A Disaster In Oil

Oil Falls Below Zero

So read the headline in today's tribune.

It's a bit deceptive as a headline, as what really fell below zero, I.E., $0.00, was the futures market for oil, which saw the Texas benchmark go to below -$37.00. That means traders were paying others to buy the short term barrels as there was no room for them at the end of the expiring May (remember its futures) market.  June trading starts today and it won't be that low.

The real price oil was rock bottom too, however.  So this is a disaster.

China, in response to this, doubled the amount of oil it was purchasing for storage.  If the U.S. has any capacity left, it should do the same.  I.E., the government should  There would no better way to have a real war, or emergency, reserve than to stuff as much oil into any remaining capacity as the government could.  Shoot, for that matter, given as we're in a real economic emergency anyhow, the government should hire contractors for a crash oil tank storage construction program.  I don't know how long it takes to throw up a tank, but they ought to throw up every tank they can.

So let's first state the obvious.  Oil this low is a disaster for the economy of oil producing states, including Wyoming.  Prices this low will virtually halt the oil industry, breaking off, for at least a time, one of the legs of our three legged economic stool.  We've endured it before, with a local economic depression, and it didn't involve a collapse in the prices anywhere near this low.

And it ironically, at this point, turns out to be bad for the American economy.

In the 70s and 80s when the US was a captive to foreign oil prices this low, or at least low prices, would have been welcome and they would have spurred the U.S. economy.  Prices this low might spur the economy now, although they're so freakishly low they instead inspire concerns about market volatility, but due to advances in technology oil and gas production are now major sectors of the U.S. economy.  The math of it is simple, low prices are bad for U.S. production, which requires the price to be around $50 bbl.  So this shuts down this portion of the economy and in turn that hurts the U.S. economy.

Its also easy to address, but probably won't be.

As the U.S. is an oil producing nation, the U.S. could in fact address this internally by halting the importation of oil, save for purchases by the government, which should purchase all it can for storage.  That would eliminate the market for the really cheap foreign oil in the U.S.  Canada, and perhaps Mexico, all oil producing nations, would likely follow suit.  That would help North America.  The UK could probably follow itself, along with Norway, as they are also energy producing nations due to the North Sea.  

That would make the situation worse for the remainder of Europe, but we'll stop speculating there.

All of which seems unlikely.  It's just all too much for those trying to handle the situation and I doubt it will occur to them.  Which means that if this keeps up for long, and right now the price of oil isn't climbing, the domestic producers are going to be harmed.  

Dramatically harmed.

Which is going to harm the state.

Dramatically.