Oil price: what these serious numbers mean

In 1983 Paul Simon released Hearts and Bones, an album that was mauled by (some) critics. What had been intended as a Simon & Garfunkel reunion record after their famous concert in Central Park turned instead into a confused solo project. Simon chose two of the weakest songs as singles. The whole enterprise had a botched feel, even though the album contains four of Simon’s most affecting pieces of writing and production that tower above the rest – Hearts and Bones, Train in the Distance, Rene and Georgette Magritte with their dog after the War, and The Late Great Johnny Ace.

Perhaps the very worst song on the album is “When Numbers Get Serious.” It is a lamentable affair with lyrics so lame that they’ve been stuck in my head for thirty seven years now.

In mysterious times, sings Simon, “serious numbers will always be heard.”

Will they?

During the financial crisis, and the aftermath, the irritating tune would pop into my head whenever implausibly large and dangerous numbers were mentioned. It could be when I listened to Robert Peston explaining some epic debt figures, or later when a bank executive attempted to justify the massive expansion of their balance sheet before the boom turned to bust, or a regulator drew me a chart to explain Collateralised Debt Obligations.

It happened again today when I checked the oil price. These numbers are, as Paul Simon might put it, serious.

The price of oil – I’ll come back to that with an important qualification – has collapsed to close to zero or below.

Even Piers Morgan, Britain’s leading professional controversialist, noticed and diverted his attention, for a moment, from the antics of Harry and Meghan. This evening he tweeted: “Good grief… Oil prices are crashing towards a negative. I don’t even know what that means.”

What it means is that demand for oil in the short-term, next month, has collapsed. And no wonder. The global economy is in the middle of a slump unlike anything experienced in the modern era, so no-one needs any more oil than they already have.

It is not the case that oil is now worth less than zero. On Tuesday the trading contracts for May expire. That means those traders who took out options for delivery in May are left holding contracts on behalf of customers that mean they have to take a certain amount of oil. Traders are offloading those contracts. They’ll virtually give them away to salvage something.

The prices for June and July are considerably higher. As the Wall Street Journal put it this evening, it is more likely that the price in the summer will end up closer to $30.

What is rather disconcerting about these projections, and other numbers we see being pumped out daily by analysts of numerous varieties, is that the assumption is still of a massive bounce back in the economy quite rapidly. Yet the more optimistic forecasts seem to defy the logic of human behaviour and the evidence of what is happening in the economy on the ground in response to the Coronavirus crisis. Where is all this demand going to come from?

Property is a good example of a surfeit of wishful thinking (declaration of interest, we rent). Attempt to track the projections in Britain and you’ll be treated to some bizarrely mild musing on how the effect of the worst peacetime economic event since Queen Victoria was on the throne will be a temporary adjustment followed by growth then  bouncing back. A month ago we kept being told it was merely going to flatten growth for the year. An analyst told the Sunday papers this weekend that it would be okay this time on the property front because although there will be high unemployment, interest rates will be low, so everyone should calm down. As though we have not just been reminded of the definition of the word unprecedented.

This is not – not – a prediction of unending gloom. We need economic growth. We need economic recovery. In time it will come and the damned disease will be gone or be under control. But can we at least be realistic about the prospects and accept how long it will likely take for consumers and those businesses that survive to regain confidence?

The scale of it is epic. In Britain, perhaps somewhere between 5% and 10% of the population is deemed vulnerable (the government list left hundreds of thousands and maybe more off the list) or is living with someone who is. Will they and their families charge back out and merrily start cavorting in pubs, which presumably won’t be open anyway, or running around John Lewis or Next spending like mad? It seems unlikely. The government thinks the vulnerable and the elderly may not be allowed out until next year. Not conducive to going on holiday or out for dinner. Not conducive to rapid economic recovery.

Many other Britons will be nervous of crowds, with good cause, for months if not years. Young consumers will, one must assume, come roaring back at the first opportunity.

Let’s face it. Millions of the rest of us won’t.