Negative Oil Is Positive for Clean Power

One word explains oil’s recent crash to negative prices: inertia. Those barrels in the pipeline, and the forces that put them there, don’t respond quickly to sudden change. Supertanker symbolism aside, that matters in a real way for a defining competition of the energy transition: oil versus electricity. Investors paid to offload their oil futures on April 20 because they couldn’t take physical delivery of the barrels. Oil is toxic; bring some home and it could kill you. If tanks aren’t available or too expensive — because, say, a pandemic has led to a rush of spare barrels into storage — then you’ll pay someone to take it.

Less than a month on, oil continues to back up in the system, and price signals are starting to do their job: forcing wells to shut in. There’s an inherent lag to this. Producers are reluctant, fearing a well may never flow properly again. Corporate structures built atop the well, ranging from contracted pipeline space to debt covenants, also encourage keeping the flow going.

Advertising