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

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<v Speaker 1>It's Wednesday, April. I'm oscar A Mirrors from the Daily

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<v Speaker 1>Dive podcast in Los Angeles, and this is your daily

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<v Speaker 1>coronavirus update. For the first time ever in trading, US

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<v Speaker 1>oil prices dipped into negative territory on Monday. Companies had

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<v Speaker 1>to pay to get rid of the oversupply of oil.

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<v Speaker 1>But this doesn't mean that you'll get paid to take

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<v Speaker 1>gasoline off someone's hands. Well, we might see modest savings

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<v Speaker 1>in the next few days and weeks. The big question

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<v Speaker 1>remains what to do with all that extra oil. Amy Harder,

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<v Speaker 1>energy reporter at Axios, joins us for more. Thanks for

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<v Speaker 1>joining us, Amy, thank you for having me. I wanted

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<v Speaker 1>to talk about oil prices, concerning what's going on with

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<v Speaker 1>all of the coronavirus and all the social distancing economies

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<v Speaker 1>on lockdown. For the first time ever in trading, US

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<v Speaker 1>oil prices went into negative territory on Monday. The oil

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<v Speaker 1>markets have been upended. People are pointing to some deep

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<v Speaker 1>financial jeopardy if this keeps going. Amy, tell us what's

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<v Speaker 1>going on with this. This is really an unprecedented time

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<v Speaker 1>for all of us, of course, but especially the oil industry,

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<v Speaker 1>because if you think about it, the solution to solving

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<v Speaker 1>the virus is to get us to stop moving around,

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<v Speaker 1>and yet the whole purpose of oil is to move

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<v Speaker 1>us around. And so what happened with these prices going

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<v Speaker 1>negative on Monday, and we expect to see it in

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<v Speaker 1>the coming weeks continuing, is that there's too much supply

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<v Speaker 1>of oil and not enough demand. So literally, companies are

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<v Speaker 1>having to pay people to take their oil, and it's

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<v Speaker 1>really unprecedented, and we don't really know where the bottom

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<v Speaker 1>is yet. Now. I wanted to focus on that for

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<v Speaker 1>a moment because people here that that companies are having

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<v Speaker 1>to pay others to get rid of their oil, and

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<v Speaker 1>right away people think, oh, man, well, gas prices are

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<v Speaker 1>gonna drop tremendously. Are they going to pay us to

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<v Speaker 1>take away the gas. It's not really the way it works,

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<v Speaker 1>but we could see some gas prices easing, but maybe

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<v Speaker 1>not for a couple of weeks. That was one of

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<v Speaker 1>the first stories that I written about negative prices, because

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<v Speaker 1>obviously the oil industry and people who work in that

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<v Speaker 1>sector are very concerned about the negative prices. But for

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<v Speaker 1>most people, what we care about is gasoline prices, and frankly,

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<v Speaker 1>lower the better. But I quickly confirmed with experts that

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<v Speaker 1>even though yes, prices have gone negative in the global

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<v Speaker 1>oil market, no, we will never get paid to fill

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<v Speaker 1>up our gas tank. And that's for a lot of reasons,

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<v Speaker 1>but one main one is that there's a lot of

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<v Speaker 1>other costs that go into a cost of gasoline that

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<v Speaker 1>will offset the negative cost. Global oil prices make up

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<v Speaker 1>a little bit more than fifty of a gallon of gasoline,

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<v Speaker 1>but then there's a refinement costs for transportation, and then

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<v Speaker 1>finally state taxes. But that said, states across the country

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<v Speaker 1>are still seeing prices at the gas tank plummet. Some

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<v Speaker 1>are seeing I think Wisconsin and Kentucky O two examples

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<v Speaker 1>where drivers, a few of those on the road anyway,

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<v Speaker 1>are seeing prices below a dollar. Wow, that's amazing. I

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<v Speaker 1>live in California, so I don't think we'll ever receive

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<v Speaker 1>those prices again. But still things have gone a little

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<v Speaker 1>bit better. The immediate effect of these negative territory prices,

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<v Speaker 1>you might be able to see something in a few

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<v Speaker 1>days or so, but really not much to look forward

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<v Speaker 1>to there. The other thing we're seeing, too, is kind

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<v Speaker 1>of this ebb and flow of these gas prices. As

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<v Speaker 1>soon as we get out of this, we could be

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<v Speaker 1>in for some very high oil prices. That's typically how

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<v Speaker 1>these cycles work. I mean, the oil industry is no

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<v Speaker 1>stranger to booms and bus so the industry has been

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<v Speaker 1>in a relative boom over the last year. The United

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<v Speaker 1>States is now the biggest producer of oil and natural gas,

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<v Speaker 1>and so they've been booming for a while and now

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<v Speaker 1>they're busting and this is a record bust. So at

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<v Speaker 1>least the way typical economics work is that we are

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<v Speaker 1>going to be seeing extremely higher prices, and not next month,

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<v Speaker 1>not even this summer. The summer will see lower gasoline prices.

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<v Speaker 1>Still hopefully we're able to be driving around, but this

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<v Speaker 1>price spike could come and then in the middle of

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<v Speaker 1>this a decade and so when hopefully the global economy

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<v Speaker 1>is doing well, we'll see higher prices and we can

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<v Speaker 1>thank the pandemic for that. Let's talk a little bit

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<v Speaker 1>more about what's going on right now. So my understanding

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<v Speaker 1>is that these prices have gone so low because for

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<v Speaker 1>the most part, people that have bought all of their

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<v Speaker 1>oil for the month of May. Because we're always trying

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<v Speaker 1>to project there's always a future thing happening here, most

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<v Speaker 1>people have already bought all the oil they're buying for

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<v Speaker 1>the month of May, so that's why it's so low.

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<v Speaker 1>So we're looking ahead to the following month to see

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<v Speaker 1>where prices are going to be at then. So if

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<v Speaker 1>you want to get technical about it, that's what technically

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<v Speaker 1>drove prices into the negative territory yesterday on Monday, it

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<v Speaker 1>was really the end of a trading window for the

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<v Speaker 1>month of May. I liken it to sort of the

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<v Speaker 1>game of musical chairs, and the music stopped and some

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<v Speaker 1>of the oil barrels can't have a place to sit down,

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<v Speaker 1>and that's what prompted the prices to go negative. We're

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<v Speaker 1>into a new month though, and the music is back up.

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<v Speaker 1>The prices are still really low, so as the month

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<v Speaker 1>wears on, you can anticipate that will go into negative

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<v Speaker 1>territory again. I should emphasize that we're talking about US

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<v Speaker 1>based futures or futures contracts, so w t I VERSUS

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<v Speaker 1>branch which is based in Europe. And what do we

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<v Speaker 1>do with all of this extra oil that we have

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<v Speaker 1>right now? I know the Trump administration said they want

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<v Speaker 1>to add about seventy five million barrels to the nation's reserves,

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<v Speaker 1>but beyond that, what do we do with this extra

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<v Speaker 1>supply that we have. I mean, that is the million

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<v Speaker 1>dollar question. There's just no place to put it. There's

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<v Speaker 1>been dozens and dozens of ships added to the seas

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<v Speaker 1>full of oil just sitting out there in the ocean.

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<v Speaker 1>You know, it's a little ironic that this is happening.

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<v Speaker 1>Yesterday was the ten year anniversary of the BP oil spill,

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<v Speaker 1>so it's a little ironic there that oil is on

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<v Speaker 1>the water in another way, not even on my radar.

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<v Speaker 1>And I remember all the coverage of that. I mean

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<v Speaker 1>it was just huge, how much we're losing at that point,

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<v Speaker 1>right So this is a very different way, and at

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<v Speaker 1>least an environmentally better way to have oil on the water.

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<v Speaker 1>But you know, this is a good question. And Trump

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<v Speaker 1>has said, oh, we have a lot of places to

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<v Speaker 1>put the oil, but you know, we really don't. And

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<v Speaker 1>I think that's one of the biggest questions that this

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<v Speaker 1>administration is really grappling with right now. I mean, just

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<v Speaker 1>the numbers are staggering. So yeah, maybe another seventy five

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<v Speaker 1>million barrels into the nation's strategic reserves, but you know

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<v Speaker 1>the world usually consumes about a hundred million barrels a day,

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<v Speaker 1>and right now oil is off at least twenty million

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<v Speaker 1>barrels a day. So that's twenty million barrels a day

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<v Speaker 1>of excess oil that has nowhere to go. And that's

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<v Speaker 1>a day. So I mean, the numbers are just staggering,

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<v Speaker 1>and so it's just you know, a recent column of

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<v Speaker 1>mine said, the world is locked down and drowning an oil.

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<v Speaker 1>There's no place to put it. So ultimately the end

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<v Speaker 1>effect will be companies will just have to stop drilling.

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<v Speaker 1>And beyond that, will we see any bailouts or any

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<v Speaker 1>type of financial help coming to the oil industry. I

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<v Speaker 1>know there's just been kind of rumblings of conversation so

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<v Speaker 1>far about that from the administration and so forth, But

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<v Speaker 1>is that also something we might see on the horizon.

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<v Speaker 1>I certainly think the more dire the situation gets, the

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<v Speaker 1>lower the prices go, the more likely something will come

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<v Speaker 1>out of Washington on this. President Trump tweeted about that

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<v Speaker 1>today on Tuesday, saying that he's directing the Energy Department

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<v Speaker 1>and the Treasury Department to come up with a plan

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<v Speaker 1>to help the industry. I think Congress, with the House

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<v Speaker 1>controlled by Democrats, the only way Democrats will take what

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<v Speaker 1>they'll call a bailout for the oil industry, is it

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<v Speaker 1>if they get something for renewable energy companies for example,

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<v Speaker 1>So I anticipate some sort of pairing of an oil

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<v Speaker 1>support package along with support for the renewable energy industry, which,

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<v Speaker 1>by the way, is also struggling, because everybody, all of

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<v Speaker 1>us are struggling, except for maybe Zoom and pizza joints. Well,

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<v Speaker 1>we'll have to definitely monitor and see what happens. Amy Harder,

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<v Speaker 1>Energy reporter at Axios, thank you very much for joining us.

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<v Speaker 1>Thank you for having me on. I'm oscar mirrors and

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<v Speaker 1>this been your daily coronavirus update. Don't forget that. For

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<v Speaker 1>today's big news stories, you can check me out on

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<v Speaker 1>the Daily Dive podcast every Monday through Friday. So follow

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