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Economics

“Too Much Oil: How a Barrel Came to Be Worth Less Than Nothing”

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Too Much Oil: How a Barrel Came to Be Worth Less Than Nothing

The New York Times newspaper published an article titled “Too Much Oil: How a Barrel Came to Be Worth Less Than Nothing” Stanley Reed and Clifford Krauss wrote the article on April 20, 2020. The newspaper discusses the drastic price fall of oil in the market that was experienced in America. According to the authors, the price of oil in America fell by more than $50 per barrel on Monday, April 20, 2020, leading to a negative price mark of more than $30 per barrel. The cause was attributed to the rise in the coronavirus pandemic, which has disrupted the economy across the globe.

The supply of oil in the American market is still high, but there is no consumption of the product. The aggregate quantity of oil by the companies is low since many consumers are not buying the product. Aggregate supply is the sum total of the number of outputs that an organization produces and sells. Since they are not selling the oil, they are unable to increase the aggregate supply leading to a shortage of storage facilities for the product. The negative price of the oil meant that if you bought a barrel of the oil, you would get it for free and be paid an extra $30.

The aggregate demand, which is the total expenditure by a company on the domestic products and services is very high since they have to source for storage facilities. According to the article, there is a storage capacity of 6.8 barrels around the world, and almost sixty percent of it is full. Dealers of oil have to look for storage, and those who do not have them are simply out of business. In America, about 100 million barrels of oil are pumped out into the storage facilities. Refineries are declining to take in the oil since there is no demand for oil products. They do not want to increase their aggregate demand since there is no market. Oil wells are expensive to revive once they are shut; hence they are continuing to pump more oil each day despite making significant losses.

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