- U.S. oil prices fell to negative numbers for the first time in history, plummeting by more than $50 per barrel to negative $37.
- That means oil traders now have to pay people to buy oil.
- The drop was caused by the fact that oil-rich countries have kept producing the same amount of oil even though demand has been slowing for months because of the coronavirus pandemic. Saudi Arabia even increased its production.
- High supply and low demand resulted in a lack of storage space that made buyers not want to buy, which in turn caused panic among traders.
Oil Prices See Historic Drop
The price of oil in the U.S. turned negative for the first time in history on Monday, when prices fell by more than $50 per barrel to negative $37.
So if you’ve always wanted to get a barrel of oil for whatever reason, now is the time to do it because oil sellers are paying people to take their supply.
The negative prices basically mean that anyone trying to sell a barrel of oil has to pay their buyer $37 per barrel, instead of the other way around.
Here’s what you need to know about this historic drop, why it happened, and what it means for the economy, the oil industry, and you.
High Supply, Low Demand
There are a couple of different reasons that oil prices fell to an all-time low.
The first is fairly straightforward: demand for oil is low because of the pandemic. People are driving less, planes are flying less— the demand is just not there.
According to the Washington Post, demand is now around 25% to 30% below what it was when the economy gradually began to shut down starting in January.
But while demand was steadily falling, oil-producing countries still kept producing oil even up until early April. This was, in large part, due to a dispute among the Organization of the Petroleum Exporting Countries (OPEC).
Last month, members of OPEC attempted to strike a deal to cut production to address lower demand, but Russia refused. Long story short, that led to a price war between Saudi Arabia and Russia, and Saudi Arabia responded by flooding the market with even more oil.
Eventually, OPEC reached an agreement on April 12 to cut oil production by 10%, but the damage was already done. By then, most places in the U.S. were shut down, and air travel was a moot point.
In other words, demand was dropping while supply was pretty much staying the same— even increasing on the Saudi-side of things.
In general, when supply is greater than demand, prices fall, but that alone does not explain Monday’s drastic drop. The high supply also created another problem.
Excess supply means there are literal tons and tons of oil barrels with no one to buy them and nowhere to go. That might not sound like that big of a deal, but it is.
Think about it this way: if the demand for milk is low, and farmers have a milk supply that’s too big, they can just dump the milk. But turns out, when you do that with oil, it’s considered an environmental disaster.
Normally, any extra oil is put in storage, but with way more extra oil than the market is used to, that storage starts running out real quick.
According to energy experts, the world as a whole has an estimated storage capacity for 6.8 billion barrels— and nearly 60% is filled.
While this is a global issue, it is an especially big problem in the U.S. For example, one of the most critical storage facilities in the U.S. is in Cushing, Oklahoma, where oil traded on the market is delivered.
According to the New York Times, that facility, which can house 80 million barrels, only has room for 21 million more— meaning closer to 75% of that storage is full.
That is significant because analysts believe that the lack of storage at that key facility is what set off the panic among oil traders that eventually resulted in the negative prices.
Hate the Player and the Game
That brings us to reason number three for the drop in prices: the way oil is traded.
For those of you who are not commodities specialists on Wall Street, it’s important to know that oil is traded in the market based on its future price.
What that means is when traders sell oil on the market to buyers like oil refineries, what they are actually selling is a contract that says they will sell the oil for a set price at a set future date. That’s known as a futures contract.
So when someone, probably wearing a top hat, says “oil prices,” they are not talking about a physical barrel filled with oil— they’re actually talking about the price of the futures contract.
When you buy a futures contract, you’re agreeing to buy 1,000 barrels of oil, and the price of that contract depends on supply, demand, and quality. Each contract trades for a month, and when it expires, the buyer either needs to take physical possession of their oil or store it.
But no one wanted that oil because there is no demand and no place to store it. And because Tuesday is the last day to buy those May contracts, Monday’s events were the result of a massive rush to sell.
That’s how we got here, but what does this mean now for the economy and for you?
If you’re thinking it means you’ll get paid to pump gas at the gas station, think again. That said, in general, cheap oil means cheaper gas prices— a trend we have already been seeing— so it is likely you’ll see prices fall at the pump.
As for the oil industry, the future is mixed. Regarding the negative prices, experts generally think that is a short-term thing, with some even describing it as a technicality. Already, futures contracts for June are still trading for around $22 a barrel, which experts say is more reflective of the market than the May prices.
But $22 is still much lower than normal. If prices stay low, smaller oil producers are likely to go bankrupt, and there could be some long-term damage. As more oil facilities are forced to close and stop production, more and more people will lose their jobs. Many may be forced to go bankrupt, which could lead to more long-term unemployment.
Moreover, experts say that this is part of a much, much bigger trend. This oil situation, combined with closing factories and businesses and raising unemployment points to what is known as a deflationary collapse where there is a huge supply of goods and services that demand cannot meet, causing prices to fall.
This is something that happens, but some experts say this will be unlike anything most people have seen before.
There are a few things that can be done to help from the U.S. perspective. According to the Financial Times, this includes, “urging deeper cuts from Opec; tariffs on foreign oil imports; freeing up more storage capacity, including in the Strategic Petroleum Reserve (SPR); paying producers to keep oil in the ground; or extending financial support to oil companies.”
President Donald Trump, for his part, said Monday that he is looking at putting as much as 75 million barrels in the Strategic Petroleum Reserve, which is used to store oil during crises.
But there is already 635 million barrels of oil in the reserve, and 75 million more would put it at max capacity.
In a Tuesday morning tweet, Trump seemed to indicate he would bail out the oil industry.
But bailouts to oil companies could be controversial. When the administration recently proposed spending $3 billion to fill the reserve as part of the stimulus package, Congressional Democrats refused.
And with more people unemployed, funds for small business loans already run dry, and hospitals continuing to struggle, it is hard to imagine that Democrats will want to prioritize the oil industry.
See what others are saying: (The New York Times) (The Washington Post) (The Financial Times)
Texas Doctor Says He Violated Abortion Law, Opening Matter Up for Litigation
Under the state’s new law, any citizen could sue the doctor, which would make the matter the first known test case of the restrictive policy.
Dr. Braid’s Op-Ed
A Texas doctor revealed in an op-ed published in The Washington Post Saturday that he performed an abortion in violation of the state’s law that bans the procedure after six weeks, before most people know they are pregnant.
The law, which is the most restrictive in the country and does not have exceptions for rape and incest, also allows civilians to sue anyone who helps someone receive an abortion after six weeks.
In the op-ed, Dr. Alan Braid, who has been practicing as an OB/GYN in Texas for 45 years, said that just days after the law took effect, he gave an abortion to a woman who was still in her first trimester but already beyond the state’s new limit.
“I acted because I had a duty of care to this patient, as I do for all patients, and because she has a fundamental right to receive this care,” he wrote. “I fully understood that there could be legal consequences — but I wanted to make sure that Texas didn’t get away with its bid to prevent this blatantly unconstitutional law from being tested.”
Braid went on to say that he understands he is taking a personal risk but that he believes it is worth it.
“I have daughters, granddaughters and nieces,” he concluded. “I believe abortion is an essential part of health care. I have spent the past 50 years treating and helping patients. I can’t just sit back and watch us return to 1972.”
If someone does opt to sue Braid over this matter, he could potentially be the state’s first test case in playing out the legal process. However, it is unclear if anti-abortion groups will follow through, despite their threats to enforce the law.
A spokesperson for Texas Right to Life, which set up a website to report people suspected of violating the ban, told reporters this weekend that it is looking into Braid’s claims but added, “It definitely seems like a legal stunt and we are looking into whether it is more than that.”
Even if abortion opponents hold off on Braid’s case, there are other legal challenges to the Texas law.
Shortly after the policy took effect, the Department of Justice filed a lawsuit attempting to stop it. Last week, the department filed an emergency motion asking a federal judge in the state to temporarily block the ban while that legal battle plays out, with a hearing for that motion set for Oct. 1.
Regardless of what side the federal judge rules for, the other is all but ensured to sue, and that fight could take the question to the Supreme Court in a matter of months.
See what others are saying: (NPR) (The Texas Tribune) (The Wall Street Journal)
Pfizer Says Low Dose of COVID-19 Vaccine Is Safe and Effective in Kids 5 to 11
Pfizer Says Kids’ Vaccine Works
Pfizer announced Monday morning that its joint COVID-19 vaccine with BioNTech is safe and effective in kids ages 5 to 11.
While Pfizer’s vaccine candidate for younger children is the same version the FDA has already approved for people 12 and older, the children’s dose is only one-third of the amount given to adults and teens. Still, Pfizer said the antibody response they’ve seen in kids has been comparable to the response seen in older participants.
Similarly, the company said side effects in children have been similar to those witnessed in adults.
Pfizer said it expects to finish submitting data, which still needs to be peer-reviewed and then published, to the FDA by the end of the month. From there, the agency will ensure that Pfizer’s findings are accurate and that the vaccine will be able to elicit a strong immune response in kids at its current one-third dosage.
That process could take weeks or even all of October, but it does open the possibility that the vaccine candidate could be approved around Halloween.
While experts like Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, have called Pfizer’s announcement largely predictable, they’ve also urged people to let the research run its course.
With cases among children skyrocketing in recent months, some parents have begun urging pediatricians to give their children the jab early. Those kinds of requests are likely to increase with Pfizer’s announcement; however, officials have warned parents about acting too quickly.
“No one should really be freelancing — they should wait for the appropriate approval and recommendations to decide how best to manage their own children’s circumstances,” Bill Gruber, Pfizer’s senior vice president of vaccine clinical research and development, said according to The Washington Post.
See what others are saying: (The Washington Post) (The New York Times) (Axios)
Contradicting Studies Leave Biden’s COVID-19 Booster Plan Up in the Air
While some studies show that the effectiveness of Pfizer and Moderna’s COVID vaccines decrease over time, other publications argue the decline is not substantial and a full-flung booster campaign is premature.
Booster Rollout in Flux
President Joe Biden’s plan to offer COVID-19 booster shots is facing serious hurdles just a week before it is set to roll out. Issues with the plan stem from growing divisions among the scientific community over the necessity of a third jab.
The timing of booster shots administration has been a point of contention for months, but the debate intensified in August when Biden announced that, pending regulatory approval, the government would start offering boosters on Sept. 20 to adults eight months after they received their second dose of Pfizer or Moderna.
The announcement was backed by the director of the Centers for Disease Control and Prevention (CDC), the acting commissioner of the Food and Drug Administration (FDA), and White House chief medical advisor Dr. Anthony Fauci, among others.
However, many scientists and other health experts both inside and outside of the government have continually criticized the plan. They have claimed the data supporting boosters was not compelling and argued that, while the FDA approved third doses for immunocompromised Americans, the push to give them to the general public was premature.
The plan also drew international backlash from those who argued the U.S. should not launch a booster campaign when billions of people around the world have not gotten their first dose yet. Earlier this month, the World Health Organization (WHO) extended its request that wealthy countries hold off on giving boosters until at least the end of the year.
Those arguments appeared to be bolstered when federal health regulators said earlier this month that they needed more time to review Moderna’s application for booster shots, forcing the Biden Administration to delay offering third shots to those who received that vaccine.
Now, Pfizer recipients will be the only people who may be eligible for boosters by the initial deadline, though that depends on a forthcoming decision from an FDA expert advisory committee that is set to vote Friday on whether or not to recommend approval.
Debate Continues in Crucial Week
More contradictory information has been coming out in the days leading up to the highly anticipated decision.
On Monday, an international group of 18 scientists, including some at the FDA and the WHO, published a review in The Lancet arguing that there is no credible data to show the vaccines’ ability to prevent severe disease declined substantially over time, so boosters are not yet needed for the general, non-immunocompromised public.
The experts claimed that any advantage boosters may provide does not outweigh the benefit of giving the extra doses to all those who are unvaccinated worldwide.
On the other side, a study released Wednesday in The New England Journal of Medicine found that people who received a third shot of Pfizer in Israel were much less likely to develop severe COVID than those who just had the first two jabs.
The same day, both Pfizer and Moderna published data backing that up as well. Pfizer released an analysis that said data on boosters and the Delta variant from both Israel and the U.S. suggested “that vaccine protection against COVID-19 infection wanes approximately 6 to 8 months following the second dose.”
Moderna also published data, that has not yet been peer-reviewed, which also found its jab provided less immunity and protection against severe disease as time went on.
Further complicating matters was the fact that the FDA additionally released its report on Pfizer’s analysis of the need for a booster shortly after Pfizer’s publication. Normally, those findings would shine a light on the agency’s stance on the issue, but the regulator did not take a clear stand.
“Some observational studies have suggested declining efficacy of [Pfizer] over time […] while others have not,” the agency wrote. “Overall, data indicate that currently US-licensed or authorized COVID-19 vaccines still afford protection against severe COVID-19 disease and death.”
It remains unclear what the FDA panel will determine when they meet Friday, or what a similar CDC expert panel that is expected to meet next week will decide regarding vaccination policies.
Notably, officials at the two agencies are not required to follow the recommendations of their expert panels, though they usually do.
Even if the FDA approves Pfizer’s application as it stands to give boosters to those 16 and older, people familiar with the matter said the CDC might recommend the third jabs only for people 65 and older or those who are especially at risk.
Regardless of what is decided, experts have said that it is absolutely essential for the agency to stand firm in its decision and clearly explain its reasoning to the public in order to combat further confusion and misinformation.
“F.D.A. does the best in situations when there are strongly held but conflicting views, when they’re forthcoming with the data and really explain decisions,” Dr. Joshua Sharfstein, a vice dean at the Johns Hopkins Bloomberg School of Public Health told The New York Times. “It’s important for the F.D.A. not to say, ‘Here’s our decision, mic drop. It’s much better for them to say, ‘Here’s how we looked at the data, here are the conclusions we made from the data, and here’s why we’re making the conclusions.’”