Have you been tracking the price of crude oil?
Here’s the price chart for West Texas Intermediate crude (WTI) so far in 2020:
After hitting US$62.70 per barrel on 7 January, WTI plunged to US$31.13 on Monday. A loss of 50.4%!
What’s going on?
Record production from the US shale revolution has long been putting downward pressure on oil prices. Demand fears — first from the US-China trade war and now from coronavirus recession implications — exacerbated oil’s decline.
Only OPEC+ has managed to keep WTI from collapsing below US$50 per barrel.
But no more.
Russia — the world’s third largest producer and the key ‘plus’ member — has had enough. The Russians failed to agree on further production cuts to artificially prop up crude prices. And the Saudis threw a fit.
Saudi oil giant Aramco says it will up production by 25% over last month’s levels. Returning the serve, Russian Energy Minister Alexander Novak says Russia may up its own production by 500,000 barrels per day.
If the world was awash with oil before, this could usher in a flood of biblical proportions. More so if the other OPEC members open their own taps wide…as is quite likely.
This is both good and bad news.
First the good news.
Low energy costs are good for households and most businesses.
Petrol costs in Australia are forecast to fall to…or below…$1.00 per litre. That would leave more money in many people’s pockets than the RBA’s last rate cut is expected to deliver. Money not based on cheaper debt. It will also offer a much-needed lift to the struggling airline and transport industries.
The bad news is that the majority of US shale companies need a price of around US$50 per barrel to be profitable. Meaning the next few months could see some of the weaker players go under.
And there’s plenty of risky debt involved in the sector. Debt that’s held by a lot of large banks. If oil stocks begin to default the resulting credit crunch could spread.
This is a market to watch closely.
And if you’re worried about an epic meltdown on the horizon, you’re not alone.
Famed US futurist Harry Dent believes 2020 will be a year to remember. Or rather forget.
You can find out why he believes we’re in for a ‘crash of a lifetime’ in his new research report.