The global oil market crash-landed in uncharted territory this week when the cost of oil in the US went negative, forcing companies to pay up to $US36 ($A57) for each barrel to be taken off their hands.
The new low was delivered by the Covid-19 pandemic, which has slashed demand for oil by around 29 million barrels a day. Meanwhile, cuts in production have come to little, leaving a huge surplus on the market and no buyers. And like the Coronavirus itself, the situation doesn’t look like resolving any time soon.
“This storage crisis is not going away for at least a few months,” said Daniel Gerard, senior multi-asset strategist at State Street Global Markets. “Barring a grand agreement from Saudi Arabia, Russia and Texas, which seems highly unlikely, current dynamics and low oil prices will persist … through the rest of 2020 at a minimum.”
So what does this mean for the rest of us? Well, first of all, don’t expect to be paid to fill up your car. While negative oil prices will eventually flow through to cheaper petrol at the bowser, they won’t provide all that much relief, particularly considering how few are currently making the daily commute.
As for the global climate effort, a sustained hit to global oil prices will serve to make the fossil fuel more competitive against low-carbon alternatives. And even if that boost is artificial and short-lived, it is a blow to the urgent task of cutting emissions.
But there is some good news. Fortune believes the Coronavirus effect could wind up hurrying along the Big Oil industry’s shift to greener pastures.
“Long before this spring’s epic oil-price crash, the energy sector was struggling with a longer-term existential threat,” said Fortune’s Jeffrey Ball. “A scary new world had arrived, one in which oil demand was projected to peak in the next couple of decades even as external pressure surged – not just from environmental activists and regulators, but also from central banks and hedge funds – for Big Oil to diversify into lower-carbon energy sources.”