Monday was the equivalent of a major financial nightmare for the U.S. economy.
Oil futures for West Texas crude went below zero for the first time in history and finished at US-$37.63 a barrel.
Don’t rub your eyes too hard. That’s a minus, not a plus, next to the dollar figure.
What does this mean?
Theoretically, an oil company would pay you to cart away a barrel or two to use in your home and/or business because the supply exceeds the demand.
Practically, it means an important commodity that most of the world needs is completely worthless … for now.
Meanwhile, the price of oil on the futures market for next month is sitting at US$20.43 a barrel. It’s a bizarre gap between the two monthly prices, to say the least.
As IHS Markit Ltd. vice-chairman and oil historian Daniel Yergin aptly put it to Bloomberg on April 20, “The May crude oil contract is going out not with a whimper, but a primal scream.”
A negative price for U.S. oil won’t be that way for long and certainly not forever. But it’s an astonishing moment that few economists (American or otherwise) would have ever predicted at the beginning of this new decade.
Unfortunately, that’s far from the only impending economic disaster our neighbours to the south face.
The U.S. has the largest number of active COVID-19 cases (786,795) and total deaths (42,012) in the world, as of April 20. Some of these numbers are finally beginning to plateau and drop in hard-hit cities like New York, but it’s not under control yet.
These crushing statistics caused nationwide social distancing, millions of individuals working from home, and temporary business closures in virtually every state (other than South Dakota).
U.S. President Donald Trump passed a $2-trillion stimulus package on March 27 to help everyone from government workers to small business owners during the COVID-19 pandemic.
It was the right thing to do.
Sadly, some businesses will never reopen even with this cash infusion. Luxury retailer Neiman Marcus announced it will file for bankruptcy protection this week and others will likely follow suit.
Unemployment numbers have reached a staggering 22 million. According to Alexander Bick of Arizona State University and Adam Blandin of Virginia Commonwealth University, two economists tracking unemployment levels in real time, that’s more than 20 per cent of the entire U.S. workforce.
Roughly 5.25 million Americans applied for unemployment insurance between April 5 and 11. While that’s lower than the previous two weeks (6.9 million and 6.6 million, respectively), these successive jobless numbers are horrifying.
Nothing like this has been experienced since the Great Depression years of 1929 through 1933. It already feels like there have been a few modern equivalents to the infamous Black Tuesday that triggered this terrible economic period.
The U.S. has the world’s largest economy with a gross domestic product of approximately $20.513 trillion. The rise and fall of American business, stocks, commodities, real estate prices and many other financial intangibles have always had a direct effect on the short-term and long-term success and failure of international markets.
Whether you like or dislike America’s political leadership, economic priorities and/or high-profile personalities is completely irrelevant. If you believe in the many positive virtues of capitalism and free markets, a healthy, vibrant U.S. economy is good for Canada and all countries around the world.
That’s far from what we have right now.
Yes, we need to ensure people can return to work and reopen their businesses in a safe and healthy environment. Pandemics like the Spanish flu historically have had second (or third) waves of illness and they can be much worse.
With proper amounts of social distancing and self-isolation now, the curve will flatten and we can regain a sense of normalcy. And U.S. oil will be back in positive numbers to boot.
Michael Taube, a Troy Media syndicated columnist and Washington Times contributor, was a speechwriter for former prime minister Stephen Harper. He holds a master’s degree in comparative politics from the London School of Economics.