If you’ve been to the gas pump lately (and it’s actually quite likely you haven’t, if you’re one of the several hundred million Americans currently under shelter-in-place orders who is only allowed to leave the house for essential business and travel) you might have noticed that gasoline is about as cheap as dirt right now. For some older millennials, they’re seeing gas prices they haven’t seen since they were, well, in high school. 13 states across the country right now are selling gas for under $1 per gallon as national crude oil prices have tanked during the Coronavirus pandemic. The national average? Just $1.82 a gallon, prices that many haven’t seen in decades. According to the New York Daily News, just one year ago, gas prices were over a dollar more expensive at $2.84 a gallon.
But why is gas so cheap right now? Blame the pandemic, actually. On April 20, for the first time in history, oil futures ended the day yesterday at a negative $37 a barrel, meaning that sellers would have to pay buyers to take their oil off their hands.
Here’s what’s going on: trading in crude oil occurs on a schedule. Today, trading in oil for delivery on May 20 expires, which means that whoever holds the contract for that oil has to take the delivery for that oil on May 20. It’s set in stone.
But, because of the Coronavirus pandemic, many industries have slowed down. Most are only traveling for essential trips. Flights have been cancelled, auto insurance industries are returning premiums to those who aren’t driving as much anymore. That lack of travel has caused a domino effect: crude oil, which normally goes like gangbusters to gas stations and major production outputs and to other, gas-guzzling industries, has been staying put in storage instead of moving anywhere or being used for business and pleasure.
Right now, there are already completely full storage units of crude oil. That means that regular buyers of oil can’t actually store any of that oil that they would usually buy, say, on a schedule, like the trading that just expired yesterday. Normally, the oil is being used and moved out of existing storage. Right now, that oil isn’t going anywhere, and neither buyers nor sellers have anywhere to store the oil. So, oil futures have reached ‘negative values’ because oil sellers are literally paying oil buyers to store the oil, rather than give it to them.
Think of it this way: MSNBC TV show host Ali Velshi described the oil industry as a ‘hot potato,’ on Twitter. But, he said, “in addition to throwing the potato you own back at the person from whom you just bought it, you’re also paying them not to toss it back to you.”
It’s important to note that it’s not that oil has lost all value. Oil futures for the 6/20 delivery date are still at normal values, trading right now above $15 per blue barrel. It’s simply that we’ve lost any capacity at all to store oil and can’t dump it anywhere like blood centers do blood or milk producers do milk.
But, if oil doesn’t start moving by June, the problems in the oil industry could be compounded. While that’s bad news for the overall economy, it’s not awful news for you right now. Go ahead and fill up that tank. It’s not like your car is going anywhere.