Economic damage from the novel coronavirus pandemic has knocked the bottom out of the oil market. The cost of benchmark U.S. crude oil, for delivery in May, actually fell below zero -- dragging down the entire stock market. And in some places, producers are running out of places to store unused oil. Special correspondent Ryan Chilcote joins Judy Woodruff to discuss the unprecedented numbers.
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Economic damage from the pandemic knocked the bottom out of the oil market today. The cost of benchmark U.S. crude for delivery in May actually fell below zero. And that drove down the entire stock market.
The Dow Jones industrial average lost 592 points to close at 23650. The Nasdaq fell 89 points, and the S&P 500 gave up 51.
The collapse in oil prices comes as some producers are literally running out of places to store unused oil.
Let's break down more about what's behind these numbers that we have seen never before.
Special correspondent Ryan Chilcote has covered the energy markets for years. And he joins us now from London.
So, Ryan, what exactly happened today?
Well, look, the price of oil was already cheap.
In fact, just last week, people were paying just $2 a barrel for oil, prices never before seen. But the problem is that people don't have anywhere to put this oil. So, if you are a trader on the oil futures market, and you are looking to sell oil right now, whoever buys it from you has to physically receive — take delivery of that oil and put it somewhere.
And since they have nowhere to put it, because everywhere you could possibly want to put oil is already full, you have to pay that person to take the oil. So, literally, if you want to sell oil right now, if you want to sell oil today to someone in the United States, you have to pay them as much as 40 bucks a barrel.
Now, this is a problem that, in part, is specific to the United States, because, outside of the U.S., in many places, you don't actually have to take physical delivery. So you can kind of kick the can down the road.
But, even still, there are fundamental problems with the oil market right now.
Well, tell us about — what are those?
Well, first off, there was already a big problem in the oil market, in the sense that there was too much oil.
And the Russians and the Saudis and the OPEC countries that Saudi leads — Saudi Arabia leads, they had a production cut agreed. And then about a month ago, they failed to agree to continue those cuts. And they went into a price war.
They started a battle for market share, you know, trying to outprice one another, undercut one another on prices, and also undercut producers in the United States. The problem, Judy, is that then COVID-19 happened, and demand for oil plummeted.
And so even after President Trump encouraged them to come back to the table and do another deal, which they did last week by agreeing to cut production by 10 million barrels a day, it was too little, too late. And there is just way too much oil out there.
So this sounds like something that is going to be very painful for a number of countries. What happens next?
It is going to be very painful. And it's going to be painful right around the world.
In the United States, you have got the shale producers in places like Eagle Ford, Texas. In North Dakota, they are already pumping oil at prices — you know, at negative prices, well below they produce it. So that means they have to stop producing, if they can, and they have to lay people off.
That is one of the reasons why President Trump just in the last hour said, the United States is actually going to buy oil on the market and put it in the Strategic Reserve, 75 million barrels. But that is going to only lead — and the U.S. administration know this — to a short-term Band-Aid to this long-term problem.
Outside of the United States, also big trouble. Saudi Arabia, to balance their budget, they need an oil price of about $80 a barrel. The global price for oil right now outside the United States is $25. So, they are in big trouble. Russia is in big trouble. Nigeria is in big trouble. Venezuela is in big trouble.
All that can really change things is, A, if the pandemic eases and we see some kind of recovery in the global economy, or if some of these oil-producing countries that need to sell that oil to fill their coffers agree to cut supply by even more than they already have.
So many repercussions from this pandemic.
Ryan Chilcote, thank you.