I need
someone smarter than I am to explain something:
The negative
oil prices. From what I’ve read, there is a lack of storage space, so none of
the storage people are paying the oil producers to store their oil. As one reporter put it, storage space has
become more valuable than the oil itself. So producers (who produce it at a
cost of $2-$5 per barrel) are essentially having to pay for storage space,
instead of storage companies paying them. It is a supply/demand situation.
OK. I
understand that much.
What I don’t
understand is this: If demand is down, why isn’t supply down too? Why aren’t
the oil producers halting production? Or at least slowing production? Is it
because it would put the oil well workers out of work, like the rest of the country?
Can’t they just stop, or slow, pumping for a while, until demand goes back up?
Like any other industry in the world where demand is down is doing?
(Simple analogy:
Six weeks ago, there was a need for protective masks. There was a shortage
among the population, and therefore a “market” for the sale of masks. I went
back to my sewing machine and “produced” 100 masks, some of which I sold. NOW
the demand is down, because everyone who wants one has one. I still have about
15 masks left, which I am “storing” on the kitchen table. But I am not “producing”
more at this time. The fabric is still back there, as are thread and elastic (raw materials).
They are dormant at this time, but if and when demand goes back up, I can
re-employ the sewing machine to produce again. Granted, the sewing machine isn’t
“working” right now, but neither is the lawn mower, the stove, the car, or me. )
Please
someone explain this oil thing in simple terms.
