We explain how oil prices went negative. Along the way, we explain what a commodity is, how futures work, and why Russia may have started a price war in order to bankrupt U.S. oil producers.
The specifics of how futures for light sweet crude oil work led to the dramatic price collapse, as those holding the futures contract for physical delivery of crude oil in May became increasingly desperate to sell it.
MENTIONED ON THE SHOW
A Big Oil Bailout Would Be the Opposite of the Green New Deal We Need – Alexis for Truthout
“The ongoing economic fallout of the coronavirus pandemic has caused oil demand to plunge worldwide. On March 6, Russia withdrew from its pact with the Organization of the Petroleum Exporting Countries (OPEC), and began producing more oil, driving the price of oil down even further. Russia may have been motivated, at least in part, by a desire to hurt U.S. shale oil producers. And while some, like Mexico, took steps to protect themselves against just such a price collapse, U.S. oil producers were loaded up with debt and totally vulnerable to a sudden drop in oil prices. By April 1, Whiting Petroleum Corp. became the first major U.S. fracking company to file for bankruptcy since the pandemic began, with many analysts predicting more bankruptcies to come.
…Energy companies make up a whopping 13 percent of the lowest-rated, riskiest kind of corporate debt. And for 10 out of the last 11 years, energy companies accounted for the majority of the junk bond debt. Why should the Fed reward a decade of bad bets by oil companies?
Pandemic Crisis, Systemic Decline: Why Exploiting the COVID-19 Crisis Will Not Save the Oil, Gas, and Plastic Industries (April 2020) – the Center for International Environmental Law
The Big Oil Money Pit – Friends of the Earth
Russia Takes Aim at U.S. Shale Oil Producers – WSJ
What are junk bonds
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