Displaying items by tag: OPEC
The oil market has been the story of the week for markets. The price of black gold fell to -$37 dollars on Monday. The market would technically pay you to take oil off its hands. Even at $20, most of the US oil industry is out of business, so what can the President and the government do to save the market? There are several options. For instance, the government could buy a hundred million barrels of oil for its strategic reserve, or it could create new storage space. However, the option the markets favor is for the government to buy mountains of oil while it is still in the ground, and have producers pay them back as they extract it.
FINSUM: If the government wants to save the US oil industry from a mass bankruptcy—and resulting rupture in the high yield market—it will need to take action.
The sole bright spot in markets today is the big jump in oil prices. US oil rose about 10% earlier today on an announcement by President Trump that a deal between Russia and Saudi Arabia was close. The two parties have ben locked in a price war, which alongside the virus, has conspired to bring oil into the teens from a high of around $63 per barrel in January. Trump says a deal could happen within a “few days”.
FINSUM: Oil hit an 18-year low this week. In our opinion it is only a matter of time until oil producers come to an agreement to try to fix prices higher.
If there was ever a time to take a hard look at investing in oil, this might be it. Black gold just hit an 18-year low, falling under $20 per barrel. Evidently, in physical oil markets, barrels are already changing hands for $10 each. The market is grappling with a price war at the same time as a massive glut of excess oil at a time of sharply shrinking demand.
FINSUM: Two thoughts to weigh here. On the one hand, oil was recently at $63 a barrel (in January), so this is a very substantial fall, which means a potentially great buying opportunity. On the other hand, oil is not nearly as scarce as many thought at the start of the last decade, so it is not inconceivable that prices could stay low for a long time.
Generally speaking, when oil prices fall it is considered good for the economy as it unleashes excess consumer spending. This is what happened in the last big drop in 2014-2015. However, this time around, there are likely to be no winners from the drop. Because the huge fall in prices is coming at a time of significantly reduced economic demand because of the coronavirus, it is hard to imagine that much excess economic activity will be created to account for the drop in oil-related industries.
FINSUM: Supply and demand are tumbling simultaneously across the economy (not just in oil), so it does not seem this will be a net positive like it has been in the past.
Markets are plunging today, and the reason for the huge fall is the complete collapse of the oil market. The trouble is occurring because a price war is erupting in the oil market with Saudi Araba announcing that is was boosting production this morning. The move came as a response to Russia refusing to agree to production cuts to help insulate the market. The oil market responded by falling an eye-watering 30%. That immediately sent stocks plummeting too.
FINSUM: The market is doing its very best to compel Russia to agree to curb production. Surely a production cut wouldn’t cost them 30% of revenue!!