head and I wasn’t alone in that. To most of us, the idea that oil could have no or negative value is perplexing.
just checked my bank account and, if my math is correct, i can currently afford to buy infinity barrels https://t.co/Enh4arZ5i0
— Josh Raby (@JoshRaby) April 20, 2020
If you have one dollar and 35 cents, you can buy a cheeseburger from McDonald’s, or a barrel of oil. pic.twitter.com/q6CCRUxQ9V
— Ken Tremendous (@KenTremendous) April 20, 2020
When the turnip market is outperforming the real life oil market#OilPrices pic.twitter.com/BNGWay1dkN
— Glitch Labs 👾 (@GlitchLabsCo) April 20, 2020
If oil prices are so low.. does that mean I should spend 200,000 Bells on turnips to capitalize?
— Carli Velocci ➡ 🛌 (@velocciraptor) April 20, 2020
Can someone explain what it means that oil is negative $35 a barrel? pic.twitter.com/IY0YjVoOaw
— Ken Tremendous (@KenTremendous) April 20, 2020
After emerging from a rabbit hole of research I can confidently say that unfortunately, we will not be getting paid to fill up our gas tanks. But this is not normal and it’s not good. (Depending on your point of view, I guess.)
You can tell the general economic stratum of your social sphere by how much glee they take from some giant market crashing
— Just Bought One Million OIL (@bombsfall) April 20, 2020
Basically, what this all boils down to is that the financial markets don’t trade in actual things, but in the idea of things. All of this is about crude oil’s May “futures.” Instead of buying physical oil, you’re essentially betting on the price of oil next month. When your May contract ends–which is happening now–you sell that contract (and then buy a new June contract, always keeping things in a future abstract space where hopefully the price keeps going up) or you find a way to take the actual physical oil.
But right now, no one wants that oil. We’re using a whole lot less of it than usual right now and the major U.S. hub in Cushing, Oklahoma is reportedly full up.
Which means people either have to go get their oil and store it … somewhere, or they’re having to take whatever price they can get, which is nothing or even less than nothing.
Bloomberg has a helpful explainer of the situation. (And another on Business Insider.) Here’s a good relevant bit:
There are legendary stories on Wall Street about newbie commodities traders who forgot to roll their positions and had to scramble to find somewhere to store 10,000 pork bellies or bushels of wheat or barrels of oil or whatever. These stories are funny because they are rare, perhaps mythical; mostly financial traders just remember to keep their commodities trades in the world of financial abstraction.
Obviously there are a lot of complexities here and terms that will sound totally weird to non-economy people like “contango” and “mega (or super) contango” but basically here’s the deal:
THREAD EXPLAINING NEGATIVE OIL:
Oil costs $ to store. Due to the economic collapse, oil isn’t being used much. So all the storage facilities are filled up. So nobody who can store it will buy it from you. If you want to get rid of oil, you have to pay someone.
That’s the thread
— Joe Weisenthal (@TheStalwart) April 20, 2020
What this means moving forward is pretty unknown on all fronts but as far as I can tell, that’s the gist for now.
This snapshot is being acknowledged as a turning point in the climate movement.
Fossil fuels are in long-term structural decline. This along w/ low interest rates means it‘s the right time to create millions of jobs transitioning to renewable and clean energy. A key opportunity. https://t.co/UqT8DI5u2I
— Alexandria Ocasio-Cortez (@AOC) April 20, 2020
just finished my christmas shopping
every body gets a barrel of oil pic.twitter.com/DuJbjQNjM8— darth™ (@darth) April 20, 2020
(image: Mario Tama/Getty Images)
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