- 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)
University of Georgia Walks Back on Decision to Get Rid of On-Campus Voting
- On Wednesday, UGA Votes, a student-run voting organization at the University of Georgia, announced that in-person early voting would not be allowed on campus because of the coronavirus pandemic.
- This led to frustrations from students and others in the community who felt it was outrageous that in-person classes and fans at school football games would be allowed but voting would not.
- The school initially responded by saying that football games and voting are different and that it had plans to shuttle students to polling locations, but this only resulted in more outrage.
- On Thursday morning, UGA fully reversed its decision and said it is working with local officials to use Stegeman Coliseum as an early voting location.
UGA To Allow Early Voting on Campus
After a wave of criticism, the University of Georgia said Thursday that it was walking back on its decision to cut in-person voting on campus due to the coronavirus pandemic.
In an official statement, the school said is now working with local officials to have in-person voting at its Stegeman Coliseum.
“UGA was pleased this morning to offer Athens-Clarke County and the Georgia Secretary of State’s office the use of Stegeman Coliseum as a site for early voting,” the school said.
“We look forward to working with state and local election officials to facilitate on-campus voting in this indoor venue, which is large enough to support safe social distancing.”
UGA’s Initial Plan
The announcement comes just 24 hours after the school was faulted for saying it could not hold early in-person voting on its campus, which it had done at the Tate Student Center in 2016 and 2018.
When revealing that initial plan, the school cited the coronavirus pandemic as the reason behind the move. According to UGA Votes, a student-run voting organization, the school believed social distancing at the location would be impossible. UGA Votes did bring up the possibility of using the Coliseum but were initially told it would not work.
“UGA Votes is deeply saddened to announce that there will be no on-campus early voting for the 2020 presidential election,” the group said in their statement, still encouraging students to vote despite this obstacle.
One of the main reasons students and others were frustrated with this choice was because while the school rejected the notion of hosting early voting, which begins on October 12, the school’s Sanford Stadium will allow fans in for UGA football games starting October 3. The stadium will fill seats to 20-25% of its nearly 93,000 person capacity.
Many students, UGA community members, and others took to Twitter to express their dissatisfaction with the school’s decision. Some suggested that the school use its football stadium as an early voting location.
The issue also caught the attention of Stacey Abrams, Georgia’s 2018 Democratic gubernatorial candidate and founder of Fair Fight, an organization devoted to fighting voter suppression.
“COVID19 must never be used as an excuse to limit voting access, including on college campuses,” she wrote. “Early voting at @universityofga has increased opportunity for participation among students in the past, and they should be safely given the same access this year.”
UGA’s chapter of Fair Fight also tweeted, “If we can have football, we should have voting, too.” Its account then shared a petition demanding that the school allow voting, which had over 2,300 signatures as of Thursday morning.
“We strongly urge the University to immediately change course and not be complicit in voter suppression,” the petition reads.
“We find it interesting that the Administration would use student safety as an excuse to limit access to democracy while disregarding student welfare in other regards,” it continued, potentially in reference to the large COVID-19 outbreak the school has seen.
Cases at the school are actually on the decline as of last week in comparison to the week prior. The school reported 421 cases between September 7-13, down from 1,490 cases between August 21-September 6. While it’s a significant decline for a week, overall, the outbreak at UGA is one of the largest college outbreaks across the country.
UGA’s Initial Response
As the backlash continued to pour in, the school tweeted out a statement explaining and defending its initial choice to not hold in-person early voting. UGA maintained that with the ongoing pandemic, the long lines would make it unsafe.
“Those comparing this matter to a football game should be able to recognize that football games will be played outdoors but we will still require social distancing by substantially reducing capacity in the stadium,” the statement said to specifically address those mad that football spectating was still on. “We have eliminated tailgating as well due to a desire to keep the campus as safe as possible and limit visitors during the pandemic.”
It also said it would provide a shuttle to send students to other voting locations, like Downtown Athens. However, this response was met with even more outrage as some thought that if social distancing to wait in line would be impossible, then social distancing in a shuttle would be even harder. Others said that the shuttle would just make lines at other polling places even longer.
Many also said that this was an attempt to suppress young voters.
Before the school released it’s Thursday statement fully reversing course, it tweeted later on Wednesday that it would look into the potential of using the Coliseum.
See what others are saying: (Atlanta Journal-Constitution) (CNN) (Athens Banner-Herald)
Trump Shares Doctored Video of Biden Which Replaces “Despacito” With N.W.A’s “F*** Tha Police”
- President Donald Trump shared a doctored video that showed his opponent Joe Biden dancing to “Fuck Tha Police” by N.W.A.
- Twitter flagged it as manipulated media with a warning label that redirects users to the real clip and information about it. Still, the doctored clip has been viewed 4 million times.
- The real video comes from a campaign event Biden held on Tuesday, celebrating the start of Hispanic Heritage Month. The song he actually played was “Despacito” by Luis Fonsi, who earlier introduced Biden to the stage.
- Still, Biden’s choice to play the song resulted in backlash from those who thought he was pandering to Hispanic voters. An NBC Marist poll currently shows Trump and Biden neck and neck in Florida, with Trump taking the Hispanic vote in the sought after state.
Trump Shares Doctored Video
President Donald Trump shared a doctored video of his Democratic opponent Joe Biden on Tuesday playing and dancing to “Fuck Tha Police” by N.W.A.
The real video comes from a campaign event Biden held in Florida to celebrate the start of Hispanic Heritage Month on Tuesday. He was actually playing “Despacito” by Luis Fonsi, who introduced him.
The doctored video was first posted by The United Spot, a conservative, pro-Trump parody account. Trump shared the video in the early hours of Wednesday morning asking “What is this all about?”
As of Wednesday morning, the clip had been viewed over 4 million times. Twitter added a “manipulated media” label to the post, which directs users to a Twitter events page that shows the real video. It also includes several tweets about what really happened, as well as a post mentioning that the video Trump shared was doctored.
Still, Trump shared the video again later on Wednesday saying “China is drooling, they can’t believe this!”
Trump’s repeated sharing of the fake video is part of his larger effort to center his campaign around law enforcement and to paint Biden as anti-police. Biden has said he does not support movements to defund the police, but this has not stopped Trump from trying to tie the former Vice President to protests and riots against police brutality across the country.
“Fuck Tha Police” has been a divisive song since it was released by N.W.A. in 1988. Over 30 years later, the messages in it remain as relevant as ever, and streams for the song have seen a significant boost since protests against police brutality spread across the country.
Joe Biden Accused of Pandering
But it wasn’t just the doctored version of the clip that drew attention and outrage. The original version had its own wave of backlash as many thought Biden’s choice to play “Despacito” was a cringe-worthy attempt to pander to Hispanic voters.
Fonsi, Eva Longoria, and Ricky Martin all spoke at the event, which was Biden’s first in Florida since he became the Democratic nominee. Some thought his choice to pull out his phone and play the hit song was a nod to Fonsi, but others compared it to comments Clinton made in 2016 about always keeping hot sauce in her bag, or encouraging people to “PokemonGo to the polls.”
Others pointed out the fact that “Despacito” means “slowly,” which plays right into Trump’s “Slow Joe” nickname for Biden.
Getting the Hispanic Vote
This comes amid a tight fight between Biden and Trump for Florida and the Latino vote in the high-stakes state. Some polling shows Biden a hair ahead of Trump in the state, but others show the two neck and neck. An NBC Marist poll has both candidates at 48% and shows Trump doing better amongst Latino voters.
This data actually speaks to a larger issue within the Biden campaign. On a national level, analysis from CNN has found that Trump has increased his standing with Hispanic voters during his four years in office. While he still trails behind Biden, their analysis finds that the former Vice President could win the Hispanic vote by 28 points, compared to Clinton’s 37 point lead in 2016.
See what others are saying: (Washington Post) (Forbes) (Variety)
House Investigation Faults Boeing and the Federal Aviation Administration for MAX 8 Crashes
- The Democratic majority on the House Transportation Committee released the results of their 18-month investigation into the Boeing 737 MAX 8 crashes.
- It has been described as the most comprehensive report yet that looks the roles Boeing and the Federal Aviation Administration (FAA) played.
- Among other information, the inquiry found that Boeing prioritized profit over public safety and that the FAA provided “grossly insufficient oversight.”
- The report comes as the FAA is expected to recertify the MAX 8 to fly within just a few months.
House Committee Report
A sweeping Congressional investigation released Wednesday directly blamed Boeing and the Federal Aviation Administration (FAA) for two 737 MAX 8 planes that crashed within five months of each other, killing 346.
The inquiry, which was released by the Democratic majority on the House Transportation Committee, has been described as the most comprehensive report yet regarding the role both Boeing and the FAA played in certifying the plane that caused two fatal crashes.
In October 2018, a MAX 8 operated by Lion Air crashed off the coast of Indonesia resulting in the death of 189 people. Then, in March 2019, another MAX 8 operated by Ethiopian Airlines crashed outside of Addis Ababa, killing all 157 people on board.
Drawing from interviews with two dozen Boeing and FAA employees and around 600,000 pages of records, the findings of the committee’s 18-month investigation paint a grim picture of the numerous issues with the development and certification of the MAX 8, and specifically, the software system faulted with bringing both planes down.
The Maneuvering Characteristics Augmentation System (MCAS) was designed to automatically correct the level the plane was flying at to prevent it from stalling and falling out of the sky. However, investigations found that on both the Lion Air and Ethiopian Airlines flights, MCAS had pushed the planes’ noses down at a dangerous angle.
When the pilots tried to stabilize, the system kept pushing them down again and again until they eventually went into uncontrollable nose-dives and crashed. Further complicating matters was the fact that after the first crash, numerous pilots came forward and said they were never told about MCAS, were not trained on it, and that it had been left out of their flight manuals.
Five Key Themes
In their report, the Democrats explicitly state that the crashes were “the horrific culmination of a series of faulty technical assumptions by Boeing’s engineers, a lack of transparency on the part of Boeing’s management, and grossly insufficient oversight by the FAA.”
To illustrate their findings, the committee outlined five overarching themes that they say ultimately lead to such fundamental problems with the MAX 8’s design, construction, and certification.
The first theme is “Production Pressure.” Here the inquiry notes that there was significant financial pressure on Boeing to quickly build and certify the MAX 8 because the model was designed to compete with a new line of planes being developed by their biggest rival, Airbus.
This, the committee says, led Boeing to prioritize cost-cutting, production goals, and maintaining their schedule to meet certification deadlines over public safety.
The second theme the report outlines is “Faulty Design and Performance Assumptions.” Specifically, it says that Boeing made “fundamentally faulty assumptions about critical technologies on the 737 MAX, most notably with MCAS.”
The committee then goes on to list a handful of examples, like the fact that MCAS relied on only one sensor, so if that censor failed — as it did during both the crashes — it could cause MCAS to engage when it should not. It also says Boeing expected that pilots would be able to deal with that malfunction even though they did not know the system even existed.
Notably, the report claims that Boeing “failed to classify MCAS as a safety-critical system, which would have attracted greater FAA scrutiny during the certification process,” and that “the operation of MCAS also violated Boeing’s own internal design guidelines” regarding interactions with piloting and interfering in dive recovery.
The overarching problem the inquiry flagged was “Culture of Concealment.”
“In several critical instances, Boeing withheld crucial information from the FAA, its customers, and 737 MAX pilots,” it stated before going to provide examples.
In addition to the fact that Boeing did not tell pilots about MCAS, the company also failed to disclose that a crucial safety feature was “inoperable on the vast majority of the 737 MAX fleet, despite having been certified as a standard aircraft feature.”
The safety feature in question informed pilots if the sensors that activated MCAS were feeding the system incorrect data, which is what happened in both the Lion Air and Ethiopian Airlines flights.
The investigation also found that Boeing concealed a flight simulation where it took a test pilot more than 10 seconds to respond to an unwanted MCAS activation — “a condition the pilot found to be ‘catastrophic’” — given the fact that federal guidelines assumed pilots would respond to massive system problems of that nature within four seconds.
While the report does note that Boeing was not legally required to disclose these things to the FAA or its customers, it still argued that it was “inconceivable and inexcusable that Boeing withheld this information from them.”
Under the fourth theme, “Conflicted Representation,” the committee reported that “the FAA’s current oversight structure with respect to Boeing creates inherent conflicts of interest that have jeopardized the safety of the flying public.”
It goes on to note several documented instances where Authorized Representatives, which are Boeing employees who were given the ability to act on behalf of the FAA and certify that some of the plane’s designs meet the agency’s requirements, “failed to disclose important information to the FAA that could have enhanced the safety of the 737 MAX aircraft.”
The inquiry also states that some of the concerns raised internally by those representatives that were not relayed to the FAA, not investigated, or dismissed by Boeing employees involved the same issues with MCAS that caused both the Lion Air and Ethiopian Airlines crashes.
The final theme the committee put forward in their report was “Boeing’s Influence Over the FAA’s Oversight Structure.”
There, the investigation found multiple instances documented by FAA officials where “FAA technical and safety experts determined that certain Boeing design approaches on its transport category aircraft were potentially unsafe and failed to comply with FAA regulations, only to have FAA management overrule them and side with Boeing instead.”
The last theme is extremely important in understanding both how Boeing got into this debacle and how the industry can move forward.
For years, the FAA — at the direction of Congress — has been giving more and more regulatory oversight powers to plane manufacturers like Boeing. That has been a win-win for both the FAA and Boeing.
The FAA is a government agency with very limited resources, so giving Boeing more authority over day-to-day safety assessments lets them focus their energy on the bigger picture safety aspects of the certification process.
For Boeing, which has lobbied Congress in favor of these practices, it cuts back a ton of red tape so they can speed up the certification of their planes and compete with foreign rivals like Airbus.
Both the FAA and plane manufacturers have said they are using this cooperation to make planes safer, but watchdog groups and unions have repeatedly expressed concerns that letting manufacturers self-regulate too much could compromise safety and allow plane manufacturers to act in their own self-interest.
Those concerns grew during the aftermath of the MAX 8 crashes and the mounting evidence from investigations and hearings. While the House committee’s report does not provide many new pieces of bombshell information, many believe it is the necessary first step in crafting legislation to better regulate the aerospace industry.
In a statement with the release of the inquiry’s findings, Rep. Peter DeFazio (D-Or.), who chairs the House Transportation Committee, said it was “mind-boggling” that “both FAA and Boeing came to the conclusion that the certification of the Max was compliant.”
“The problem is it was compliant and not safe. And people died,” he said, adding that it is “clear evidence that the current regulatory system is fundamentally flawed and needs to be repaired.”
“This is a tragedy that never should have happened. It could have been prevented and we’re going to take steps in our legislation to see that it never happens again as we reform the system.”
While the Senate Commerce Committee is set to consider a bill this week to strengthen the airplane certification process, House Republicans on the Transportation Committee did not endorse the investigative report.
In a statement regarding the Democrat’s report, the committee’s ranking member Rep. Sam Graves (R-Mo.) criticized Democrats for an investigation that “began by concluding that our system was broken and worked backwards from there.”
“If aviation and safety experts determine that areas in the FAA’s processes for certifying aircraft and equipment can be improved, then Congress will act,” he added.
But Congress may be running out of time.
“The report was issued as the F.A.A. appeared close to lifting its grounding order for the Max after test flights this summer. F.A.A. clearance could lead aviation authorities elsewhere to follow suit and allow the plane to fly again as soon as this winter,” The New York Times noted in its coverage of the committee’s report on Wednesday
Boeing has been doing a lot of work to update the problems with the plane and make it flyable. However, there are still many concerns as to whether or not lawmakers, airlines, and customers should still trust the company to fix the flawed aircraft without an overhaul to the regulatory system — especially given all the flaws in the certification system that so many investigations have revealed.