Futures Markets are a lot more interesting than you’d think. They are a key piece of financial infrastructure, that helped us build the modern world. If you’re interested, William Cronon’s book, “Nature’s Metropolis” is fascinating on the way that futures markets freed farmers and other economic actors from the tyranny of uncertainty and time. On Monday we got a rare, frightening look at what can happen when a futures market breaks. In this video we lay out why US oil prices fell into the -30s on Monday April 20th.
Despite what much of the business press has told you, this price fall wasn’t just a financial oddity. If certain things don’t happen, these prices risk becoming a monthly occurrence. As the Coronavirus depression proceeds, we are likely to see further examples of financial machinery breaking down. Get a preview by watching today’s video.
I often talk about the oil price on this channel. That’s what I do with today’s video. But I don’t think I talk about what incredibly good news the death of the oil market is. For the environmentalists this is a bit of a mixed bag, but I think on balance very good. The whole “peak oil” thing has turned out to not be a problem. 30 years ago it was mostly the US, Japan and Europe that were intensively using other people’s petroleum resources. We’ve more than tripled the number of people, and probably more than tripled the amount of consumption. And we’ve all survived. That’s pretty damn cool. The downside of course is that we’re producing more and more carbon. Cheaper oil prices are not a good thing for those worried about global warming in the short term. Oil is cheaper, more of it gets consumed, and more carbon gets dumped into the atmosphere. But it can actually be a good thing in the long term.
Lower oil prices provide the same sort of good news to environmentalists that it does to geopolitics nerds. Bad people have less power. If oil is permanently cheaper, that provides less money to all the people who used to use oil wealth to steer the world. As I keep pointing out, lower oil prices are leading to a collapse in terrorism. It will also lead to a collapse in oil industry influence in the United States and other countries across the world. We can already see it happening. The fact that electric cars have been allowed to go this far is an indicator of how much power the oil industry has already lost. The days when oil execs could confidently march into the government’s most powerful positions almost certainly ended with Rex Tillerson. The Oil industry’s global warming skeptics are still churning out their reports, but they look laughable to everybody now, including the oil executives who pay for them. The oil industry’s decline in prestige will cede the climate change conversation to the scientists and their friends in the environmental lobby almost entirely. Good news all around!