Lowest Oil Prices in U.S. History Were Recorded Today…What Does It Mean for the Economy?
Shane Trejo
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On Monday, American oil prices hit the lowest point in history due to the lack of demand caused by the coronavirus pandemic largely shutting down economic productivity.
During the lowest point of the day, a barrel of oil went negative to the tune of a shocking and unprecedented $-40.32 for the May futures contract. Since oil futures trading was allowed on the market by NYMEX in 1983, this is the lowest price that has ever been recorded.
Traders are more focused on oil futures in June when the economy is expected to improve. The June futures contract is currently trading at $22 per barrel, which also dipped by 12 percent during the day. Brent crude futures, which is the benchmark for the world, dropped to $27 a barrel, a loss of 3.8 percent of value on the day.
Washington lawmakers are crippled by fear and panic, not knowing what to do about these developments. Oil corporations, which are some of the richest and most powerful in the world, may be the next to come looking for a federal bailout as trillions are spent to prop up the economy.
“The confusing thing for markets at the moment is the huge dichotomy between what will possibly be one of the worst synchronized global economic slumps in history against what is undoubtedly the largest ever intervention,” Deutsche Bank strategist Jim Reid said to his clients on Monday.
“The U.S. government’s ability to fundamentally change this situation are minimal,” said Raymond James oil analyst Pavel Molchanov. “The real problem is the fact that upwards of 20 percent of global oil demand is currently offline, mainly due to the Covid-related lockdowns.“
The situation may improve due to the negotiation skills of President Donald Trump, who recently negotiated an end of a market standoff between Saudi Arabia and Russia that was affecting oil production. However, the changes will not go into effect until next month and a storage problem for oil producers could cause additional negative ramifications for the economy.
The Energy Department is allowing oil producers to lease space in the Strategic Petroleum Reserve, which is expected to store an additional 30 million barrels of oil. The feds may end up housing an additional 47 million barrels of oil before it is all said and done. However, that is only a drop in the bucket in comparison to what the excess supply will be. This could conceivably take down the entire industry.
“A tidal wave of bankruptcies is about to hit the sector,” said Dan Eberhart, who works as chief executive of oil services company Canary LLC.
With the oil industry in a state of disarray, the lifeblood of the U.S. economy is in serious jeopardy. The coronavirus pandemic has already caused the worst economic conditions since the Great Depression, and the dam has yet to break in terms of the cascading long-term damage that the economic shutdown will inevitably cause.
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