This morning, when you see this headline appearing everywhere…
…the first thought that comes to you is probably this:
So now petrol is going to be $0? Wah the COVID-19 effect so bad arh?
Before you go to Shell and ask for a bottle of free oil, hold your horses.
Firstly, you need to understand what the US Oil Price is.
Oil and Oil Prices
You probably know that many years ago, crude oil is essential for our daily lives.
We need them to fuel our vehicles, some places need them to create electricity and they’re also used in the production of many things.
In other words, crude oil is as important as Instagram to an influencer: without it, the world can’t survive.
Crude oil, however, doesn’t fall from the sky: it comes from the ground. Literally.
They’re found underground and is extracted through drilling, and it’s not like you can just anyhowly find a spot to drill; you need to look for a place known as oil field as the oil are trapped beneath the surface.
If you’d have watched enough news, you’d know that Saudi Arabia is rich mainly because they’ve a lot of oil fields—the country exports about 10.6 billion barrels of oil a day.
However, in recent years, the demand for oil has decreased as technology advancements lead to less reliance on oil: cars can be driven by electricity and induction cookers are now standard in many houses.
That led to a drop in the oil prices…until 2020 hit, whereby the drop became much more drastic.
Here, take a look:
The reason for the sudden drop?
People aren’t leaving their houses, so less petrol is needed.
But that still doesn’t explain why people are saying the US oil prices have dropped to USD$0 and even below—after all, even if demand for bubble tea has dropped, it won’t lead to a $0 bubble tea, right?
Right.
Because the term is used for oil traders and not for laymen like us.
Trading at USD$0, Not Sold at USD$0
You see, to get the oil from some remote drilling station to your Mercedes C200, it goes through many middlemen.
It’s produced, sold from one place to another who then sold it to a Singapore distributor who then sold it to Shell who then sold it to you.
And unlike bubble tea, these middlemen bought the oil way in advance so that they’d never run out of stock.
To quote an example, let’s use a bubble tea example: you bought 10 cups of bubble tea at $5 each, which means you’d have paid $50 for it.
You then want to sell it to a friend who used to be willing to buy it for $55.
But all of a sudden, your friend isn’t willing to buy it at $55; he’d only buy it at $50.
He said, “Take it or leave it.”
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So you’re, erm, now trading it at $0.
Same goes for oil, although it’s much, much more massive, and definitely much more essential than bubble tea.
This only happens in the US, but lest you’re not aware, US is the fourth largest exporter of crude oil in the world, exporting about 3.77 million of barrels a day.
But why can’t you just store the oil and not sell them? Sell them when there’s demand lah.
The same problem occurs with your bubble tea; while the main issue with bubble tea is that the boba pearls would become peanuts, the issue over in the US is that they don’t have enough storage space; so either they die-die have to sell it at a loss.
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What It Means for Us, the Consumers
If you understand everything, you’d think that petrol prices are going to plummet.
However, an expert told us not to bet on it. Tom Kloza, a veteran analyst with Oil Price Information Services, said, “We’ll continue to see gasoline prices, diesel prices and jet fuel prices drift lower into May but one shouldn’t conclude that we’re going to see fuel given away or that we’re going to match these incredible, unprecedented drops we saw in crude oil today.”
So there might be a little drop but you most probably won’t see the effect.
However, it’d help airlines because airplanes need lots of fuel to fly, but of course the question is: even if they can fly, where are they going?
The goody thing is that this issue actually started quite a while back; the reason why it’s now trading at USD$0 or even less is because the oil production companies finally have no place to store their oil, so they die-die have to sell them off.
This means in the near future, we might be seeing lower prices for our petrol for quite a while.
Reader Bao: You got car meh?
Maybe bus companies would reduce the fares? Why know.
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In the meantime, since you’re most probably at home wondering whether petrol stations have now become a ghost town, take this time to binge-watch our YouTube videos lah, and remember to subscribe. Here’s one for you:
