Oil futures dropped below zero for the first time in history on Monday, but aside from good gas prices, what does that mean for consumers and those producing the product?
According to Spencer McGowan, the President & Senior Portfolio Manager of the McGowan Group Asset Management, “it’d be like if you said ‘I bought too much toilet paper I don’t have room for it, and I will give you ten dollars to take the toilet paper out of my guestroom.'”
Stay at home orders have decreased the demand for travel, in turn dropping the demand for oil and making the price per barrel less than zero dollars.
“There’s so much of a lot of oil that the oil producers are willing to pay companies to store oil, that’s why that’s represents a negative price,” said Venkatesh Shankar, the director of research for the Mays Business School's Center for Retailing Studies.
As consumers, it’s pretty cool to get cheap gas when we need it, but oil companies aren’t and won’t do so well through all this in the long term.
Shankar said, “this is a historic moment that we’ve never seen before. This is a severe shock to lots of companies this will exacerbate and execrate the demise of lower companies.”
Experts say the smaller 10 to 20 percent of oil companies will likely shut down for good, with even larger companies in Texas and their employees having to take a hit.
"The jobs in Midland-Odessa. They’re not going to be doing anymore wells for a while. They’re shutting down some wells. Everything’s on hold. There’s just nothing to do,” McGowan said, “the oil industry was somewhat insulated up to this point and now you have the complete opposite. You have a complete shutdown of the oil industry... and it’ll last about 90 days.”
Shankar said “what might happen is because of the bankruptcies and failing of companies… the industry will shrink to the level where they can handle the demand supply.”
When they take that on, the companies who make it through will actually stand to benefit from all this, especially within the state.
“A year from now, Texas is poised to be really dominant. In terms of infrastructure, refining and the ability to supply,” said McGowan.
“Longterm prognosis will be good, ultimately the demand will come back. The companies that employ a lot of people and can absorb these losses, they’ll come out winners, because they will be able to cater to that renewed demand,” Shankar said.
Right now, there isn’t much we as consumers can do to stop the losses that will happen, but a good thing to note is that even when things do go back to normal, gas prices shouldn’t shoot up too significantly.
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