Oil, Oil and More Oil…. Part 2

Hi everyone.  This is Bradley again with the rest of my BLOG post on oil.  As promised, I want to share what has happened to oil prices in 2020 and even more importantly, why we all care about that!

Although Russia is not officially part of OPEC, it has generally cooperated in their supply agreements. Since 2017, OPEC and Russia have consistently tried to cut their production to maintain high oil prices. However, this deal came to a head in early March 2020. In the midst of probable decreases in oil demand due to economic slowdown related to COVID-19, OPEC demanded that Russia cut its oil production further. Russia refused, and in response Saudi Arabia (the world’s largest producer of oil) flooded the world market with oil. Thus, oil prices in the world collapsed (Brent crude dropped from $45/barrel to $30/barrel overnight and is now trading at $26/barrel.)  Oil prices actually went negative briefly in late April as oil storage tanks were used up due to a lack of customer demand.

Now, what does this mean for us? Most obviously, it will cause a decrease in gasoline prices at the pump. US oil producers may be hurt significantly since many of them are not profitable with oil at current prices.  Possibly prices of other products will decline as a result, but that will be difficult to determine with so many other factors involved.    

Now for some input from LFS:  What does this all mean to us?   As consumers, it is clear that gas prices are lower; now if we only had somewhere to go.    As investors, the collapse in oil has contributed in no small way to the market volatility we are experiencing.    Are there investment opportunities here?  Maybe – at least for the non-squeamish among us.   And as global citizens, it’s clearly just another example of how interconnected we are.