US crude oil plummets below $0 due to continuous drop in demand

Oil prices in the US have plunged to less than a penny's worth yesterday as demand continues to drop due to the global coronavirus pandemic. The huge drop in oil and oil products is largely due to lowered demand as a result of lockdown protocols being imposed in many US cities.

With a lockdown, obviously, people are not using their vehicles. The few times they do are just for quick runs into the grocery, which don't consume that much. 

Oil producers are now faced with an oversupply and are now running short on storage space for their products. It's costing more to keep the oil, but transporting or selling it elsewhere has also been made more difficult because of the pandemic and its effects on global trade. 

Does that mean gas stations will pay us to fill our tanks?

So, are we getting free gas now? image

While world prices of crude oil may also be affected, possibly going into negative, we're not likely going to be paid just to fill up our tanks. The actual pump price (retail) of gasoline and diesel, are determined by a lot of factors.

Before the COVID-19 outbreak, which forced many governments to impose a lockdown, the pump price of gasoline here in the National Capital Region (NCR) was on average, at PhP52.00 or higher. As of April 15, 2020, data from the Department of Energy said the pump price, on average, has dropped only PhP10.00 from the pre-lockdown prices. What that means is that crude oil price is not the best predictor of retail gasoline prices.

“Wholesale gasoline futures and oil futures are definitely linked, but they don't necessarily reflect each other on any given day,” said Jeff Lenard, spokesman for the US National Association of Convenience Stores.

Besides this, there are other factors that determine the actual pump price. In the US, for example, gas stations work with distributors and traders that determine the price of gasoline they sell to smaller stations. Fuel companies' marketing, transport costs, state and federal taxes, and many more costs are added to the final retail price of gasoline or diesel. By the time it gets to consumers, costs and profit margins have already been added to the fuel's original price.

By this time, retailers have already adjusted these costs to compensate to some degree for the sudden drop in the number of vehicles filling up their gas tanks. 

The Philippine oil industry works in a similar way to the US. Retailers here also have to pay taxes, logistics, operating costs, marketing, and more taxes in the form of TRAIN Law, to bring all that gasoline to the pump.

So, unfortunately, we won't get paid to fill up our tank on our next visit to the gas station. We'll still be paying a price, just lower.