Over a Barrel: Negative Oil Prices?
We have all heard of the latest policy instrument to tackle stagflation, namely negative interest rates, but could we get to a situation where we get negative oil prices i.e. get paid to use oil?
What would you do if you pulled into a gas station and there was negative pricing, i.e. you got paid to take the fuel away? I think most of us would fill up as much as possible to get paid for whatever our car tanks would hold. We might even invest in a few jerry cans and fill these up. We might even invest in some bigger gas guzzling cars to take advantage of the pay outs.
This seemed like a pipe dream and impossible only a year ago, but in today's extraordinary energy and economic times it may not seem so far fetched. As already reported by Bloomberg there are already some types of oil that are commanding negative prices. This means the seller will actually pay you to take it away.
U.S. benchmark oil prices have collapsed more than 70 percent in the past 18 months and fell below $30 a barrel for the first time in 12 years in mid January. These are crazy times for anyone making or selling fuels.
The possibility of negative prices is still pretty far fetched and unlikely... but the same was said about negative interest rates set by central bankers, which is now a mainstay of economic policy across the world. Only time will tell but the incentives of being paid to take oil could fundamentally change how oil markets currently work, and how much we fill up our cars.