Oil Dips to Negative Territory. What Does It Mean for Gas Prices?

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 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 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 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, 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 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, 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 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 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 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 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 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 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 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 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. 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 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 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

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 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 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 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.