On April 21, the price of Western Canadian Select oil dipped into the negative.
That’s right, the price of oil, one of the biggest commodities in Canada, was so low that companies were having to pay people to take it.
That is terrifying.
Technically, the price was for the May contract, which essentially is a promise to buy and store a certain amount of oil for the month. With demand at a low due to the COVID-19 pandemic, reservoirs around the world are filling up and there is nowhere to put the stuff. To avoid being stuck with a month’s worth of oil and nowhere to put it, some investors were forced to pay to get out of their contracts.
The price of Western Canadian Select, which is mostly made up of oil sands product and is considered the benchmark for Canadian oil, dipped into the negative on the day before the contracts were finalized, and jumped back up soon after. But just as quickly, it has fallen to roughly $1.50 per barrel.
Goldman Sachs analysts have forecast that global storage could hit its limit by mid-May. OPEC is cutting production by 10 per cent, or roughly 10 million barrels per day. But Goldman Sachs analysts say they project demand will be down 18 million barrels per day, which still leaves the world with a storage issue. Even with pipelines and ways for Canadian oil to get to market, there just isn’t anywhere for it to go.
While I am not an economist and I know there are other factors in the oil prices, the thought of them being less than zero was enough for me to take notice.
I grew up in an oilfield household, and many of the privileges I enjoyed as a kid were thanks to the industry. However, with the rapid changes in our world brought on by COVID-19 and the spectre of climate change still looming overhead, I think it is time that we seriously reconsider and start moving away from our dependence on oil. This change can be gradual, but it has to happen.
Building an economy on a resource that is finite and subject to such drastic fluctuations is risky. While I believe in and stand for all of the environmental reasons to oppose oil development and investment in a dying industry, these days the economic reasons are just as strong. The price of oil is subject to human forces. It does not fare well in a crisis, and crises are going to be more and more common in our future.
This crisis has also shown us that we do not need to be as dependent on oil to survive. We have spent over a month driving less, using active and alternative transportation, working from home, buying local and growing our own food. Now what we need to do is look at alternatives, invest in those industries the way we have with oil, and hire the workers who have lost their jobs due to this crisis.
I am grateful for the privileges I had when I was a kid, and I recognize that it had advantages that may not have been accessible to others. I also know that the world has changed. Things are uncertain now, and the structures that were once considered robust and unchanging are cracking and failing. The price of oil is dependent on demand, and can the fluctuations we’ve seen in the last weeks show that it is not as stable as we once thought?
My children may not have access to those privileges, and when this is all over I want them to know that when we saw a system that was outdated, we decided to find something new.