Oil is not the only negative price coming to you

Minus prices are not uncommon, even if they suggest infinite losses and generate horror

Robin Harding

Rover workers demonstrate in 2000. When BMW sold the British car company, it had to provide a ‘dowry’ of hundreds of millions of pounds to reflect the dire state of the business
Rover workers demonstrate in 2000. When BMW sold the British car company, it had to provide a ‘dowry’ of hundreds of millions of pounds to reflect the dire state of the business © Gerry Penny/AFP/Getty

There are not many things you have to pay to get rid of: hair, rodents, industrial waste, teenage children and, as of this week, crude oil.

On Monday, the price of West Texas Intermediate for delivery in the month of May fell as low as minus $40.32 a barrel, becoming negative for the first time in history. People have schemed, starved and even gone to war to get oil.

But this week, even if only briefly, they would have paid you to take it off their hands.Crude oil’s dramatic price fall shows the depth of the current plunge in demand and sheds light on the curious phenomenon of negative prices.

These are actually fairly common — occurring everywhere from electricity markets to stock exchanges that pay for order flow to boost liquidity — but they are unsettling, because they seem to upset the natural order of things. Surely an item of such obvious cost and utility as oil must always be worth something?

Human beings are prone to the cognitive bias of loss aversion, putting more weight on a loss than an equivalent gain. It is not surprising, therefore, that we feel a certain horror at negative prices.

They suggest your assets can turn to liabilities, losing you everything and more. That distaste shows itself most strongly in the widespread anger across Europe and Japan at negative interest rates — the world’s most prominent negative price and likely to continue for years to come.

The obvious question posed by negative prices is why trade occurs at all if the price is less than zero. Why not hold on to what you have? There are at least three different reasons.

The first is a storage problem familiar to anybody clearing a house for sale. The grand piano may be beautiful, but if there is going to be nowhere to put it, it turns from an asset into a liability as the day of the move draws near.

US oil traders found themselves in a similar position this week. Owning a barrel of WTI at contract expiry means taking physical delivery in Cushing, Oklahoma. You cannot keep crude oil in the attic.

So if oil storage tanks are full, you have a serious problem.

A similar thing happens in electricity markets. Electricity is notoriously hard to store, but shutting down a coal or nuclear plant is costly and time consuming. So when supply exceeds demand, it can make sense to pay users to take it.

This situation is occurring more often as solar and wind, which have minimal operating costs and generate power as long as the sun shines and the wind blows, join electricity grids. It can also occur if there are subsidised suppliers, who make money at a negative price if the subsidy is more.

A second reason for negative prices is when there is a liability attached to an asset.

Contaminated land may cost less than nothing because of the expense of cleaning it up. When BMW sold the British car company Rover in 2000, it provided a “dowry” of hundreds of millions of pounds to reflect the dire state of the business.

Likewise, unless waste can be recycled at a profit, it has a negative price because of the disposal cost.A third scenario is when something appears to have a negative price but the buyer is actually providing the seller with something of value.

For example, a bike-sharing network may pay its customers if they ride its bikes from the suburbs back to the centre of the city, where they may be needed more. Stock exchanges may pay retail brokers for the privilege of executing their orders, because such orders are of value to other customers, such as market makers who can profit by trading with it.

Interest rates can also go negative because of the storage problem. Buying a safe costs money, there is still a risk of theft and, furthermore, large payments with cash are cumbersome. So paying for storage in a bank deposit can make sense.

The economist Kenneth Rogoff of Harvard has suggested the abolition of high-denomination notes, removing them as a storage option, which would allow for deeper negative rates as a tool to stimulate activity in the economy. This idea has not proved popular.

The mechanics of negative prices are straightforward enough. But what they cannot explain is why a barrel of oil or a cash deposit would become of so little value that the cost of storage is relevant.

In the case of oil this week, the answer is clear: demand has collapsed because of the coronavirus pandemic. So storage, either by leaving oil in the ground or pumping it into a supertanker, is the only option.

Something similar has happened to interest rates, which balance the supply of savings with demand for investment.

In an ageing, slow-growth world, the supply of risk-free deposits is high but the demand to borrow them is not, so the price is often negative.

That feels wrong and prompts a great deal of anger at central banks.

As the world struggles with the coronavirus downturn, it is not only oil traders who will feel the pain of negative prices.

Why Zoom Is Terrible

There’s a reason video apps make you feel awkward and unfulfilled.

By Kate Murphy

       Credit...Tim Lahan

Ms. Murphy is the author of “You’re Not Listening: What You’re Missing and Why It Matters.”

Last month, global downloads of the apps Zoom, Houseparty and Skype increased more than 100 percent as video conferencing and chats replaced the face-to-face encounters we are all so sorely missing.

Their faces arranged in a grid reminiscent of the game show “Hollywood Squares,” people are attending virtual happy hours and birthday parties, holding virtual business meetings, learning in virtual classrooms and having virtual psychotherapy.

But there are reasons to be wary of the technology, beyond the widely reported security and privacy concerns. Psychologists, computer scientists and neuroscientists say the distortions and delays inherent in video communication can end up making you feel isolated, anxious and disconnected (or more than you were already). You might be better off just talking on the phone.

The problem is that the way the video images are digitally encoded and decoded, altered and adjusted, patched and synthesized introduces all kinds of artifacts: blocking, freezing, blurring, jerkiness and out-of-sync audio.

These disruptions, some below our conscious awareness, confound perception and scramble subtle social cues. Our brains strain to fill in the gaps and make sense of the disorder, which makes us feel vaguely disturbed, uneasy and tired without quite knowing why.

Jeffrey Golde, an adjunct professor at Columbia Business School, has been teaching his previously in-person leadership class via Zoom for about a month now and he said it’s been strangely wearing. “I’ve noticed, not only in my students, but also in myself, a tendency to flag,” he said. “It gets hard to concentrate on the grid and it’s hard to think in a robust way.”

This is consistent with research on interpreters at the United Nations and at European Union institutions, who reported similar feelings of burnout, fogginess and alienation when translating proceedings via video feed. Studies on video psychotherapy indicate that both therapists and their patients also often feel fatigued, disaffected and uncomfortable.

Sheryl Brahnam, a professor in the department of information technology and cybersecurity at Missouri State University in Springfield, explains the phenomenon by comparing video conferencing to highly processed foods.

“In-person communication resembles video conferencing about as much as a real blueberry muffin resembles a packaged blueberry muffin that contains not a single blueberry but artificial flavors, textures and preservatives,” she said.

“You eat too many and you’re not going to feel very good.”

To be sure, video calls are great for letting toddlers blow kisses to their grandparents, showing people what you’re cooking for dinner or maybe demonstrating how to make a face mask out of boxer briefs. But if you want to really communicate with someone in a meaningful way, video can be vexing.

This is foremost because human beings are exquisitely sensitive to one another’s facial expressions. Authentic expressions of emotion are an intricate array of minute muscle contractions, particularly around the eyes and mouth, often subconsciously perceived, and essential to our understanding of one another. But those telling twitches all but disappear on pixelated video or, worse, are frozen, smoothed over or delayed to preserve bandwidth.

Not only does this mess with our perception, but it also plays havoc with our ability to mirror. Without realizing it, all of us engage in facial mimicry whenever we encounter another person.

It’s a constant, almost synchronous, interplay. To recognize emotion, we have to actually embody it, which makes mirroring essential to empathy and connection. When we can’t do it seamlessly, as happens during a video chat, we feel unsettled because it’s hard to read people’s reactions and, thus, predict what they will do.

“Our brains are prediction generators, and when there are delays or the facial expressions are frozen or out of sync, as happens on Zoom and Skype, we perceive it as a prediction error that needs to be fixed,” said Paula Niedenthal, a professor of psychology at the University of Wisconsin at Madison who specializes in affective response.

“Whether subconscious or conscious, we’re having to do more work because aspects of our predictions are not being confirmed and that can get exhausting.”

Video chats have also been shown to inhibit trust because we can’t look one another in the eye.

Depending on the camera angle, people may appear to be looking up or down or to the side.

Viewers may then perceive them as uninterested, shifty, haughty, servile or guilty. For this reason, law scholars and criminal justice activists have questioned the fairness of remote depositions, hearings and trials.

But as anyone who has been on a video call knows, people tend to look more at themselves than at the camera or even at others on the call. “I would be lying if I said I wasn’t super aware of my appearance on video chats,” said Dave Nitkiewicz, a recently furloughed employee of Experience Grand Rapids, the convention and visitors’ bureau in Grand Rapids, Mich.

“I have the skin of Casper the Ghost right now — it’s, like, fluorescent — so I’m always concerned with framing and lighting.”

Craving company while confined at home, Mr. Nitkiewicz frequently arranges Zoom meet-ups with family and friends and he even went on a Zoom date. And yet he doesn’t find these interactions terribly satisfying.

“On video chat there’s literally a glowing box around your face when you’re talking, so you feel like every eyeball is on you, like a very intimidating job interview,” Mr. Nitkiewicz said.

“The conversation kind of defaults to trivial drivel because people don’t want to take a risk.”

And the delay in people’s feedback makes him feel that it wouldn’t be rewarding to share a good story anyway.

He doesn’t feel the same reserve when he talks on the phone, which he does for two or three hours every other Sunday with his cousin in Los Angeles. “We have for years and it’s never occurred to us to video chat,” said Mr. Nitkiewicz. “Our comfort place is still on the phone.”

This makes sense given that experts say no facial cues are better than faulty ones. The absence of visual input might even heighten people’s sensitivity to what’s being said. It could be why Verizon and AT&T have reported average daily increases of as much as 78 percent in voice-only calls since the start of the pandemic, as well as an increase in the length of these calls.

“You can have a sense of hyper-presence on the telephone because of that coiled relationship where it feels like my mouth is right next to your ear, and vice versa,” said Dr. Brahnam during a telephone interview.

Provided you have a good connection, she said, you end up hearing more: slight tonal shifts, brief hesitations and the rhythm of someone’s breathing.

When it comes to developing intimacy remotely, sometimes it’s better to be heard and not seen.

Aviation’s Crisis Just Became Permanent

The airline industry has moved from temporary freezes to long-term downsizing as years of depressed demand loom

By Jon Sindreu

The crisis for the aviation industry has become chronic as the coronavirus pandemic looks set to depress demand for years to come. / Photo: jim lo scalzo/Shutterstock .

Even in the best-case scenario of a sharp recovery for the global economy, there won’t be one for the aviation industry.

U.K. legacy carrier British Airwaysis set to cut up to 12,000 jobs, about 30% of its staff, its owner IAG said Tuesday as it released preliminary first-quarter results. Losses were large, but the company announced a healthy level of cash that should ease any concerns about its survival through the Covid-19 lockdown period.

That’s just the problem, though: The current downsizing of the aviation industry isn’t an emergency move to deal with the travel bans, but a permanent response to what will likely be years of depressed demand.

Lufthansa, Ryanairand SAS have warned of job cuts on a similar scale. Tellingly, though, it isn’t just the notoriously cyclical airlines that are shrinking. Plane makers Boeing and Airbus, which reported first-quarter earnings on Wednesday, have also warned that big payroll reductions are coming, despite their order backlogs spanning years and recent efforts to rebuild cash buffers. Shares of both jumped Wednesday after reporting better-than-expected free cash flows.

Boeing said Monday that it would reopen its North Charleston, South Carolina 787 Dreamliner facility next week.

However, on Wednesday it gave a longer-term picture: The 787’s production rate will be gradually reduced to seven a month by 2022, from 14 now.

Rates for the 777 will also be cut, and the 737 MAX ramp-up will be slower than previously expected—adding an extra $1 billion to expected production costs.

Airbus didn’t provide new details, but has said rates would be cut by about a third across its aircraft portfolio.

Some in the industry have warned since the start of this crisis that it could take more than two years to get capacity back to 2019 levels, due to a combination of health restrictions, fear of flying and corporate culture embracing videoconferences. This week’s announcements offer confirmation that there is no turning back.

Order cancellations have only been modest so far, because they are expensive for airlines. But the watershed moment for production rates is likely still months away.

Consensus forecasts compiled by data provider FactSet show that the combined revenues of Boeing and Airbus aren’t expected to top the 2018 level—before the 737 MAX crisis hammered the U.S. manufacturer—until 2023.

Sales that year would still be 7% lower than what analysts expected for 2020 a few months ago.

That is a lost five years for the aerospace industry, and estimates might still have to catch up with the news.

For engine manufacturers and companies that make money repairing aircraft, history suggests that the trough will be even deeper. General Electricsaid Wednesday that it would need to cut $2 billion in costs after reporting a whopping 40% drop in profits for its aviation division.
 While governments have stepped in to bail out some troubled airlines, some are likely to disappear. Virgin Australia has already filed for administration, and its founder and part-owner Richard Branson has so far failed to secure aid for his other carrier, U.K.-based Virgin Atlantic.

In the U.S., airlines are required to retain their workforce through September as part of the aid package provided by Washington, but they are already offering voluntary exit schemes. They will surely start dismissing workers as soon as they are allowed to.

Other industries still have hope of returning to some level of normalcy within the foreseeable future. Aviation, though, will be smaller and less profitable for years to come.

The big grind

The story of coffee is a parable of global capitalism

In “Coffeeland”, Augustine Sedgewick focuses on a single plantation in El Salvador

WHAT BEGAN as an obscure berry from the highlands of Ethiopia is now, five centuries later, a ubiquitous global necessity.

Coffee has changed the world along the way.

A “wakefull and civill drink”, its pep as a stimulant awoke Europe from an alcoholic stupor and “improved useful knowledge very much”, as a 17th-century observer put it, helping fuel the ensuing scientific and financial revolutions.

Coffeehouses, an idea that travelled with the refreshment from the Arab world, became information exchanges and centres of collaboration; coffee remains the default drink of personal networking to this day.

The focus of Augustine Sedgewick’s book is not coffee’s effect on drinkers but its role in the story of global capitalism, as a commodity that links producers in poor countries with consumers in rich ones.

Coffee does more than merely reflect this divide, he argues—it has played a central role in shaping it. It is, he notes, “the commodity we use more than any other to think about how the world economy works and what to do about it”.

To illuminate this history, and the web of connections between workers on plantations and coffee-sipping consumers, Mr Sedgewick focuses on a single planter in one country: James Hill, a British emigrant who by the 1920s had established himself as “the coffee king of El Salvador”.

By telling the story of El Salvador’s emergence as the world’s most intensive coffee economy, and following coffee beans from Hill’s plantation to American consumers’ cups, Mr Sedgewick painstakingly shows how shifts in the global coffee market have affected conditions for workers on the ground.

The result is a portrait of the political and economic consequences of the world’s addiction to coffee.

He tucks many fascinating details into his narrative. Contrary to popular belief, for example, it was not the Boston Tea Party that led to tea’s dethronement as America’s favourite hot drink: it was the abolition of tariffs on coffee imports in the early 19th century, as the United States sought to build trade ties and buy influence across Latin America.

Imports doubled every decade between 1800 and 1850; during the civil war the average Union soldier consumed five cups of coffee a day.

By the turn of the 20th century consumption per person in America was roughly double the level in France and ten times that in Italy. Most of this coffee came from Latin America.

A secondary theme is the relationship between food and labour, and the effort to measure human food consumption and energy output. Hill applied ideas from industrial Manchester, the city of his birth, to wring as much work as possible from his team.

By paying mostly in food, and removing all other sources of it (such as wild fruit trees), he could manipulate the degree of hunger among local workers, and thus the availability of labour.

The resulting coffee was then used to optimise the efficiency of workers in America, as bosses realised that formal coffee breaks improved productivity.

Both coffee producers and consumers, Mr Sedgewick scathingly implies, are mere cogs in the remorseless machinery of global capitalism.

After all this readers might expect his conclusion to be a ringing endorsement of the “fair trade” model (coffee is by far the leading fair-trade product), which adds a small premium to the price of certified coffees to fund projects to improve workers’ welfare.

In fact, Mr Sedgewick thinks the arguments over fair trade obscure a more fundamental issue, which is the lack of other opportunities in places where the local economy is dominated by coffee.

In El Salvador’s “dictatorship of coffee”, where coffee planters enjoyed a virtual monopoly on politics, the only alternatives were migration or revolution, leading to decades of strife during the 20th century that pitted coffee growers against their overlords.

Artfully blending together all these strands, and juggling a wide cast of characters, Mr Sedgewick’s book is a parable of how a commodity can link producers, consumers, markets and politics in unexpected ways.

Like the drink it describes, it is an eye-opening, stimulating brew.