Hearing the words “plummeting oil prices” means one thing to most people: cheap gas!
Isn’t it a shame there’s nowhere to go right now?
But, it isn’t good news globally. While you may see gas prices you’ve never seen in your life, or will remind you of your younger days if you’re a little (or a lot) older, cratering oil prices hurt the worldwide economy, and hurt the financial markets as some places, like the U.S. to an extent, use barrels of oil in trade as a form of currency.
And a barrel of oil could soon be worth less than the actual barrel that holds it after U.S. crude prices took an unheard of tumble Monday. May delivery for the U.S. benchmark crude, West Texas Intermediate, is capable of trading at a negative value but never had before Monday’s close of the oil market. It sank to a new low of minus-$37.63, which essentially means producers would be paying buyers to take oil off their hands.
Accordingly, stock markets tumbled Monday. The Dow Jones Industrial Average fell over 592 points or 2.3 percent. The S&P 500 and Nasdaq Composite were down 1.79 percent and 1.03 percent.
The oil market has been decimated so far in 2020 by a price war between Russia and Saudi Arabia, and coronavirus-related social distancing lockdowns across the world which have slashed oil and gasoline demand to almost zero. Much of the world’s industry and travel have ground to a halt and global demand is down to around 100 million barrels per day, creating a 20 million barrel-per-day surplus of oil in the market. Even a recent historic production cut by OPEC can’t fix that.
Tanks, ships, and pipelines are almost full, complicating the calculus for many U.S. producers who want to hold on to their oil until the outbreak subsides and there is greater demand. President Trump over the weekend even said the country is running out of places to store its surplus.
The energy economy is forcing U.S. companies to make tough decisions. They are struggling to stay afloat as falling prices make them less competitive, and they are laying off workers.