The Price of a Pandemic: Where Did All the Oil Go?

Where did all the oil go? What are all the things that you need to know to understand everthing that is going on with oil right now

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As I'm sure you're well aware, the price of oil saw some major fluctuations a few weeks back... going "negative." It became headline news. How does one of the most valuable commodities in the world go negative? In other words, at one point, people were paying to store oil. Due to COVID-19, demand for oil has dropped significantly because we simply aren't going anywhere.

There are a lot of moving pieces here. We have demand, supply, storage, a pandemic, and then the relationship between the three largest producers of oil - The United States, Saudi Arabia, and Russia.

In today's episode we're learning everything we need to know to make sense of all of this. I speak with Kartik Misra, an energy investor for one of the largest Family Offices in the US. We learn:

  • Why the price of oil went negative, and what that means.
  • What is happening to all the oil that is not being consumed.
  • What's the relationship between the US, Saudi Arabia and Russia when it comes to the production of oil.
  • How COVID is affecting the consumption of oil, and how that affects us as consumers.
  • What's the future of this industry and all the jobs it affects.

I hope you find it just as informative. If you did, please feel free to share it. Stay safe out there!

Episode Transcript

MESH VO: Hi everyone, Mesh here from Talk Money, and welcome back to The Price of a Pandemic, our series where we discuss how the coronavirus is affecting the economy, business, markets & investing.

A few weeks back, oil prices entered the news cycle as the latest economic collapse. We saw negative oil prices for the first time in history. Whether it’s our foreign policy or your local gas pump, the price of oil has a huge influence on global relationships and economies. It’s a valuable commodity, and its fluctuations affect everyone. But maybe you’re picturing a different version of the oil industry, filled with power-hungry tycoons and deranged oil barons.

(Oil movie clips)

Needless to say, that’s not the whole picture. I remember my father teaching me about the oil business when I was a kid. He would explore dry wells in areas left abandoned by the big boys…and though the probability of striking oil was pretty low, their profit was wholly dependent on the price of oil. The old ‘buy low, sell high.’ The value of oil has changed through the years, and the industry keeps adapting to meet the need. But when the need goes negative, what’s the next step?

In today’s episode, we’re talking about how oil prices have been affected by COVID-19 and what it means for the world. I sit down with Kartik Misra, an energy investor at what’s called a family office - a group of hired hands who manage their own capital instead of giving it to a bank. Let’s get started.

Kartik: [00:01:23] My name is Kartik Misra. I work as an investor, particularly in the energy sector for one of the largest family offices in the United States.

Mesh: [00:01:38] And what exactly does it mean working in the energy sector? What are you doing at this job?

Kartik: [00:01:45] so basically on a daily basis, I am investing in // stocks, bonds, commodities internationally. [00:02:00] The only defining factor for me is I do it particularly in the energy sector. By that I mean things like oil and gas companies, utilities and so on and so forth.

Mesh: [00:02:15] Kartik, on April 20th oil prices turned negative for the first time ever. What exactly does that mean? 

Kartik: [00:02:40] What it means is to take oil out of the ground and to send it somewhere, the producer who was taking [can we insert “the oil” from just before this?] out of the ground actually had to pay somebody to take it off his or her hands as opposed to getting paid for it on the other direction, which is how it has usually worked for the last, you know, one hundred or more years.

Mesh: [00:03:00] I mean, what exactly happened oil used to be one of the most valuable commodities in the world. You could say people have gone to war for it, people have colonized for it. How does it become where someone has to pay somebody to take it off their hands?

Kartik: [00:03:22]  it was a confluence of a lot of different things that actually led to it. Let's talk about it in [00:03:30] three steps, right? Over a longer historical period one of the things that has changed over the last 10 years, is that the United States has become a very large producer of oil. That was not always the case. This is the first time that the United States, for example, is the largest producer of oil in the world. In addition to that the Saudis and the Russians, which are the other two large producers of oil together with the United States, they produce probably 33 or more percent of the world's oil, just the three of them. And the Saudis and the Russians decided in March that they were not going to abide by particular limits that they had put to their oil production. So basically what happened was the US was [00:04:30] already producing a lot of oil. The Russians and the Saudis decided to produce a lot of it also. And add to that the fact that COVID hit and what that meant around the world was there was a lack of transportation usage because people were either, you know, quarantined at home, [00:04:47] or were stopped by the government from going anywhere. So from one direction, you have all of the supply and from the other, you have a huge hit to demand because people are not driving anywhere. They're not [00:05:00] taking airplanes. And industrial production has ground to a halt. // So added to those two things, what happened was there was just no space to put all of the oil that was being produced, and since they were running out of storage, the producers actually had to pay somebody to take it off their hands because literally they had nowhere to put it.

Mesh: [00:05:29] And when you [00:05:30] say nowhere to put it, you mean actual physical barrels of oil and they can't put it anywhere? I mean, can't you just keep it outside or dig a hole?

Kartik: [00:05:45] So, yeah, I mean, you would think that that's true, but there are actually guidelines that most governments give as to how a tank farm, so that's basically where you put the oil, how these tank farms can operate, what the technical [00:06:00] specifications are for these things. So while I had calls from multiple friends being like, you know, I can actually put some in my bathtub till this tide's over, the fact is you don't really want any of this toxic stuff next to you because there's very specific kind of tanks that you can actually put crude oil in. [00:06:20] And unfortunately, the technical term for what we are seeing right now is called tank tops, which means that the tanks are actually topped not what you would think that [00:06:30] people wear on a summer day.

Mesh: [00:06:33] Is this not a potential business opportunity? If you can fall within the guidelines, if you're a country that potentially can store, is there not an arbitrage opportunity there?

Kartik: [00:06:49] Absolutely. There's a huge arbitrage opportunity and people are as always trying to take advantage of it. So recently what they have done is they have [00:07:00] actually booked out ships to store some of this oil at sea. So they're just sitting out at sea with a bunch of crude in them. Purely because people want to play this arbitrage and believe that that is the best way to do it, because that [00:07:30] is honestly the only slash last storage option left for them.

Mesh: [00:07:37] And before COVID, before all this craziness happened how was [can we replace “it” with “the energy sector” right before this?] performing?


Kartik: [00:07:50] The industry hasn't done well in the last, I'd say four to five years. There was an initial crash in the oil prices in 2014, ‘15 [00:08:00] and ‘16. But since that crash oil has never quite recovered to the same prices. What that has meant for the companies that produce oil is that their valuations have never quite recovered either. For consumers particularly, it's actually a good thing, right? Because [00:09:30] they're using this oil and if you can get gasoline for less than a dollar a gallon, which is what is happening in some parts of the Midwest today that means you don't actually have to fill up your car with more expensive gasoline.

Mesh: [00:09:50] If people right now are unable to use their car, they're unable to take advantage of the low gas prices. [00:10:00] I mean, is this a small window of time? Does it take a really long time for it to rise again at least when the economy reopens?

Kartik: [00:10:13] I think honestly that depends on how you believe the economy will reopen. There are multiple theories out there as to how the economy reopens, whether it's a V shaped curve, so it goes up pretty fast. In that case, there will be recovery in oil prices. There's [00:10:30] another theory out there that says, Oh, we are now in a recession for good for a long period of time. [00:10:36] In that case, the recovery will not be very fast. To give you some sort of a context, people in the United States are using 50% less gasoline than they were [00:11:00] before COVID. That's a massive, massive hit to demand. And also a massive, massive hit to prices because there's nowhere for this oil to go.

Mesh: [00:11:14] And to take a bit of a step back, when you had mentioned that oil had reached a hundred dollars a barrel, I very much remember this. // What [00:11:30] exactly had caused that uptick in oil followed by a crash?

Kartik: [00:11:39] Right. So the two times when oil went over a hundred dollars the two reasons why that was actually happening [00:12:00] was because OPEC, [00:12:01] of which Saudi Arabia, a few different other Gulf countries, a couple of different African countries and countries from South America are members, was actually artificially controlling the amount of oil that they were sending out into the market. On the flip side of that, the United States was still growing its oil production. Which meant that there was actually a lot more demand, particularly in the [00:12:30] United States, and there was a lot less supply [because the Saudis and other members of OPEC were artificially denying that supply from their side.] So they were in some ways propping up the oil price to an extent.

Mesh: [00:12:48] And to give a bit of context there how should we understand the relationship between the US, Saudi Arabia and Russia when it comes to the global supply of oil? If [00:13:00] the  US always had such a high demand and now they have the ability to produce a majority of the world's oil what is the relationship between these countries?

Kartik: [00:13:13] Well, that's a very interesting question because that relationship has changed. In the past, the United States was particularly antagonistic versus OPEC as well as Russia because they believed that they were propping up the oil prices at a much higher level. [00:13:30] Over the last 10 years, when the United States has grown its production, it just so happens that a lot of jobs in the United States are now tied to the oil sector. And that means that instead of being a net importer of oil, the United States over the last I would say [00:14:00] six months, has actually become a net exporter of oil. [00:14:11] So for the first time in decades the Russians, the Saudis and the American government interests are actually aligned.

Mesh: [00:14:59] And what would be considered profitable in terms of price per barrel for these countries?

Kartik: [00:15:13] // It actually works slightly differently for Saudi Arabia than it does for Russia and the United States. For Saudi Arabia, since all of the oil is produced by a largely state-owned company // [00:15:31] the oil price is purely dependent on what // the actual state budget is. So in the last couple of years, the break-even // oil price for Saudi Arabia is about $80 [but that is only because they have to actually budget for the state spending of that money.] // [00:15:57] It can produce oil for as low as $10 a barrel.

Mesh: [00:16:03] That's interesting. That's actually almost the same as like // this is what I really need to make to make it work, but I have a really expensive lifestyle. // I could // downsize, but I don't want to.

Kartik: [00:16:19] Correct // and // that is exactly the way that that works. Fortunately or unfortunately for the United States, // all that that means is that the few hundred thousand people who work in the oil industry will have problems with their jobs. [00:16:47] // So in the United States // you can produce oil profitably probably at around $45 to $50 a barrel, for Russia it's actually lower. The [00:17:00] Russians probably produce oil for $30 to $40 a barrel profitably. //

Mesh: [00:17:12] What happens to companies that are dependent on the // sale of oil? Are we potentially seeing bankruptcies here?

Kartik: [00:17:30] So we have already seen an increase in bankruptcies that is almost certainly going to increase further unless there is some government intervention. // The oil industry is a little bit more // [00:18:00] how do I say, uh, divisive of an industry? So it is much harder for the Trump government to actually approve any sort of package where they can // get it through Congress to support the oil industry in particular.

Mesh: [00:18:18] And then what happens here in terms of how does this affect the job market?

Kartik: [00:18:27] I think anyone who is in the oil industry is at risk of losing their jobs. I mean, every company that I have talked to recently has said [insert “either” from next few words] we are already laying off 10 to 20% of our staff or we are looking out and seeing if there is a way to save them for the next two to three months. But if the picture does not improve // that will be a conversation that we will have then.

Mesh: What do we need to happen for both that job market to find some stability and then for the corporations and the countries themselves to have some stability in terms of their economic needs?

Kartik: [00:19:21] I think the sweet spot for the United States in particular, will be anything over $45 a barrel. [00:19:30] Currently that number is uh between $10 to $12 a barrel. So it needs to shift pretty drastically. For the jobs to not go away the picture is a little bit more convoluted. The Russians and the Saudis  in particular are actually very well supplied by the foreign reserves that they have at [00:20:00] hand so they can survive for a little bit longer without having to lay off multitudes of people. The question is how long, and I think that runway is probably between three to six months.

[00:20:20] Mesh: [00:20:20] And so that sounds like worst case scenario is we don't get a hold of this virus, in terms of understanding how we can put people back to [00:20:30] work in order to be consuming gas and the price goes back up.

Kartik: [00:20:43] Right. And just to give you an example of the magnitude of the problem the oil market globally is about a hundred million barrels per day. That is how much the world uses every day. [00:21:00] Saudi, Russia and the United States together provide about 33 million barrels per day of that oil. [00:21:05] So about a third of it. COVID has cleared out about 30 million barrels a day of demand, globally. Which means the global demand is down 30%, which means even if the United States, Russia and Saudi were to cut all of their production down to zero, we would then just barely be able to balance the market.

Mesh: [00:21:38] As an energy investor how do you think this affects our future? Is this something that benefits green energy or doesn't really matter because // this has such a big impact, like the whole system's fucked.

Kartik: [00:22:02] I think it does affect green energy for a couple of reasons, right? One, if there are huge job losses in this industry right now, it's very hard to convince people to come back to the job itself. The other thing that is interesting is that people will realize that you can actually make this massive shift towards green energy because you don't necessarily have to [00:22:30] support the oil industry because it will be much smaller by the time we come out of this particular crisis. [00:22:36] So I think it is [insert “net” from just before this] positive over the long term for green energy. 



For the most part, we only pay attention to the price of oil when it affects our pockets, or when countries are at odds. Oil’s influence first grew in the 1800s, just before the Industrial Revolution, when it was used for kerosene lamps. Now, 200 years later, a virus and a global shutdown have effectively deflated one of the most valuable commodities on earth. How do countries rethink their dependence on oil? Will this help push green energy forward even faster? And will job markets and economies be able to recover when we reopen? For most of us, all we can do is keep an eye on the price at the gas pump.

I want to thank Kartik Misra for talking to us about this difficult time for his industry, and for shedding light on how we can expect it to affect us in the present and future. Stay safe out there.

This episode was edited and produced by Olivia Briley & engineered by Maia Tarrell. Our music is by Blue Dot Sessions. Sign up at for further deep dives and to hear other episodes. We appreciate you sharing this with your friends, and of course subscribing to us on Apple, Spotify, or wherever you choose to listen. Until next time.

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