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Crude Oil Storage Facilities Running Out. Prices May Turn Negative for Producers

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Crude Oil Storage Facilities Running Out. Prices May Turn Negative for Producers
An aerial view of a crude oil storage facility of Caspian Pipeline Consortium (CPC) in the Krasnodar Territory. Vitaly Timkiv / TASS / Getty Images

Oil rigs around the world keep pulling crude oil out of the ground, but the global pandemic has sent shockwaves into the market. The supply is up, but demand has plummeted now that industry has ground to a halt, highways are empty, and airplanes are parked in hangars.


It means that storage space for crude is starting to run out, both onshore and offshore, according to CNBC.

As CNN reported, the supply glut has driven the price of oil to 18-year-lows. The need to get rid of it has grown so bad that some producers are paying customers to take it off their hands, according to Yahoo! Finance. In fact, in Canada, an entire barrel of crude oil is less expensive than a $5 pint of beer, according to another story from CNBC. A barrel of Western Canada Select oil was listed as $4.18 earlier this week.

That precipitous drop in the price may make it more economical for producers to shutdown operations than to see the prices dip into negative territory, according to The Guardian.

Meanwhile, Saudi Arabia and Russia are preparing to pump record levels of oil into the global market as part of a oil price war to win control of the market, despite drastically reduced demand for energy during the COVID-19 crisis, as The Guardian reported.

Today, a three-year truce between OPEC and non-OPEC countries expired, paving the way for an increase in production. Saudi Arabia has pledged to raise output to record highs, according to CNBC.

"The market is starting to signal that not only is there no demand for this crude, eventually there could be nowhere for it to go," Jeff Wyll, senior energy analyst at Neuberger Berman, said as CNN reported.

In a letter from Goldman Sachs earlier this week, the banking giant said producers, especially in landlocked pipelines like those in the U.S., Canada and Russia, will face mounting problems as there is no place to get rid of their oversupply.

"Given the cost of shutting down a well, a producer would be willing to pay someone to dispose of a barrel, implying negative pricing in landlocked areas," the bank said in an investor note on Monday, as The Guardian reported.

"The cost to store the crude oil is now higher than the price they can get for it," Bob Iaccino, Path Trading Partners Co-Founder & Chief Market Strategist, explained to Yahoo! Finance. "You can't flow away stored crude oil."

Since it is more expensive to store than to sell, that could make the price go negative.

"Refineries in many places are now losing money for every barrel they process, or they have no place to store their output of oil products," Bjarne Schieldrop, chief commodities analyst at SEB, told CNBC. "For land-based or land-locked oil producers, this means only one thing: the local oil price or well-head price they receive very quickly goes to zero or even negative, because if they have too much oil, they must pay someone to transport it away until they have managed to shut down their production."

Analysts predict that global storage limits will max out by mid-year. Already, ports around the world are starting to turn away oil tankers, according to CNBC.

The oversupply means oil companies will start to shutdown refineries with older, less productive oil wells likely to stop production first. Goldman Sachs predicts the industry will lose as much as 5 million barrels per day of oil supply capacity, according to Reuters.

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In early October, Britain's Prince William teamed up with conservationist David Attenborough to launch the Earthshot Prize, a new award for environmentalist innovation. The Earthshot brands itself the "most prestigious global environment prize in history."

The world-famous wildlife broadcaster and his royal sidekick appear to have played an active role in the prize's inception, and media coverage has focused largely on them as the faces of the campaign.

But the pair are only the frontmen of a much larger movement which has been in development for several years. In addition to a panel of experts who will decide on the winners, the prize's formation took advice from the World Wildlife Fund, Greenpeace and the Jack Ma Foundation.

With more and more global attention on the climate crisis, celebrity endorsement of environmental causes has become more common. But why do environmental causes recruit famous faces for their campaigns? And what difference can it make?

'Count Me In'

"We need celebrities to reach those people who we cannot reach ourselves," says Sarah Marchildon from the United Nations Climate Change secretariat (UNFCCC) in Bonn, Germany.

Marchildon is a proponent of the use of celebrities to raise awareness of environmental causes. In addition to promoting a selection of climate ambassadors who represent the UN on sustainability issues, Marchildon's team has produced videos with well-known narrators from the entertainment world: among them, Morgan Freeman and Mark Ruffalo.

"We choose celebrities who have a lifestyle where they are already talking about these issues," Marchildon explains.

"Sometimes they reach out to us themselves, as David Attenborough did recently. And then they can promote the videos on their own social channels which reach more people than we do — for example, if they have 20 million followers and we have 750,000."

Environmental groups focused on their own domestic markets are also taking this approach. One Germany-based organization that uses celebrities in campaigns is the German Zero NGO. Set up in 2019, it advocates for a climate-neutral Germany by 2035.

German Zero produced a video in March 2020 introducing the campaign with "66 celebrities" that supported the campaign, among them Deutschland 83 actor Jonas Nay and former professional footballer Andre Schürrle. They solicit support as well as financial contributions from viewers.

"Count me in," they say, pointing toward the camera. "You too?"

"We are incredibly grateful for the VIPs in our videos," says German Zero spokeswoman Eva-Maria McCormack.

Assessing Success Is Complex

But quantifying the effectiveness of celebrity endorsement of campaigns is not a straightforward process.

"In order to measure effectiveness, first of all you need to define what is meant by success," says Alegria Olmedo, a researcher at the Zoology Department at the University of Oxford.

Olmedo is the author of a study looking at a range of campaigns concerning pangolin consumption, fronted by local and Western celebrities, in Vietnam and China. But she says her biggest stumbling block was knowing how to measure a campaign's success.

"You need a clear theory of change," explains Olmedo. "Have the celebrities actually helped in achieving the campaign's goals? And how do you quantify these goals? Maybe it is increased donations or higher engagement with a cause."

A popular campaign in China in recent years saw famous chefs Zhao Danian and Shu Yi pledge to abstain from cooking endangered wildlife. While the pledge achieved widespread recognition, both Olmedo and Marchildon say it's difficult to know whether it made any difference to people's actions.

"In life we see a thousand messages every day, and it is very hard to pinpoint whether one campaign has actually made a difference in people's behavior," she explains.

Awareness Is Not Enough

Many campaigns that feature celebrities focus on raising awareness rather than on concrete action — which, for researcher Olmedo, raises a further problem in identifying effectiveness.

"Reach should never be a success outcome," she says. "Many campaigns say they reached a certain number of people on social media. But there has been a lot of research that shows that simply giving people information does not mean they are actually going to remember it or act upon it."

But anecdotal evidence from campaigns may suggest reach can make an active difference.

"Our VIP video is by far the most watched on our social media channels," McCormack from German Zero says. "People respond to it very directly. A lot of volunteers of all ages heard about us through that video."

However, some marketing studies have shown that celebrity endorsement of a cause or product can distract from the issue itself, as people only remember the person, not the content of what they were saying.

Choosing the Right Celebrity

Celebrity choice is also very important. Campaigns that use famous faces are often aiming to appeal to members of the public who do not necessarily follow green issues.

For certain campaigns with clear target audiences, choosing a climate scientist or well-known environmentalist rather than a celebrity could be more appealing — Attenborough is a classic example. For others, images and videos involving cute animals may be more likely to get a message heard than attaching a famous face.

"We choose celebrities who have a lifestyle where they are already talking about these issues," says Marchildon from the UN. "You need figures with credibility."

McCormack cites the example of Katharine Hayhoe, an environmental scientist who is also an evangelical Christian. In the southern United States, Hayhoe has become a celebrity in her own right, appealing to an audience that might not normally be interested in the messages of climate scientists.

But as soon as you get a celebrity involved, campaigns also put themselves at risk of the whims of that celebrity. Prince William and younger members of the royal family have come under fire in recent years for alleged hypocrisy for their backing of environmental campaigns while simultaneously using private jets to fly around the world.

But Does It Really Work?

While environmental campaigns hope that endorsement from well-known figures can boost a campaign, there is little research to back this up.

"The biggest finding [from my study] was that we were unable to produce any evidence that shows that celebrity endorsement of environmental causes makes any difference," says Olmedo.

This will come as a blow to many campaigns that have invested time and effort into relationships with celebrity ambassadors. But for many, the personal message that many celebrities offer in videos like that produced by German Zero and campaigns like the Earthshot Prize are what counts.

The research may not prove this conclusively — but if the public believes a person they respect deeply personally cares about an important issue, they are perhaps more likely to care too.

"I personally believe in the power this can have," says Marchildon. "And if having a celebrity involved can get a single 16-year-old future leader thinking about environmentalist issues — that is enough."

Reposted with permission from DW.

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