Displaying items by tag: energy

(New York)

This is a dark day economically. New data is flowing in from many sources, and all of it is pointing to a severe decline in demand that seems ever more likely to push the US into a depression. Unemployment claims came in at another 6.6m this morning, meaning a total of 16.6m Americans have applied in the last three weeks. In other data, fuel and energy demand has fallen so far that it is now at 1960s level. Electricity usage has plummeted on the back of the sharp decline in industrial output.

FINSUM: Let’s do some rough calculations. The US workforce is about 164m people. We started this coronavirus lockdown with just under 4% unemployment, and have since added 16.6m people. By a rough calculation that means we likely have already hit 14% unemployment.

(Houston)

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.

(Houston)

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.

(Houston)

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!!

(Washington)

Elizabeth Warren’s ascendency to being the leading candidate for the Democratic presidential bid, coupled with her strongly leftist policies, has begun spooking various sectors. Energy is ground zero. The reason why is a tweet recently fired off by Warren: “On my first day as president, I will sign an executive order that puts a total moratorium on all new fossil fuel leases for drilling offshore and on public lands … And I will ban fracking—everywhere”. If that eventuality happened, it would greatly wound the US oil industry. Entire oilfield services industries would cease to exist in the US, and Canadian shale would be the big winner, along with huge oil companies, where the price gains from the tightened supply would offset other losses.

FINSUM: Analysts estimate this would send oil prices up around 60%, but it would really hurt the US oil industry.