This week, oil futures fell below $0 per barrel. What happened? What is Canada’s plan for helping the industry at home, and will it be effective?
We put these questions to Professor Jatin Nathwani, Executive Director of the Waterloo Institute for Sustainable Energy.
Originally published by the University of Waterloo.
THURSDAY, APRIL 23, 2020
To see Professor Nathwani answering, click here.
What is happening in the global energy market? Why are we seeing oil prices below $0 per barrel?
Global energy markets are in turmoil for two reasons: a dramatic drop in demand because large parts of the global economy are in a 'lockdown' and the second reason, in simple terms, is that we are in a global recession.
The reason we are seeing oil for less than $0 per barrel is an artifact of the contracts held by buyers and how oil is traded on the international market. If you are holding a contact to buy at a certain price and there are no buyers or no storage capacity - which there isn’t - then you try to download the contract at any price before you have to take delivery, including $0.
How will this crash in prices affect Canadians?
The crash in prices will have a large benefit for consumers in the form of cheaper gas. But it will have a very large negative impact on producers, to the point that it may put a number of oil producers out of business, with the attendant loss of jobs and serious economic stress on communities that are dependent on the sector.
How will economic aid from the federal government affect the Canadian industry? Will it help workers being laid off?
Economic aid will deal with the important problem of old oil wells and environmental restoration. That is the positive aspect and it also provides employment for the workers who are laid off because of the downturn in the economy.
Whether or not federal government action will be enough to help every worker who is laid off is unclear.
The University of Waterloo has a number of experts available for comment on various aspects of the COVID-19 pandemic, click here to see the up-to-date list.