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What the Negative Price of Oil Is Telling Us What the Negative Price of Oil Is Telling Us
(8 days later)
The coronavirus pandemic has caused a series of mind-bending distortions across world financial markets, but Monday featured the most bizarre one yet: The benchmark price for crude oil in the United States fell to negative $37.63.The coronavirus pandemic has caused a series of mind-bending distortions across world financial markets, but Monday featured the most bizarre one yet: The benchmark price for crude oil in the United States fell to negative $37.63.
That means that if you happened to be in a position to take delivery of 1,000 barrels of oil in Cushing, Okla., in the month of May — the quantity quoted in the relevant futures contract — you could have been paid a cool $37,630 to do so. (That is about five tanker trucks’ worth, so any joke about storing the oil in your basement will have to remain just that.)That means that if you happened to be in a position to take delivery of 1,000 barrels of oil in Cushing, Okla., in the month of May — the quantity quoted in the relevant futures contract — you could have been paid a cool $37,630 to do so. (That is about five tanker trucks’ worth, so any joke about storing the oil in your basement will have to remain just that.)
There are two ways of looking at this. First is what happened in a technical sense. The collapse of the May futures contract for West Texas Intermediate crude oil shows how the shock of the crisis is rippling through all sorts of markets and making them behave strangely.There are two ways of looking at this. First is what happened in a technical sense. The collapse of the May futures contract for West Texas Intermediate crude oil shows how the shock of the crisis is rippling through all sorts of markets and making them behave strangely.
But the broader takeaway is that the Covid-19 crisis is an extraordinary deflationary shock to the economy, causing the idling of a vast share of the world’s productive resources. Don’t let shortages of a few goods, like face masks or toilet paper, confuse the matter. The consequences will almost surely persist beyond the period of widespread lockdowns.But the broader takeaway is that the Covid-19 crisis is an extraordinary deflationary shock to the economy, causing the idling of a vast share of the world’s productive resources. Don’t let shortages of a few goods, like face masks or toilet paper, confuse the matter. The consequences will almost surely persist beyond the period of widespread lockdowns.
When you read a news article or hear an economist mention the price of oil, it typically refers not to a physical barrel filled with viscous liquid but to the price of a futures contract that trades on the Chicago Mercantile Exchange. By convention, the “price of oil” is the going per-barrel price reflected in a futures contract for the ensuing month.When you read a news article or hear an economist mention the price of oil, it typically refers not to a physical barrel filled with viscous liquid but to the price of a futures contract that trades on the Chicago Mercantile Exchange. By convention, the “price of oil” is the going per-barrel price reflected in a futures contract for the ensuing month.
In the case of the most widely followed contract in the United States, that would be West Texas Intermediate crude, which you would need to physically obtain from storage facilities in Cushing, Okla., where major pipelines intersect.In the case of the most widely followed contract in the United States, that would be West Texas Intermediate crude, which you would need to physically obtain from storage facilities in Cushing, Okla., where major pipelines intersect.
Plenty of major entities trade such futures without ever thinking too much about those physical details — and certainly without getting any oil on their expensive suits. Speculators speculate, companies hedge their risks of price swings, and transactions take place at the level of abstraction on a computer screen.Plenty of major entities trade such futures without ever thinking too much about those physical details — and certainly without getting any oil on their expensive suits. Speculators speculate, companies hedge their risks of price swings, and transactions take place at the level of abstraction on a computer screen.
But as each contract’s settlement date approaches, the financial speculators sell their contracts to “real” buyers of oil, like refineries. This can cause problems for traders who may be in over their heads. Chris Arnade, a trader-turned-author, said on Twitter on Monday that he once found himself in that position: “I ended up almost taking physical delivery of lots of oil.”But as each contract’s settlement date approaches, the financial speculators sell their contracts to “real” buyers of oil, like refineries. This can cause problems for traders who may be in over their heads. Chris Arnade, a trader-turned-author, said on Twitter on Monday that he once found himself in that position: “I ended up almost taking physical delivery of lots of oil.”
Tuesday was the settlement day for that May contract. It fell from $18.27 at Friday’s close to the steeply negative numbers late Monday before closing back in positive territory, at $9.06, on Tuesday, all amid a frantic effort by traders to offload oil for which there simply wasn’t enough physical demand or storage capacity.Tuesday was the settlement day for that May contract. It fell from $18.27 at Friday’s close to the steeply negative numbers late Monday before closing back in positive territory, at $9.06, on Tuesday, all amid a frantic effort by traders to offload oil for which there simply wasn’t enough physical demand or storage capacity.
Over the last six weeks, demand for products refined from oil has collapsed. With far fewer airplanes flying, airlines need less jet fuel. People aren’t driving, so they need less gasoline.Over the last six weeks, demand for products refined from oil has collapsed. With far fewer airplanes flying, airlines need less jet fuel. People aren’t driving, so they need less gasoline.
But oil producers have been slower to cut back production, meaning there is a glut. All the usual places to store it are full, and hence the negative futures prices to enable the market to clear. There are only so many storage tanks.But oil producers have been slower to cut back production, meaning there is a glut. All the usual places to store it are full, and hence the negative futures prices to enable the market to clear. There are only so many storage tanks.
The economic result of the pandemic is, more than anything, a sudden stop of demand. There may be a few products in which shortages are an issue, including medical equipment, personal protective gear and disinfectant wipes. But the overall picture is that a huge share of potential economic output is simply on hold.The economic result of the pandemic is, more than anything, a sudden stop of demand. There may be a few products in which shortages are an issue, including medical equipment, personal protective gear and disinfectant wipes. But the overall picture is that a huge share of potential economic output is simply on hold.
Updated June 24, 2020
Scientists around the country have tried to identify everyday materials that do a good job of filtering microscopic particles. In recent tests, HEPA furnace filters scored high, as did vacuum cleaner bags, fabric similar to flannel pajamas and those of 600-count pillowcases. Other materials tested included layered coffee filters and scarves and bandannas. These scored lower, but still captured a small percentage of particles.
A commentary published this month on the website of the British Journal of Sports Medicine points out that covering your face during exercise “comes with issues of potential breathing restriction and discomfort” and requires “balancing benefits versus possible adverse events.” Masks do alter exercise, says Cedric X. Bryant, the president and chief science officer of the American Council on Exercise, a nonprofit organization that funds exercise research and certifies fitness professionals. “In my personal experience,” he says, “heart rates are higher at the same relative intensity when you wear a mask.” Some people also could experience lightheadedness during familiar workouts while masked, says Len Kravitz, a professor of exercise science at the University of New Mexico.
The steroid, dexamethasone, is the first treatment shown to reduce mortality in severely ill patients, according to scientists in Britain. The drug appears to reduce inflammation caused by the immune system, protecting the tissues. In the study, dexamethasone reduced deaths of patients on ventilators by one-third, and deaths of patients on oxygen by one-fifth.
The coronavirus emergency relief package gives many American workers paid leave if they need to take time off because of the virus. It gives qualified workers two weeks of paid sick leave if they are ill, quarantined or seeking diagnosis or preventive care for coronavirus, or if they are caring for sick family members. It gives 12 weeks of paid leave to people caring for children whose schools are closed or whose child care provider is unavailable because of the coronavirus. It is the first time the United States has had widespread federally mandated paid leave, and includes people who don’t typically get such benefits, like part-time and gig economy workers. But the measure excludes at least half of private-sector workers, including those at the country’s largest employers, and gives small employers significant leeway to deny leave.
So far, the evidence seems to show it does. A widely cited paper published in April suggests that people are most infectious about two days before the onset of coronavirus symptoms and estimated that 44 percent of new infections were a result of transmission from people who were not yet showing symptoms. Recently, a top expert at the World Health Organization stated that transmission of the coronavirus by people who did not have symptoms was “very rare,” but she later walked back that statement.
Touching contaminated objects and then infecting ourselves with the germs is not typically how the virus spreads. But it can happen. A number of studies of flu, rhinovirus, coronavirus and other microbes have shown that respiratory illnesses, including the new coronavirus, can spread by touching contaminated surfaces, particularly in places like day care centers, offices and hospitals. But a long chain of events has to happen for the disease to spread that way. The best way to protect yourself from coronavirus — whether it’s surface transmission or close human contact — is still social distancing, washing your hands, not touching your face and wearing masks.
A study by European scientists is the first to document a strong statistical link between genetic variations and Covid-19, the illness caused by the coronavirus. Having Type A blood was linked to a 50 percent increase in the likelihood that a patient would need to get oxygen or to go on a ventilator, according to the new study.
The unemployment rate fell to 13.3 percent in May, the Labor Department said on June 5, an unexpected improvement in the nation’s job market as hiring rebounded faster than economists expected. Economists had forecast the unemployment rate to increase to as much as 20 percent, after it hit 14.7 percent in April, which was the highest since the government began keeping official statistics after World War II. But the unemployment rate dipped instead, with employers adding 2.5 million jobs, after more than 20 million jobs were lost in April.
Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days.
If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.)
If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others.
That includes obvious candidates like restaurants, airlines and sports arenas, which are sitting empty. It includes the 22 million workers who have filed for unemployment insurance benefits, with many more likely to come. It includes less obvious candidates like the auto industry, which has temporarily shuttered factories. And, we now see, it includes the energy industry, with more capacity to pump oil out of the ground than there is demand for at present, and inadequate storage capacity.That includes obvious candidates like restaurants, airlines and sports arenas, which are sitting empty. It includes the 22 million workers who have filed for unemployment insurance benefits, with many more likely to come. It includes less obvious candidates like the auto industry, which has temporarily shuttered factories. And, we now see, it includes the energy industry, with more capacity to pump oil out of the ground than there is demand for at present, and inadequate storage capacity.
All of that points to a deflationary collapse — a glut of supply of goods and services, and consequently falling prices — that surpasses anything seen in most people’s lifetimes.All of that points to a deflationary collapse — a glut of supply of goods and services, and consequently falling prices — that surpasses anything seen in most people’s lifetimes.
Oil isn’t the only commodity with a plunging price. Corn futures have fallen 19 percent since early February. The price of inflation-protected government bonds suggests inflation will be only 0.58 percent a year over the coming five years, and the Consumer Price Index fell 0.4 percent in March.Oil isn’t the only commodity with a plunging price. Corn futures have fallen 19 percent since early February. The price of inflation-protected government bonds suggests inflation will be only 0.58 percent a year over the coming five years, and the Consumer Price Index fell 0.4 percent in March.
The good news is that capacity won’t go away overnight. The oil will still be in the ground once the economy starts to recover; the unemployed will be eager to go back to work; the stadiums and restaurants can reopen. But the longer the freeze of the economy continues, the deeper the risks of some permanent damage.The good news is that capacity won’t go away overnight. The oil will still be in the ground once the economy starts to recover; the unemployed will be eager to go back to work; the stadiums and restaurants can reopen. But the longer the freeze of the economy continues, the deeper the risks of some permanent damage.
In the oil market, even assuming the negative prices for the May futures contract can be viewed as a bizarre aberration, there is a deeper lesson. A steep rise in American energy production over the last decade has outpaced the world’s need for energy, especially if many of the changes resulting from the pandemic, like less air travel, persist for months or years.In the oil market, even assuming the negative prices for the May futures contract can be viewed as a bizarre aberration, there is a deeper lesson. A steep rise in American energy production over the last decade has outpaced the world’s need for energy, especially if many of the changes resulting from the pandemic, like less air travel, persist for months or years.
Economics is about supply and demand, production and consumption. The question for the post-pandemic economy is whether that balance, once lost, can be quickly restored. Doing so will be a lot more complicated than finding more places to store West Texas Intermediate crude.Economics is about supply and demand, production and consumption. The question for the post-pandemic economy is whether that balance, once lost, can be quickly restored. Doing so will be a lot more complicated than finding more places to store West Texas Intermediate crude.