Gas prices have been dropping at the pump, but in stunning news crude oil prices fell into red figures for the first time ever on Monday, the CBC reported. The May future’s price for West Texas Intermediate (WTI) crude hit -$37 a barrel, the result of the coronavirus and international politics.
Alberta’s tar sands crude comes with higher transportation and refining costs, so it typically sells for less than the WTI benchmark. It, too, was effectively in negative numbers.
Saying a barrel of oil has a negative price is confusing. What it means is that investors who bought oil futures to be delivered in May are now stuck with oil they can’t sell and face extra costs.
Currently, there’s so much surplus oil it’s taking up available storage spaces. the CBC explained,
… so some producers have taken to storing their excess oil at sea, renting tankers to float aimlessly to store the crude until a higher price or buyer can be found. Rates for the biggest oil tankers have soared as producers scramble to secure space to keep the crude they don’t know what else to do with.
This matters because Enbridge hopes to start building its Line 3 tar sands crude oil pipeline through northern Minnesota sometime this summer. The project endangers some of our state’s cleanest waters and it’s unnecessary. During Line 3’s review, well before the pandemic, the Minnesota Department of Commerce concluded that Enbridge failed to prove the pipeline was needed. Inexplicably, it continues to move ahead.
The Canadian tar sands oil industry faced problems before the coronavirus hit. The CBC ran a story Sept. 17, 2018 headlined: The great oilsands era is over: Fort McMurray was once the second coming of the Klondike. Now, this oil town must adjust to the end of the boom.
Between 2014 and 2017, oilsands investment fell 45 percent, according to IHS, and capital spending by companies will drop below $10 billion this year — the first time that has happened since 2004.
It’s no longer the force it once was for the Canadian economy.
Pipeline resisters can take some credit. The 2018 story attributed declining investment in tar sands crude to “the lack of new oil export pipelines,” as well as weak (pre-epidemic) oil prices and increased U.S. crude oil production.
On Feb. 12, the New York Times ran the story: Global Financial Giants Swear Off Funding an Especially Dirty Fuel, reporting that some of the world’s largest financial institutions have stopped investing in oil projects in Alberta, “home to one of the world’s most extensive, and also dirtiest, oil reserves.”
The financial retreat from tar sands crude had nothing to do with the pandemic. Banks, pension funds, and global investment houses are divesting from fossil-fuels “amid growing pressure to show they are doing something to fight climate change,” the story said.
The coronavirus contributed significantly to dramatic oil price plunge. Adding to the problem, Russia and Saudi Arabia got into a dispute over oil production cuts. The two oil giants started flooding the market with oil, dropping prices further. President Trump intervened and got both sides to agree to production limits. Yet, “the cut falls far short of what is needed to bring oil production in line with demand,” the New York Times reported April 12.
Analysts expect oil prices, which soared above $100 a barrel only six years ago, to remain below $40 for the foreseeable future. The American oil benchmark price was just over $23 a barrel on Sunday night.
Oil analyst Bjarne Schieldrop told the CBC that current prices will force many producers to halt production. It’s “happening at high speed and in an unorderly fashion,” he said. “This is creating damage to production and some of it will never come back online again.”
As state regulators continue to review the Enbridge Line 3 proposal, they should give significant weight to this new reality.