Negative oil prices

First negative interest rates, and now negative oil prices. Is the world coming to an end?

The price of the May crude-oil futures contract closed yesterday at negative $37.63 a barrel. The buyer of that contract is entitled to receive 1000 barrels of oil in Cushing, Oklahoma in May and in addition the buyer is entitled to receive $37,630. Sound like a pretty good deal?

A month ago there were around a half million such contracts outstanding, promising delivery of half a billion barrels of oil to Cushing in May. That’s far more than could ever be physically delivered, and it’s perfectly normal. In the vast majority of those contracts, the buyer had no intention of receiving oil and the seller had no intention of delivering oil. The plan of the buyer was to sell the contract to somebody else before time for delivery, and enjoy the gain if they sell for more than they bought. The seller likewise planned later to buy a contract; in effect, their original offer was a short sale, which they later cover by buying. You can think of the second contract that closes each individual’s initial position as between the same two parties as the original contract, so that the two trades exactly cancel. For most of the original contracts, no oil actually changes hands in May.

The anchor for the system is the fact that the buyer has the right to receive physical delivery if they choose to hold the contract to expiry, and could plan to put the oil into storage or ship it immediately into another pipeline. If I can store the oil in Cushing for a cost of a few dollars a barrel, that’s a valid option. But the higher the cost of storage, the bigger problem I’ll have on my hands if I actually take physical delivery.

The May contract expires today, so if you haven’t sold your position now, you better plan on receiving your 1000 barrels of oil. But you can still buy oil for delivery in June, or for delivery in July, or other future months. Here were the prices of the different contracts at close yesterday.

Prices on April 20 of selected futures contracts
Delivery date Price









There is a basic arbitrage that connects the futures prices in any consecutive months. By buying the July contract you could lock in an option to receive delivery in July at a cost of $26.28 per barrel. You could plan on storing the oil that month and selling in August at a guaranteed price of $28.51. If you expect the cost of storing oil in July to be $2.23 per barrel (28.51 – 26.28 = 2.23), you’ll just break even by buying the July contract and selling the August contract. If you think the price you’d have to pay to store the oil in July would be less than $2.23, you should buy July oil and sell August oil. Arbitrageurs following that trade will drive the July price up and August price down. In equilibrium we’d expect the price differential between months to represent the cost of storage. Applying that interpretation to the above numbers, the cost of storing a barrel right now is imputed to be around $60 a barrel (nobody would do the deal with you yesterday at any reasonable price). The imputed storage cost is about $6 in June. There’s a horrific storage bottleneck in Cushing right now, but traders are betting that it’s going to be more manageable by summer.

An added factor in calculations like this is that some businesses like refiners always need to keep some oil in storage. Those parties have an incentive to store oil even if they do so at a loss. This factor is called a convenience yield. The more general arbitrage relation is that the difference between the August price and the July price is the storage cost minus the convenience yield. The calculations in the paragraph above were assuming a zero convenience yield. When inventories are as abundant as they are right now, that’s probably a reasonable assumption to be using.

So that’s the explanation of the negative prices. The bigger picture is that the flow of oil headed for delivery to Cushing in May was bigger than the consumption in May, and there was no easy way to store the surplus. That caught buyers of the May futures contract in a squeeze, unable to close their positions at the terms they expected. The situation will be helped some as upstream producers shut down. But the bigger problem is that demand for oil has collapsed. People aren’t flying in planes and they’re not driving to work.

The low price of gasoline will mean some added spending power for those folks who are still driving. But don’t count on any economic stimulus from that. Most American oil producers can’t make a profit at $30/barrel, and are hemorrhaging cash at even the June price. The collapse in spending and employment by U.S. oil producers will be a big drag on the economy. The pending bankruptcies are another worry for stability of the financial system.

So no, negative oil prices are not the end of the world. But no way do I see them as good news.

56 thoughts on “Negative oil prices

  1. Barkley Rosser

    Looks reasonable, Jim. I posted on this on Econospeak, but not in the detail you have.

    I have not seen anybody viewing this as good news. Quite aside from the threat to the financial system of bankrupting US companies especiallly those in the high variable cost fracking business, some are worrying about this as a possible indication of a broader deflationary pressure.

  2. baffling

    how much do you think the etf’s like uso contributed to this problem. as i understand they simply trade the futures contracts, and until today focused on the next months contracts. they tend to own a large share of the contracts at various points in time, but have no ability to take delivery of oil. were they involved in yesterdays collapse? i ask because i think they quit holding contracts within 14 days of expiration? i assume they are certainly part of the problem with june contracts collapsing today, but perhaps not the may contracts that collapsed yesterday? at any rate, i have learned my lesson and will not longer play with commodities that cannot be taken at delivery.

    1. macroduck


      Just a guess here. The answer to your question probably depends on whether the availability of a convenient instrument for speculating in oil has increased the volume of outstanding contracts near the expiration date. When ETFs roll out of the front month contract, their longs can be matched with shorts and effectively extinguished, as James has described. If, however, a greater fool went long May contracts as ETFs shed them, perhaps hoping that the ETFs’ need to sell would create a price distortion, then ETF activity could have an indirect impact on the volume of outstanding contracts in the days before May contracts expired.

      So in my made-up world, it is the in-and-out account which lives by price distortion (CTAs and hedgies) which would allow ETF trade in oil contracts to have been a part of the May contract’s collapse.

      Maybe, I think, perhaps.

      1. macroduck


        Izabella Kaminska at the FT says it is probably ETF participation along the lines I suggested that led to the dive in May oil futures. ETFs were out of the May contract as of April 16, but speculators anticipating a bounce in May contract prices after ETFs were done selling held long positions. The game is to force the volume of outstanding contracts up into expiration, when naturally volume should be declining. That leads to increased “contango” (front month prices below the price on further-out contracts) and panic selling by long accounts. It is the timing of ETF selling, which is now a substantial part of overall market activity, which drives the trade.

        By the way, it is possible to lose money on futures in a rising market as well as a falling market, because of the roll. Buying more expensive further-out contracts with the proceeds from the sale of the less expensive front month, month after month, means holding fewer contracts for the same money after each roll. It is a sort of race to see whether the gains on the front month make up for the loss on the roll. Sometimes, it doesn’t and investors lose money in a rising market.

      2. baffling

        thanks. i know a lot of people were blaming the etf, but i also understood it no longer directly had a hand in may contracts when the market collapsed. but they are such a big player, my intuition is that somehow they have to be connected with the may collapse. the recent restructuring of the etf also indicates they were impacted severely. over the next couple weeks, i think they will be more directly responsible for a june collapse. however, whatever their impact on the may expiration will also be a similar impact on the june expiration, i would imagine. just trying to figure it all out.

  3. Edward Hanson


    Thank-you for a straight forward explanation into the world of oil futures where few have knowledge. It is the kind of explanation that too few economist are capable of.


  4. joseph

    Trump is going to demand billions of dollars of bailouts for his friends in the oil business. Instead, why not let the bond holders eat it and then spend the billions on jobs building and installing solar panels and wind mills. I’m sure those roughnecks would be delighted to get out of spending the winter in broken down trailers in North Dakota and get a real job in a real town where they can plant roots and live with their families.

    1. 2slugbaits

      This alludes to a real concern. Given that solving climate change necessarily means stranding at least some capital in carbon intensive industries, we need to think twice about making Big Oil whole. We don’t want to find ourselves in the position of having taxpayers foot the bill for replacing capital only to have to strand that capital in the future.

      1. macroduck

        Same with airlines and auto makers. If the government had been in a constructively adversarial stance relative to big CO2 producers ahead of the pandemic, there could have been a list of reasonable environmental demands attached to emergency loans. Instead, our government has been destructively abetting big CO2 producers. Lost opportunity, again.

  5. Moses Herzog

    My reading of this is, at least in the short-term this move down has been “over done”, because traders were paying others to take the contract off their hands. Which in essence is what Professor Hamilton was saying, in a much better and more thorough way than I just did. If I’m misrepresenting Prof Hamilton’s gist I apologize and welcome correction. Stellar post from Professor Hamilton, but we never expect much less from our two genial blog hosts, do we??

  6. Jeffrey J. Brown

    Plains Petroleum posted (wellhead) oil prices for 4/20/20:

    Single digit posted wellhead prices, with prices in Kansas and Nebraska and a couple of other areas still negative for 4/21/20:

    I would assume that virtually the entire US upstream oil industry is in the process of shutting down.

    Note that I think that a very serious problem on the horizon is “Orphan” oil wells, after the operator goes out of business.  
    I read a few days ago that banks were setting up contingent operating staffs, if they have to take over operations, after they foreclose on mortgaged oil properties and after the operating company may have filed Chapter 7.  I wonder if they might rethink that approach as they begin to calculate the plugging liabilities on some of these leases.  It might be roughly equivalent to foreclosing on a factory that has a toxic waste dump on the grounds. 

    The required oil bond in Texas (to cover possible plugging costs if the operator goes out of business) is only $50,000 for smaller operators in Texas (up to 100 wells).  And I think it’s $250,000 for larger operators.  

    For shallow conventional wells, the $50,000 bond would only take care of plugging maybe 2-3 wells.   

    For the complex shale wells, I’ve heard numbers of around $150,000 or so per well, so the larger bond would take care of plugging maybe a couple of wells.  

    Taxpayers are going to be left holding the bag. 

    1. Jeffrey J. Brown

      Note that depending on the duration oil price collapse, shale players are going to face some tremendous challenges trying to get back anywhere close to their 2019 oil production rates, and this is after a pretty disappointing financial performance over the past decade.

      The following study, looking at a cross-section of 34 North American shale-focused oil and gas producers, found that the companies spent $189 billion more on drilling and other capital expenses over the past decade than they generated from selling oil and gas.

      IEEFA update: Fracking companies’ 2019 performance signals ongoing crisis (March, 2020)

      Some items to consider:

      Extremely high decline rates from existing wells.

      I would assume that creditors will be reluctant to debt finance future drilling and completion activities, given what I would expect to be catastrophic losses on loans to shale players.

      Given the probability of states being stuck with thousands of orphan oil wells, I would also expect to see much tougher bonding requirement and regulations going forward. 

      Also, depending on the duration of the collapse in drilling and completion activities, a lot of service companies will be going out of business.

      1. Jeffrey J. Brown

        Incidentally, on average I think that most US operators need a wellhead oil price in the $20 to $30 range, just to pay monthly LOE (Lease Operating Expenses).

        1. Willie

          Flow rates through the Alaska Pipeline are an issue as well. If the flow is too low, the crude will have to be heated or it will not flow. That would not end well.

      2. Michel Lepetit

        What is striking is that $ 1350 billion of capex have been spent in this last decade on an LTO industry with no financial profitability. Never.
        What is striking is that so few economists have been studying this bizarre macroeconomic market failure.
        What is striking is that the oil&gas capex is approximately 1/6 of all companies capex worldwide.
        What is striking is that the Fed balance sheet has expanded by $ 4000 billion in this last decade with its UMP. So a large part of QE had an indirect impact in pouring hundreds of billions of dollars in the LTO business. Remember Prof. Hamilton’s 2009 explanation on oil as the main cause of the 2008 crisis …

        Unconventional monetary policy for unconventional oil.

        there is SMCCF for HY (see :
        there are Texas RRC quotas

        And the next episode is … ?

    2. macroduck

      The Saudi-Russian price war is having aftereffects. Storage was flooded by their flood of oil, and that flood cannot go away in the near term. No storage => negative prices for the front month into expiration.

      The Fed’s decision to purchase junk debt was surely made in the light of damage to credit markets from collapsing oil-sector junk debt in early 2016. The Fed has thrown a pillow under the butt of debtors in the oil patch, but that cannot keep them in business long if they are operating at bigger-than-usual losses. The Fed has probably done creditors more good than oil patch borrowers. So yeah,. taxpayers will end up holding the bag, in the sense that much oil sector debt may default. Not clear that the intended effect of securing the financial sector against collapse is going to leave taxpayers (read “us”) worse off. Personally, I’d like to see every government loan come with negative externality strings attached, but that’s up to Congress, not the Fed.

  7. spencer

    Russia and Saudi Arabia want to remove the oil from the market that is driving down the prices they receive.

    That marginal supply of oilis US fracked oil. So they have driven the price down — together with the markets —
    where it is no longer profitable to produce oil thru fracking.

    We use to view low oil prices as a positive for the US.

    But now it is a negative for both domestic production and the trade balance.

    I wonder how Trump is going to react to his buddies doing significant damage to US business and economy on the eve of his reelection campaign.

    1. Baffling

      Spencer, you can count in the fact trump has no loyalties to any of his “friends”. That is probably the only positive thing out if this. As soon as mbs and putin lose their use, trump will turn in them. That will benefit the usa, but the damage has already been done.

      1. The Rage

        lol, they control Trump. It is why he was begging for lower oil prices in 2018, a fake out. There is nothing to turn on. Destroying the banking lien is the key. Once its gone, investment when oil is 75$ will be tough. A big part of this is that the oil industry ramped up production in 2017 when they didn’t have pricing support. Investigation in this will make it even harder after the effect, the invest in expensive oil.

        You wanna boom in fracking oil??? Give me 150$ oil.

  8. Alan Goldhammer

    The big question for me is whether all the highly indebted fracking companies will receive any financial assistance. Their financial model never made sense two years ago when I looked at balance sheets and I see no way out of this for the foreseeable future as oil prices won’t approach their breakeven point for quite a while. The oil in the ground isn’t going anywhere and can be recovered when prices make it viable. The companies should be allowed to file for bankruptcy and the US should buy as much foreign oil at cheap prices as can be stored.

    1. macroduck

      I’ve read that the fracking sector has never produced a positive cash-flow. Is that what you’ve seen?

        1. pgl

          This report has some good details. Note in table 1 “operating cash flow” for these 34 companies has been positive but new capital expenditures have been greater for them collectively. “Free cash flow” = operating cash flows minus capital expenditure may be negative but all that says is that people keep expanding their investments in this sector rather than simply draw out dividends. Table 3 of the report tells us the names of the 34 companies some of which are publicly traded which means one an read their 10-Ks.

        2. pgl

          EOG Resources was highly profitable in 2018/2019. Its stock price was over $130 a share back in 2018. But events in the New Year has been brutal and now its stock price has fallen to only $45 a share:

      1. Alan Goldhammer

        Bethany McLean has documented this in her book, “Saudi America: The Truth about Fracking and how It’s Changing the World” Some of the companies were selling bonds faster than the cash flows were accruing. I was looking at the sector just over two years ago and of the six companies I looked at only one was in a possible position to make good on their debt ‘if’ prices dropped to below $50/barrel. Jeffery Brown’s link below tells the sordid story.

  9. sammy

    “The United Nations warned the coronavirus pandemic could trigger famine as the worldwide freeze on commerce sent shock waves through financial markets……One World Food Programme director warned ‘widespread famines of biblical proportions’ could force millions in already vulnerable countries into starvation due to the global crisis.”

    1. Bert Schlitz

      lol, it will do the opposite. Famine, like they are talking is unlikely. More likely stockpiles increase.

    2. baffling

      well sammy, we know the virus was had community spread in california since before the trump lockdown on china
      as people argued at the time, locking borders will not keep the virus out. but early and better testing sure would have helped. you may not have needed a $2 trillion dollar stimulus if you had focused on detection at the time.
      and we continue to ignore the science.
      and if we continued to promote the trump “game changer”, the miracle cure, we would have simply resulted in more dead people than otherwise. further evidence of the commanding leadership brought to you by herr trump.
      so please sammy, continue to provide us with your insights into the pandemic. just like trump, you were wrong on these issues as well. in fact, have you been right about anything yet regarding the pandemic?

      1. pgl

        “Study finds no benefit, higher death rate in patients taking hydroxychloroquine for Covid-19”.

        Gee Bruce Hall has been remarkably silent of late. I bet this clown has been out there pushing his snake oil hard in fear that these results would soon be published. Looks like Bruce is not going to make a financial killer on his little miracle cure. Maybe he can get on the phone and receive some of that government dole!

        1. sammy


          Hold your horses. This non scientific study was performed on patients that were already intubated (late stage) and with varying co morbidities, so not a good test.

          1. baffling

            “This non scientific study”
            this is a false statement sammy. it was not a controlled clinical trial, but to argue this is a non scientific study is boldly ignorant. i see we are trying to cherry pick our evidence once again sammy. what the study says is that this drug is not the “game changer” trump claimed it to be. i wish treatment were as simple as taking a couple of pills, but the evidence suggests this is not really helpful.

          1. 2slugbaits

            sammy You might not be familiar with the politics inside French medicine, but there has been an ongoing battle between doctors in northern France versus doctors along the Mediterranean coast. Doctors in Marseilles have gotten very defensive about some of their premature claims regarding hydroxychloroquine and your link is a vivid example of that defensiveness. Notice that the paper attempted to change the subject. The underlying issue was whether or not hydroxychloroquine was an effective treatment for COVID-19; however, your link basically ignored that part of the referenced studies. Instead it focused on an anecdotal observation by the VA that hydroxychloroquine appeared to be associated with a higher death risk among certain patients. The VA never presented that as a firm finding, it was just something that they reported as a curiousity. So your Reoult link was essentially arguing with a strawman because the VA never claimed what Reoult was arguing against. But notice that Reoult never disputed the paper’s main argument that the VA was unable to find any statistically significant evidence that hydroxychloroquine was an effective COVID-19 therapy.

            Once again you have been conned. Hydroxychloroquine may or may not prove to be beneficial, but right now we don’t know the right answer with any degree of confidence. So far the evidence seems to suggest it isn’t effective, but we shouldn’t automatically rule out the possibility that it might be effective. We need a lot of rigorous clinical studies. Unfortunately, doctors in Marseilles have been accused of faking some of their earlier results promoting hydroxychloroquine and it’s they who are becoming emotional and defensive.

          2. Ulenspiegel

            According to Prof. Christian Drosten (Charite Berlin), a leading expert in the field of corona viruses, the French studies were useles as selection of the patients was flawed and essential experimental data were not collected, PCR of swaps from the throat is NOT sufficient and gieves a wrong picture. That is three week old news…

      2. Jeffrey J. Brown

        Since this thing started, I thought that we need to look at the total death count, since the reported COVID-19 death rate is one uncertainty divided by another uncertainty. In regard to total mortalities in multiple countries versus seasonal norms, an on point NYT article and excerpt:

        These numbers undermine the notion that many people who have died from the virus may soon have died anyway. In Paris, more than twice the usual number of people have died each day, far more than the peak of a bad flu season. In New York City, the number is now four times the normal amount.

    3. pgl

      Like you ever cared about people in Africa. Sammy raises this only to make his fellow MAGA hat wearers look like reasonable people. Of course had Trump acted boldly back in January, we would not be in this mess. Of course the Toddler in Chief still remains too scared to do a damn thing. And yes – many people will die because of your boy’s incompetence.

  10. Barkley Rosser

    I cannot avoid noting the irony here on the 50th anniversary of the first Earth Day that for so long many of us have been essentially calling for a higher price on fossil fuels (certainly including oil) whether through taxes or some other market scheme in order to internalize the externalities related to global warming and other forms of pollution they generate. But now we have essentially a complete collapse in the price of oil, even if that price looks to remain positive, of a magnitude far beyond anything these various schemes would bring about.

    These low prices may eventually help fuel a recovery by consumers of fossil fuels, but that looks to be a ways off, and in the meantime, well, making efforts to “get off fossil fuels” (or at least oil) look pretty much out the window for now (although the simple slowdown of the economy has already led to lower pollution emission rates across the board).

    1. baffling

      i would also argue the world would have been in a better position had we been further along in the renewable and electrical world. oil is a very specific energy type with a rather limited use. what i mean is that it is a bit difficult to transform all of that oil energy into another form of energy, such as electricity, which can be supplied to a much broader range of uses. oil is not an extremely flexible energy source. renewables and electrification are much more flexible, and much more responsive in real time to supply and demand, as we have just seen. cheap oil is now increasing the “cost” of using fossil fuels over the near and intermediate term. they are not a bargain by any stretch of the imagination. technology is built upon electrification, not fossil fuels.

      1. macroduck

        That is the critical point for low carbon future. When replacing gross muscle with machine, it is often hard to beat combustion. Everything else, including communication, computation and fine-motor muscle activity can be powered perfectly well without portable energy in a tank.

        There is a limit to fossil fuels, and it ain’t that far away under even the most irresponsible polcies. Fossil fuels should be used sparingly for all kinds of reasons.

  11. sammy


    I think we’ve been had. The expert models have been way off, by magnitudes of 000’s and the resulting hysteria has been fanned by the media. Bad news sells on steroids. The virus is far less deadly, but far more transmissible than we originally thought resulting in herd immunity that is more significant than the lockdown. In fact the lockdown has been more costly than the benefits gained. We have devastated much of our economy for nothing.

    I don’t blame government for everything. They are just responding to the public as they are supposed to do. And a 50% decline in revenue without a government shutdown, as opposed to a 100% decline in revenue with a government shutdown, has pretty much the same result for a business.

    So much of what has happened was inevitable. The question is where do we go from here? This data is only now becoming clear, and it is not certain, but do we double down on a mistake? I don’t think so.

    1. baffling

      “I think we’ve been had. The expert models have been way off, by magnitudes of 000’s”
      sammy, first quick thinking. you only hurt yourself and others when you attempt that feat. and the models have not been off by orders of magnitudes. the difference is the models reinforced the need to shut down and socially separate. the models were correct. if we had not done so, then the predictions given in the models would have come to fruition. it is disingenuous to make the argument you are making, where you take the benefit of shutdowns and social distancing, while at the same time denouncing them as hysteria. very disingenuous, but that is what i expect from folks like you, corev, bruce and rick.

      “The virus is far less deadly, but far more transmissible than we originally thought ”
      this is false. can you provide some data to back this up? real data. and speaking of herd immunity, check out your favorite scandinavian country, sweden. yes they are reaching herd immunity, but they are DECIMATING their elderly population in the process. it is really a poor example, if you try to use it as your defense.

      “We have devastated much of our economy for nothing.”
      once again false. apparently you and i must have a different value placed on life. i do find it odd how many pro-lifers have displayed such little value for the elderly in america today. seriously, you need to reconsider your ideologies sammy.

      sammy, if folks like you and trump had taken the virus seriously from the very beginning, the impact would have been far less severe. but you chose to ignore it. you wanted nothing to do with testing, because that would admit the seriousness of the situation. look, we are nearing the end of april and our testing capabilities are still ABYSMAL. the first death occurred in california in early february, meaning the virus was in community spread in january. look at the time you wasted arguing first against the seriousness of the virus while sitting on your hands developing a testing capacity. sammy, as i commented above, you have not gotten ANYTHING right about the virus thus far, so why continue to spread false innuendo and information? is your goal to continue the illness and death of fellow americans?

      1. noneconomist

        Sammy is on board with Dr.Oz’s “appetizing “ death rate of 2-3 percent. As, of course, are other confirmed Trump pro-lifers who consider life begins at conception and might end when it gets in the way of profits with special attention paid to oldsters who should be willing to lay down their lives to make sure a falling Dow does not threaten Trump’s chance of re-election.

        1. pgl

          Let’s say all of us caught COVID-19 but only 1% of us ended up dying. That would be over 3 million deaths. Of course for Trump sycophants like Sammy 3 million deaths is a small price to pay to reelect the worst President we have ever had. MAGA!

    2. 2slugbaits

      sammy We can always count on you for the views of the typical uninformed Fox Noise viewer.

      I won’t repeat baffling‘s entirely correct points about your not understanding the difference between conditional and unconditional forecasts. I suspect you have a dirt job, so perhaps you aren’t familiar with the proper way to understand models. Models aren’t things that you have had any experience with, so I guess we should be generous in our critiques.

      As I write this the US has had 837,947 confirmed cases, with 46,560 deaths. So the mortality rate is something like 5.5%. Now it’s entirely possible that there are a lot more unconfirmed cases that would lower this mortality rate, but without more testing we have know way of knowing for sure. Also, of those 837,947 confirmed cases, only 77,175 have recovered. That tells us two things. First, it tells us that we still don’t know the final status of 837,947 – 46,560 – 77,175 = 714,212 people who are still in the recovering stage. Not all of them will survive. The second thing this tells us is that it takes a VERY long time to recover from COVID-19. About 90% of the people who were infected and haven’t (yet) died are still recovering. It takes weeks and months to recover. Case in point. My sister and her husband live in Paris (her husband is a bigshot with the OECD). They came down with COVID-19 almost six weeks ago and they are still suffering. They never had to go to the hospital, but the pain and fatigue were like nothing they’ve ever experienced before. And they still haven’t fully recovered. You might not be impressed by the number of deaths from COVID-19, but you should be impressed by the physical toll it takes on the body. It leaves survivors with permanent heart damage, and liver damage and kidney damage. It induces blood clots. It blows out a person’s lungs. And those are the lucky ones who survive. Have you accounted for lost productivity due to the lasting effects of the virus in your “economic analysis”? I doubt it.

      One of the big stories in the news today was how Tyson’s had to shut down it’s Waterloo, IA hog processing plant. The governor and Tyson’s resisted closing the plant despite pleas from local leaders. What finally shut down the plant was that hundreds of employees came down sick and a few thousand refused to come to work because of the risks. Just because a business is open doesn’t mean people will come to work. And workers won’t trust the company. You need government to guarantee a safe workplace, and that means having the courage to order shutdowns when working conditions are not safe. That’s a lesson you don’t seem to have learned.

      You mentioned herd immunity. We have no proof that there is any such thing with COVID-19. Anecdotal evidence suggests that only people with heavy viral loads who developed serious symptoms are the ones who are developing robust anti-bodies. It’s entirely possible that if you were lucky enough to have only mild symptoms then you were probably unlucky in developing any immunity. And even if you did, it might not last more that a few months. I wouldn’t want to bet the farm on “herd immunity” as the way to go. Britain tried that route and it didn’t end well.

      The question is where do we go from here?

      Now here you’ve asked an intelligent question. To begin with, we need to removed Trump from office. I don’t like Pence, but there seems to be unanimous agreement among the governors that Pence is at least competent. It would also be helpful if the President followed his own Administration’s guidelines. And not firing experts because they don’t agree with Trump’s hydroxychloroquine fantasies would be a good idea as well. The next step would be to layout (but don’t yet execute) plans for reopening essential businesses. That’s something that should be done at the state or regional level. The proper tool for doing that kind of economic analysis would be the BEA’s RIMSII Leontief I/O model:
      You need this kind of approach to understand the relationship between upstream and downstream intermediate outputs.

        1. pgl

          “I believe this transfer was in response to my insistence that the government invest the billions of dollars allocated by Congress to address the Covid-19 pandemic into safe and scientifically vetted solutions, and not in drugs, vaccines and other technologies that lack scientific merit,” Bright said in a lengthy statement issued Wednesday. “I am speaking out because to combat this deadly virus, science — not politics or cronyism — has to lead the way.”

          It was the kind of honesty that people like Bruce Hall ridiculed. Of course Brucie boy has decided to disappear now that his BS is being rightfully ridiculed.

    3. pgl

      “The virus is far less deadly, but far more transmissible than we originally thought”

      Your boy Trump told us originally that only 15 Americans would catch COVID-19 and we would see only one death. How accurate was that Sammy? BTW – those original dire predictions were base on Americans following Trump’s lead not to socially distance. The good news you mention is because most of us were smart enough not to listen to the Idiot in Chief.

    4. Ulenspiegel

      “The expert models have been way off, by magnitudes of 000’s and the resulting hysteria has been fanned by the media.”

      So many mistakes in one short sentence. Respect. You are a natural?

  12. Andy Powell

    Thanks for this post, I wrote a small contribution here
    My question is, I see liquidty in WTI down which is hardly surprising and I guess its becoming less useful as a reference price, I haven’t checked the volumes but I guess Brent will become yet more dominant, if there is much gaming around the settlement dates given the lack of storage availability, shouldn’t the delivery conditions be revised? Would be great to get your take.

  13. Erik Poole

    “You could plan on storing the oil that month and selling in August at a guaranteed price of $28.51.”

    Is that future price actually “guaranteed” or simply expected?

    1. James_Hamilton Post author

      Erik Poole: It’s guaranteed. When you sell the contract and hold it to expiry, the outstanding counterparty to your contract at expiry is legally obligated to receive 1000 barrels of oil from you in Cushing in August and legally obligated to pay you $28,510 for the delivery at that time.

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