The world is short on many things we need — masks, tests, toilet paper — yet we’re too long on one thing we suddenly don’t need much: oil.
The big picture: This oversupply crisis is, understandably, lost on people. We’re locked down with nowhere to go, not seizing cheap pump prices, struggling to manage our grave new world and mourning loved ones afflicted by the coronavirus.
Why it matters: Even though most of us aren't paying attention, the havoc the pandemic is wreaking on the global oil industry by choking demand will ripple out into the broader economy, and eventually affect many of us.
“The war against the virus is to stop people moving around, but that is also the purpose of oil. Oil is made for people to move around by cars, airlines, ships. So this war hits right on the nerve system of the global oil industry.” — Per Magnus Nysveen, head of analysis at the consultancy Rystad Energy
What they’re saying: “There’s a glut of oil like no one has ever seen before,” President Trump said in a White House briefing Friday. “It is good in many ways, and depending on who you are, it’s bad.”
Reality check: Once the price of oil reaches around $20 a barrel, low oil prices hurt the global economy more than they help, Nysveen says.
- The U.S. is a far larger oil producer today than it was in the last recession more than a decade ago, so low oil prices hurt America more.
- Hundreds of U.S. oil-industry companies could file for bankruptcy over the next year or two if prices remain around $20 a barrel, Rystad Energy said in a recent analysis.
- Eventually, all of us will face higher gasoline prices in coming years as the industry cuts back on new production today, leading to less supply in the future.
The bottom line: These cuts make today's oil industry's crisis slightly less bad, but still historically terrible.