Economist explains the impact after price for a barrel of oil falls below zero

Crude oil prices fall below zero

LITTLE ROCK (KATV) — Monday came as a shock to economists as the price for a barrel of crude oil dropped to -$37.63 for the first time ever.

“It’s a situation that’s really kind of unprecedented but is keeping prices very very low,” said Michael Pakko, Chief Economist for the Arkansas Economic Development Institute at UA-Little Rock.

This is because the supply in the country overwhelmingly exceeds the demand creating giant stockpiles all over. Pakko explained that, “People aren’t flying, aren’t driving, industry is shut down. So the demand for oil has just dried up.”

While the oil and gas industry is already making cuts to production, they aren’t the only ones taking a hit.

“Particularly when you have oil exploration firms who are going to be in a tight financial binds and then there’s the banks that have lent to the oil exploration firms. So, there’s a whole chain of possible problems if this industry ends in a big shakeout,” said Pakko.

Prices will most likely stay low for a while. Pakko said, “Those stockpiles, those tanks full of gasoline ready to sell, are going to keep downward pressure on prices for some time. So, as the economy begins to recover and people start driving again, we’ll probably be able to count on relatively low gasoline prices for some time to come.”

And even though the price for oil is below zero right now, that won’t have much of an impact that the pump. “Overall, the price of oil is very low and it’s going to keep gasoline prices low, but I don’t think you’re going to find any gas stations giving it away for free,” explained Pakko.

While prices for the May market in oil are below zero, the projection for June increases significantly to around $20 a barrel.

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