Oil futures prices went negative earlier this week, but nobody’s going to pay you to fill your gas tank.

What happened among oil speculators this week is no reason for the rest of us to panic, but it does reflect a very serious supply glut that will have long-term implications for the economy.

On Monday, the May crude oil futures contract plunged to the lowest point in oil futures history, minus-$37.63 a barrel, the day before it expired. The contract represents an agreement to deliver oil at a certain price on a certain date. A growing supply glut due to coronavirus lockdowns meant that traders preferred to liquidate the contracts as best they could. Essentially, producers had to pay buyers to take delivery of crude and store it.

On Tuesday, the June contract for West Texas Intermediate crude was trading at $20.43 a barrel. This is an odd oil market situation called contango, which is a lot less fun than it sounds. That is, the price of oil for future delivery is higher than the spot price. So, in theory, the oil filling storage tanks will become more valuable later; but in practice we just don’t know when or to what extent that will happen.

Pipelines are filling up, storage is filling up, as consumers use significantly less petroleum products for driving, fueling manufacturing plants, making toys and pens and other consumer goods, and even wrapping consumer goods in plastic. We can hope that once global economies open up again, people will go back to their normal buying habits, but it’s hard to predict when. And with staggering unemployment, it’s hard to predict how strongly the economy will come back.

What this means for Americans is that gasoline is cheap, and the price of our plastic consumer prices might go down. But the economy of states like Texas is at risk as the oil industry tumbles. Many oil workers are likely to lose their jobs, and state tax revenue from oil production and fuel sales will take a dive. And don’t expect some silver lining opportunity for renewable energy; those companies are also grappling with low demand and prices for energy.

Right now, many producers say they are cutting current production or drilling plans. The Texas Railroad Commission is considering whether to intervene and prorate production, that is, require blanket reductions to reduce the supply glut. The commission that regulates the oil industry put off the decision to explore the legal ramifications of stepping into the market for the first time since the 1970s, and producers are split on whether they would welcome such a move.

All of this should underscore the severity of what’s happening and amplify the need to reopen the economy to boost demand for energy, but to do so in a way that is orderly and safe. Opening up too quickly would only compound the kind of calamity we can already see unfolding.

Editorial by The Dallas Morning News

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