U.S. oil prices have been on a roller coaster ride over the last few weeks, at one point dropping below $0 for the first time in history to -$37.63 a barrel. Oil has since rebounded from its subzero levels, but it remains questionable as to whether it can stay there. It begs the question, what does this mean for investors and the U.S. oil market generally?
When prices cratered below zero, there were those that weighed in that it was nothing to worry about. After all, the subzero price drop really had more to do with the expiration of contracts for oil futures. It was explained that the current demand for oil is so low that producers would rather put their oil in storage and then sell it at some point in the future. Placing additional strain on the market, the U.S. is running out of places to store it, with backlogs of oil tankers from Saudi Arabia out at sea and being turned away from U.S. shipping ports.
The U.S. has traditionally been a net importer of oil, but with the emergence of oil fracking, the U.S. at one point in 2019 surpassed Saudi Arabia as the world’s top oil exporter. This trend towards parity gave many observers of the U.S. oil market a feeling of confidence that the U.S. was a rising oil power, with President Trump going so far as describing the U.S. level of participation as “energy dominance.” But as pointed out by professionals, increased participation in the market has little to do with control over the market. For instance, the price of U.S. oil recently began to spiral down when Russia and Saudi Arabia started to increase their production levels. U.S. oil prices teetered even further, and then below zero, when the global and U.S. economic response to the spread of Covid-19 began to take shape – every state being under some level of a stay-at-home order, with fewer cars on the road, fewer people travelling by air, and U.S. oil workers in Texas and elsewhere being laid off in the tens of thousands. The pumps have stopped and oil companies are already declaring bankruptcy, with likely more to follow.