Apr 23, 2020 - Economy & Business

What crude oil's all-time low price means

Felix Salmon, author of Edge
Expand chart
Data: FactSet; Chart: Axios Visuals

The price of oil is at all-time low. Even if you put aside the technical factors that caused the May WTI futures contract to close at negative $37.63 per barrel, oil has never been this cheap, in real terms, since the 1973 oil crisis.

Why it matters: Oil, like cash, is based on flows: the number of barrels produced per day, versus the number of barrels consumed. Oil also literally makes the world move: powering cars, trucks, planes, trains and ships. Now that the world has stopped moving, demand is well below supply, and storage capacity is running out.

  • By the numbers: Global oil demand averaged 99.9 million barrels a day last year. April’s oil demand will be 77.6 million barrels a day, estimates Magnus Nysveen, head of analysis at consultancy Rystad Energy.
  • While demand for oil has stopped suddenly, supply of oil can't stop so easily. Capping wells is expensive, and causes lasting damage. And international cooperation is in short supply these days.

Crude oil is dirty, smelly, flammable, and extremely toxic. It's also the chief contributor to global warming. And as we're now seeing, it's a terrible investment.

The bottom line: Oil is providing an object lesson in why currencies are superior to commodities — and certainly shouldn't be linked to commodity prices.

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