Oil Prices Go Negative; Gasoline Prices Can’t Follow

So I get done writing up a plan for Governor Noem to pay landowners to relieve the glut of unsellable pigs, and the next thing I read is that traders yesterday were willing to pay us to take excess oil off their hands:

The dramatic collapse in worldwide demand for oil led to an extraordinary development on Monday: U.S. oil prices fell below zero for the first time ever, and kept falling.

The key U.S. oil benchmark, West Texas Intermediate, settled at negative $37.63.

Driven by a trading contract deadline, traders desperately looked for buyers for the barrels of oil they normally hold in their books. But buyers were hard to find — even when the oil was being given away for free.

So some traders, instead of paying to buy oil, were ready to pay as much as $37.63 to get someone to accept delivery of one barrel of oil [Camila Comonoske, “Free Fall: Oil Prices Go Negative,” NPR: All Things Considered, 2020.04.20].

Boy, if those negative prices could trickle down to the gas pump, my wife and I would be happy to take about 26 gallons off the glutted market’s hands for a small fee. (Of course, I haven’t driven my car for over a week, so I don’t know what I’d do with any gasoline, let alone a barrel of unsellable oil.)

But no, Cenex and Casey’s won’t have to repurpose hyphens to invert their price signs. Yesterday’s negative oil prices were a product of unusual market conditions that can’t put gasoline in our tanks for free:

Crude is not the best predictor of retail gasoline price. Instead, wholesale gasoline prices that determine what gas stations will pay for gasoline. And gasoline futures did not have the same wild swing Monday, closing down only a few cents at about 67 cents a gallon. That’s actually close to twice the price they were trading at just last week.

…Once you’ve factored in the cost of wholesale gasoline, there are all the other costs that go into the price you pay at the pump.

The US Energy Information Administration estimates that in 2019, when the full-year average stood at $2.60 a gallon, the average transportation and marketing cost was about 39 cents per gallon of gas. Refining costs and profits added another 34 cents on average.With the volume of gasoline pumped falling by a half or more, many station owners are increasing the profit margin they charge on each gallon by a few cents to make up for the sharp drop in demand [Chris Isidore, “What Does It Mean When Oil Prices Go Negative? No, It Doesn’t Mean the Gas Station Will Pay You to Fill Up,” CNN, 2020.04.21].

But don’t let Kristi Noem hear anything about this oil glut. If she had her way, she’d suspend environmental regulations and let oil companies spill all that oil without any penalty.