--:-- [Theme music fades out]
--:-- Sean Rameswaram: It's Monday, April 27th, and Boris Johnson is back at work. I'm Sean Rameswaram, and this is your coronavirus update from Today Explained.
--:-- Sean Rameswaram: Bojo has fully resumed his post as Prime Minister of the United Kingdom. First up for Boris, dealing with the lockdown, a bunch of MPs want to reopen. Boris is saying, hold your horses, speaking outside 10 Downing Street. He said today, I know it is tough, and I want to get this economy moving, as fast as I can, but I refuse to throw away all the effort and the sacrifice of the British people and to risk a second major outbreak and huge loss of life and the overwhelming of the NHS.
--:-- Sean Rameswaram: Way down under in New Zealand, they're saying they've managed to stop community transmission of COVID-19 with new cases in the single digits. Prime Minister Jacinda Ardern said the virus was currently eliminated. Starting Tuesday, some non-essential business will resume in the country, but most people will still be required to remain at home and avoid social gatherings.
--:-- Sean Rameswaram: We are opening up the economy, but we're not opening up people's social lives, Ardern said at her daily briefing. Meanwhile, in the United States of America, states are easing lockdown restrictions, even though we have the most confirmed cases and deaths of any country in the world, and by all accounts, nowhere near enough.
--:-- Sean Rameswaram: In the Golden State, where the weather has already turned, Governor Gavin Newsom reminded Californians to stay at home and practice social distancing after a weekend of packed beaches in Southern California. He said this virus doesn't go home because it's a beautiful, sunny day around our coasts.
--:-- Sean Rameswaram: And not even an hour after the federal government started accepting new loan applications from small businesses today, the website crashed. You can get in touch with Today Explained, email todayexplained at vox.com or tweet at us. We're at today underscore explained. I'm at Ramis Firm.
--:-- Sean Rameswaram: We also have a listener voicemail line. The math is 202-688-5944. Support for this show comes from ServiceNow. AI is only as powerful as the platform it's built into, don't you know? That's why it's no surprise that more than 85% of the Fortune 500 use the ServiceNow AI platform.
--:-- Sean Rameswaram: David Roberts, you cover climate and energy for Vox. And last week, a lot of our listeners were hitting us up and saying they had a question about one particular aspect of energy and how it works in this country. And that question was, how does oil work?
--:-- David Roberts: The main thing to know about oil is it's traded on a global market. So global prices are our prices, our prices are global prices. And it is traded on a global market through two kinds of markets. One is called a spot market, which is what you get on if you want actual oil, like if you want physical oil delivered to you quickly.
--:-- David Roberts: And then there are several what are called futures markets, which are familiar to anybody who sort of follows commodities, commodities trading, which is just kind of you're making a bet on what the future price of oil will be.
--:-- David Roberts: And what happened last week is people started concluding that the future price of oil was extremely low. So these futures contracts you buy, especially on a short term on a day to day market, which is what people were following last week, you buy and sell these futures contracts throughout the month.
--:-- David Roberts: And then at the end of the month, they come due, which means if you're holding some of these, you get the oil delivered to you. And most of the people participating in these futures markets don't want actual oil and don't have the capacity to store a bunch of oil.
--:-- David Roberts: They're just kind of speculators and traders that, you know, that are that are common in every market. So what happens is at the end of a month, when these contracts are going to come due, all these people who have bought futures have to sell them and get rid of them, lest they find themselves the recipient of thousands of barrels of oil.
--:-- David Roberts: What a system. The problem is last week, everybody had concluded that the future price of oil was basically zero. So no one wanted to buy a bunch of futures, but the contracts were coming up.
--:-- David Roberts: And so what you had is a whole bunch of oil traders who were in dire threat of getting stuck with actual oil, which they don't want. So they're all at the end of the month trying to get rid of their futures. They're trying to sell these oil futures.
--:-- David Roberts: And all of a sudden everybody who had any of them was trying to sell them So the price went down and down and down below zero The most extraordinary development that took place today when the U main blend, West Texas Intermediate, fell more than 306 percent.
--:-- David Roberts: You see it on the screen. It is negative $37.63 a barrel. In other words, there were a lot of oil traders who were saying, listen, I can't accept delivery of a bunch of oil. Someone's got to buy these. I will literally pay you to take them off my hands.
--:-- David Roberts: I can't get stuck with oil. So I got to get rid of the futures. So I'll pay you to take my oil futures. That's what a negative price is. It's not that you can just go to the gas station and they'll pay you to fill up or anything like that.
--:-- David Roberts: This is just futures, in a sense, an artifact of the futures market that you can go below zero. And that's just, nobody wants to get stuck holding the bag at the end of it. So everybody was furiously trying to get rid of their oil futures.
--:-- David Roberts: And that's how you get negative $37 oil prices, which are unprecedented as far as I know in all of world history. It's never happened. It has never happened.
--:-- David Roberts: And if you told someone even a month ago that it was even a possibility, you would have been laughed out of the room. It is utterly mind-boggling and unprecedented and novel and crazy.
--:-- Sean Rameswaram: Okay. That was a pretty good explanation of what happened. We're still going to keep talking, though, because something happened the next day where they just kind of came right back, right? They went positive.
--:-- David Roberts: After a volatile trading session, oil jumped 40% at its high. The U.S. benchmark West Texas intermediate rose 19% and closed at $13.78 per barrel.
--:-- Sean Rameswaram: It's funny that that's the bar where we've set now. Is it above zero?
--:-- David Roberts: But what happens is the futures contracts kind of reset at the end of the month. So they kind of started the monthly cycle over again. So you no longer had a bunch of people frantic to get rid of them. So the price rebounded.
--:-- Sean Rameswaram: But let's keep in mind that when we say rebound, what we mean is that it got back up to like $10. And even three or four months ago, oil was trading at roughly $70 a barrel.
--:-- David Roberts: And even at $70 a barrel, there was constant discussion among oil types about persistent low prices and about how those low prices were putting immense pressure on various producers.
--:-- David Roberts: So it's not like 70 was great for them, but now it's trading at 10 now. And who knows how it's going to bounce around, but it's definitely not going to bounce back up to 70.
--:-- David Roberts: And the longer it stays low, the more pain the industry feels. And the pain is due to the coronavirus? Well, it's kind of a perfect storm situation.
--:-- David Roberts: Going into the coronavirus, like months ago, feels like decades, but months ago, before the coronavirus was a big deal, already the oil and gas industry was facing several structural problems, one of which was persistent oversupply, which was producing persistent low prices.
--:-- David Roberts: So low prices were already a problem going into this. Also, more and more financial institutions have been turning away from oil and gas.
--:-- David Roberts: So your big investment banks and investment groups have been making various pledges to decarbonize their investment portfolio. So a lot of them are just pulling completely out of coal plant investments, for instance, or reducing their exposure to oil and gas.
--:-- David Roberts: And part of that is because governments and the world is taking climate change seriously. And public pressure is beginning to mount and political pressure is beginning to mount and people are beginning to turn away from fossil fuels for climate-related reasons.
--:-- David Roberts: And even the financial institutions that don't care about climate definitely care that other people care about climate, right? That's a risk. If people are turning against oil and gas, that's a risk.
--:-- David Roberts: So financial institutions were turning away from oil and gas, withdrawing their investments. Meanwhile, transportation is 70% of global petroleum demand.
--:-- David Roberts: It's the biggest use of oil in the world is getting around in planes and trains and automobiles. And what's been happening is that the price of renewable energy is falling super quickly and electric vehicles are scaling up and getting cheaper super quickly.
--:-- David Roberts: And so a lot of analysts are saying, look, the economics of using oil to make gas and diesel to run vehicles relative to the economics of using clean electricity to power electric vehicles are just cratering permanently.
--:-- David Roberts: Like they're on permanent structural decline. Clean power-fueled electric vehicles are on an inexorable rise. and it's happening faster than anybody thought it was.
--:-- Sean Rameswaram: So that's another giant vulnerability for oil and gas that was sort of exploding in its face before the virus even showed up.
--:-- David Roberts: And thirdly, a lot of these companies have been paying out more in shareholder distributions and executive packages than they have been making in cashflow, in revenue.
--:-- David Roberts: And they've been covering that difference with debt, Like Exxon for instance And that true especially in the companies that are focused on shale gas fracking gas in the U notoriously debt sector
--:-- Sean Rameswaram: And now we've got this oversupply. We've got demand declining. We've got your ability to store it somewhere declining. Prices declining. And now all that debt is coming due to those companies.
--:-- David Roberts: All that was happening before the virus showed up. So when the virus showed up, it basically shut down global demand, specifically transportation, especially transportation.
--:-- David Roberts: No one's moving. That just hyper accelerated all the negative trends that were already bedeviling this industry, like really violently accelerated them.
--:-- Sean Rameswaram: More with David after a break.
--:-- Sean Rameswaram: Support for Today Explained comes from Chime. Nobody likes fees and complicated banking, says Chime. And Chime gets that, says Chime. Chime is a financial technology company that says they understand that every dollar counts.
--:-- Sean Rameswaram: So when you set up direct deposit through Chime, they say you get access to fee-free features, such as free overdraft coverage, getting paid up to two days early with direct deposit, so much more.
--:-- Sean Rameswaram: Chime says with qualifying direct deposits, you can be eligible for free overdraft up to $200 on debit card purchases and cash withdrawals. Plus, they say you don't need to worry about monthly fees or maintenance fees.
--:-- Sean Rameswaram: You can work on your financial goals through Chime today. You can open an account in two minutes at Chime.com slash explained.
--:-- Sean Rameswaram: That's Chime.com slash explained. Chime feels like progress. Chime is a financial technology company, not a bank. Banking services and debit card provided by the Bancor Bank N.A. or Stride Bank N.A. Members FDIC.
--:-- Sean Rameswaram: Spot me eligibility requirements and overdraft limits apply. Timing depends on submission of payment file. Fees apply at out-of-network ATMs.
--:-- Sean Rameswaram: Bank ranking and number of ATMs according to U.S. News and World Report 2023. Time checking account required.
--:-- Sean Rameswaram: Support for the show comes from Charles Schwab. At Schwab, how you invest is your choice, not theirs.
--:-- Sean Rameswaram: That's why when it comes to managing your wealth, Schwab gives you more choices. You can invest and trade on your own. Plus, get advice and more comprehensive wealth solutions to help meet your unique needs.
--:-- Sean Rameswaram: With award-winning service, low costs, and transparent advice, you can manage your wealth your way at Schwab. Visit schwab.com to learn more.
--:-- Sean Rameswaram: So after oil went negative last week, President Trump tweeted, of course, that he will never let the oil and gas industry, the great United States oil and gas industry, suffer.
--:-- David Roberts: What's his plan to save it right now? So, I mean, there's a couple of things Trump could do. He can fill up the Strategic Petroleum Reserve, which he's close to doing.
--:-- David Roberts: He can give them access to this giant small business loan fund that's been created by Congress. Yes, he can relax pollution regulations, which he is doing at a furious pace, relax regulations across the board.
--:-- David Roberts: But all of those in the end are fairly marginal. Trump does not have a tool. No national government has a tool large enough to be more than a rounding error on the scale of the catastrophe that is facing the oil and gas industry.
--:-- Sean Rameswaram: So, I mean, even if the oil and gas industry had a whole coterie of world leaders devoted to serving it, as it in fact does, it's just not clear that they can do much.
--:-- David Roberts: Like, for instance, Trump organized this deal between Saudi Arabia and Russia. I just spoke with the president of Russia, Vladimir Putin, and the king of Saudi Arabia, King Solomon. And we had a big talk as to oil production and OPEC and making it so that our industry does well and the oil industry does better than it's doing right now.
--:-- David Roberts: Russia and Saudi Arabia used to be the top oil and gas producers in the world a decade ago. oil from the U.S. Oil and shale gas from the U.S. have made the U.S. number one over the last decade.
--:-- David Roberts: Even before the coronavirus, Russia and Saudi Arabia were in this price war, each cutting the price of their oil, trying to undercut the other, which of course results in low global prices, which hurt everyone.
--:-- Sean Rameswaram: There's this terrible cycle that only got accelerated by the virus.
--:-- David Roberts: So like Trump comes in and organizes this deal between them. President Trump tweeting that the oil markets are going to see a huge cut in output.
--:-- David Roberts: He says, quote, just spoke to my friend MBS, the crown prince over in Saudi Arabia, who spoke with President Putin of Russia. And I expect and hope that they will be cutting back approximately 10 million barrels a day and maybe substantially more.
--:-- Sean Rameswaram: Well, I mean, the difference between supply and demand is something like 30 million barrels a day, even today.
--:-- David Roberts: So it's just like, even that is a drop in the bucket, but it's just not clear that he's got the tools or that any government has the tools to substantially affect this, what is an enormous title force that across the world now
--:-- Sean Rameswaram: Sounds like a great opportunity for a Green New Deal David
--:-- David Roberts: Oh what an interesting idea Sean
--:-- David Roberts: It interesting that you would think of that You know, the broad theme here is the economy is shut down. So why not, when it restarts, fix some of the parts of it that aren't working so well?
--:-- David Roberts: We should restart the economy in as clean a way as possible. Now that air pollution's down and greenhouse gases are down, and you're seeing all these pictures from all over the world of like in India, they're like, oh my God, we can see the Himalayas.
--:-- David Roberts: The Himalayas are still there. All these people around the world discovering the joys of clean air. And there's been all this new research over the last decade, which I know Vox has written a ton about, of how air pollution is so much worse, so much more pervasive and so much worse for health than we had even known.
--:-- David Roberts: So the benefits of reducing air pollution just are getting bigger and bigger. And here we are with like a whole bunch of air pollution gone. Let's try to come back in a way that doesn't just resume all our old polluting activities.
--:-- David Roberts: Let's try to sort of push electric vehicles. Let's push renewables. Let's push teleworking and working remotely. Let's all these business people now who are figuring out how to do business without flying multiple times a week, let's try to like encourage that and cement that in place and incentivize that.
--:-- David Roberts: Let's try to, when we bring the economy back, let's bring back a cleaner economy. That, I think, makes sense to people, and it is occurring to governments across the world, and lots of them are doing lots of stuff along those lines.
--:-- David Roberts: Typically, what happens when recessions end, if you look back at history, greenhouse gases and pollution fall during a recession and then tend to roar back even to higher levels than previously when the economy recovers.
--:-- David Roberts: Presumably, we don't want that to happen. So good policy, some foresight and good policy could prevent that from happening. It's a golden and very obvious opportunity.
--:-- David Roberts: But will that happen? Unfortunately, the country today is run by people who are clinging to the past socially, economically, rhetorically, demographically, choose your adverb.
--:-- David Roberts: And one of the ways they're clinging to the past is clinging to fossil fuels. They're very committed to fossil fuels.
--:-- David Roberts: So, I mean, the situation you have is a large scale structural global transition underway from fossil fuels to clean energy.
--:-- David Roberts: And I think almost every serious analyst will tell you now, The transition is happening. It is inexorable. It is unstoppable. The only question now is how fast? How fast are we going to do it?
--:-- David Roberts: How much more pollution are we going to put out into the air before we do this? Like how many more people are going to die of respiratory illnesses before we do this?
--:-- David Roberts: How fast will it happen? And so what Trump and Republicans are doing with their sort of frantic efforts to subsidize fossil fuels and release them and deregulate them is at best slow this transition in the U.S. such that other countries leap ahead of us and capture these industries that we know are going to be the growth industries of the 21st century.
--:-- David Roberts: We know that renewable energy and clean tech and clean home energy appliances and smart grid technology and smart EVs and smart batteries, just like the whole scheme of clean energy technologies are all poised for enormous growth throughout this century.
--:-- David Roberts: And some countries are going to be smart enough to use this big economic pause to grab onto them and to accelerate them and to dominate them.
--:-- David Roberts: And all we're going to do by delaying that transition is let a few more people die from pollution, let climate change get a little bit worse, slow the transition, and fall behind in the dominant industries of the 21st century.
--:-- David Roberts: There's no long-term plan. The future is going to happen, right? You're either going to walk into it eyes open, or you're going to do what the U.S. is currently doing, which is flail about wildly with a blindfold over your eyes as, like, events come and smack you upside the head.
--:-- Sean Rameswaram: Well, when those eyes open, we'll call you up to explain the best path forward.
--:-- Sean Rameswaram: All right. Thanks, David.
--:-- David Roberts: Thank you, Sean.
--:-- Sean Rameswaram: Support for this show comes from Macy's. Fall is right around the corner, and that means layering season is too. Macy's Fall Fashion Guide can help you get a pulse on all the latest trends and must-haves.
--:-- Sean Rameswaram: Try a romantic look with a sheer top from INC. Or mix it up with some fun textures, like a faux fur bomber jacket from Karl Lagerfeld Paris.
--:-- Sean Rameswaram: No matter your vibe, you can explore the Macy's Fall Fashion Guide and find the perfect look for you. Shop in-store or online at nacy's.com.
--:-- [Theme music starts playing]
